Bankruptcy is a legal process in Federal Court by which an individual or a company can get protection from creditors immediately upon filing a bankruptcy petition. Once your petition is filed, creditors cannot repossess your car or take any other action to collect a debt. Through the process of bankruptcy, debts will either be restructured to more affordable terms or eliminated altogether.
Bankruptcy laws allow you the opportunity to:
By the conclusion of a bankruptcy proceeding in any bankruptcy chapter, your debts have either been restructured on more favorable terms to you or they have been eliminated in its entirety Sometimes, there is a combination of both. For example, you owe $10,000 on your car but it’s only worth $6,000. In a Chapter 13 bankruptcy, you will restructure $6,000 and pay if off over 3 to 5 years and the remaining $4,000 is eliminated.
Financial stress! Sometimes, life just happens and for whatever reason, you cannot pay your bills, mortgage or car payment. The recent coronavirus crisis is a perfect example where people became unemployed overnight and were unable to find other work. Other reasons include divorce, unexpected medical bills, death of a spouse, too much credit card debt – there’s many reasons that people find themselves considering bankruptcy.
The biggest advantage of filing bankruptcy is the power of the automatic stay to stop creditors from taking any action to collect on debt. Other advantages include:
The bankruptcy automatic stay is triggered upon the filing of a bankruptcy petition and will stop creditors from taking any adverse legal action against you such as repossessing your car or selling your house at a foreclosure sale. It also stops them from continuing to call you, stops them from suing you or stops a credit card lawsuit if it has already been filed. In short, the automatic stay stops them from contacting you in any way.
Although bankruptcy laws confer great power to cure financial problems, it doesn’t fix every financial issue. In bankruptcy, all creditors have rights also and some creditors have more protection than others:
A Chapter 7 bankruptcy will remain on your credit report for 10 years from the day of filing. A chapter 13 will remain on your credit report for 7 years.
How often can I file bankruptcy?Sometimes, it is advantageous to file another bankruptcy even if you don’t get a discharge. For example, after completing a Chapter 13 and getting a discharge, you want to eliminate a second mortgage on your house that won’t work with you. You can file another Chapter 13 to either eliminate the second mortgage (if eligible) or catch up on the payments. A discharge doesn’t matter since you already eliminated your debt but you are using the Chapter 13 to force the creditor into a payment plan.
Chapter 7 bankruptcy is most commonly referred to as the “liquidation” bankruptcy. A Chapter 7 requires the trustee assigned to your case to liquidate any unprotected assets and distribute the funds to your creditors, pro rata. In both chapters, the creditors are entitled to the value of your unprotected assets. If you want to keep your assets, you must then file a Chapter 13 where you still have to pay the creditors the value of the assets, but you can do it over time and still keep them.
Chapter 13 bankruptcy is the reorganization bankruptcy chapter. Under formulas dictated by the bankruptcy code, It requires you to file a payment plan with the court wherein you will pay the creditors the value of your unprotected assets or your monthly disposable income – whichever is greater.
Chapter 11 is the chapter of the bankruptcy code that allows businesses to continue operating the business while it reorganizes and restructures its financial affairs. A Chapter 11 bankruptcy is a very expensive undertaking and most small businesses just don’t have the money to go through a formal Chapter 11. For this reason, Congress recently enacted a subchapter 5 in Chapter 11 that removed the requirement for many of the more expensive and time intensive requirements of Chapter 11 if your business qualifies.
A small business that cannot afford to file under regular Chapter 11 can file under Chapter 11, Subchapter V, if they qualify. A company must not have total debt (both secured and unsecured) that exceeds $2,725,625. If a debt is either contingent or unliquidated, it does not count towards the total debt ceiling. One-half or more of the debt must have been incurred from actual business reasons, as opposed to personal reasons. If your company is a single asset real estate holding company, it is not eligible for debt relief under Subchapter V. There are many more considerations when deciding if the SBRA Subchapter V is right for your small business and its best to check with a bankruptcy attorney.
There are two separate expenses to consider when filing a bankruptcy. There are fixed costs such as the court filing fee, credit reports, etc and the attorney legal fees. The filing fee in Florida for a Chapter 7 is $335 and $310 for a Chapter 13. When you add in the credit reports and other costs, the average total in costs is between $460 and $500. If you can’t pay the filing fee in its entirety, you may ask the court to allow you to pay the filing fee in installments. Attorney fees in the South Florida are for a Chapter 7 average between $1,200 and $2,500 depending on the complexity of your case and the basic Chapter 13 fees are capped by the court at $4,500 plus any additional services that you want to take advantage of when filing a Chapter 13. Those may include cramming your car’s loan balance or interest rate, getting rid of a second mortgage, detaching a creditor judgment lien off you house, etc.
Some attorneys offer very little down (or zero down) Chapter 7 bankruptcy and you make payments on the attorney fees after you file. The overwhelming majority of Chapter 13 bankruptcy attorneys will accept the bulk of their fees through your bankruptcy payment plan. Check around to find an attorney that will make bankruptcy affordable for you.
Florida law is used for exemptions (protection) of personal property. Under Florida law, you are entitled to the following exemptions
For a more comprehensive list of exemptions, click here.
In a bankruptcy filing, the “value” of property is not what you paid for it back when you bought it. Property in bankruptcy is valued at what it’s worth on the day you file. In the case of furniture, personal belongings and cars, the question to ask yourself is “if I had to sell this today, what would I get for it?” In most cases, this will be far less than what you paid for it.
Bankruptcy will wipe out or eliminate the overwhelming majority of your debt. There are some exceptions:
You will only have to go to a “341 meeting of creditors” after filing your bankruptcy case. Most of the time, this meeting is a short meeting where the trustee that has been assigned to your case will ask you questions about the information contained in your bankruptcy petition, your financial situation, and check your identification. There may be times that a creditor challenges your discharge which will require court appearances but those are very far and few in-between and your attorney will most likely be the one going to court.
Most of the time, your credit is already shot which is why you’re considering bankruptcy. So, although there will be a 100 to 150 point drop in your credit score, most people won’t see any difference in their credit. The good news is that filing bankruptcy will raise your credit score faster than not filing bankruptcy. That is because once you stop paying on a credit card, eventually that debt gets sold between debt collection companies over and over again resulting in a never-ending series of “new” delinquent debt on your credit report. Bankruptcy prevents this. You take the one hit, it stays on your credit report for 7 or 10 years depending on the chapter you file under but your credit starts going up immediately because your debt to income ration just became fantastic! You will also start getting credit offers in the mail sooner than you think allowing you to start rebuilding your credit right away.
Credit card offers will start appearing in your mailbox relatively soon after filing bankruptcy. You can also get a secured credit card by depositing money with your bank and showing that you are credit-responsible again. The key after a bankruptcy is to never be late on a payment. Never. Ever. If you file bankruptcy with us, you will be enrolled in a credit rebuilding program that will teach you how to rebuild your credit for fastest results.
If your license was suspended because of financial reasons, bankruptcy will allow you to get it reinstated by presenting the proper paperwork to the proper agency.
If someone co-signed a loan for you, the creditor can go after them for full payment if you file bankruptcy. Make sure that you tell your bankruptcy attorney if this situation is present so you can work around it, find a solution or time the filing of bankruptcy properly.
No, you can file bankruptcy without including your spouse. However, your spouse’s income will have to be included in the means test and other calculations. If your spouse is a co-signor other otherwise legally responsible for any debt that you’re including in your bankruptcy petition, they will still be responsible for it after the bankruptcy.
Yes. Once you file your bankruptcy petition, it triggers the “automatic stay” and the creditors must immediately stop contacting you and trying to collect any debt.
Yes. If a lawsuit has already been filed, a bankruptcy will stop the credit card lawsuit from going any further. If the creditor has already received a court judgment against you, it will stop any collection efforts like wage garnishment or freezing bank accounts. Once a creditor gets a court money judgment against you and files it in the county official records, it converts into a lien against any real estate that you own or will purchase in the future. You can avoid this by a legal procedure in bankruptcy court appropriately called “Avoiding a Lien.” It is an extra service for most bankruptcy cases but a very important one. Even if you don’t own real estate when you file, you may purchase a home later and it will attach to the home. That will stop you from refinancing in the future as mortgage companies will require you to get it removed. It’s better and cheaper to do it all at once than have to open your bankruptcy case years later.
Yes, but the timing is important. If your bank account has already been frozen, filing an emergency bankruptcy petition will force the creditor to give back the money if the bank already turned it over to them. When a creditor garnishes or freezes a bank account, the bank must wait a defined number of days before turning the money over. The best solution is to immediately file bankruptcy before the bank has turned the money over to the creditor. If you file during that waiting period, then the bank simply releases the hold on the money when we send them proof of a bankruptcy filing.
There are two different ways that you can stop a wage garnishment.
As soon as you file a bankruptcy petition, the court mails a notice to all the creditors listed on your petition. Some creditors are so respectful of the automatic stay, they automatically get a data dump from the bankruptcy courts nightly so they know immediately. Once a creditor receives notice, they must stop all collection attempts.
You can also tell a creditor that contacts you that you have filed bankruptcy and provide your bankruptcy case number. They must stop contacting you immediately
If a lawsuit is pending, your attorney will probably file a Suggestion of Bankruptcy within the court docket of your lawsuit and all proceedings will stop in the lawsuit.
Although there is a provision that says student loans may be discharged upon the showing of undue hardship, courts have interpreted that provision so harshly that you practically have to be on life support with a 2% chance of recovery to qualify. Okay, that’s a little exaggerated but it does demonstrate the difficulty in achieving this standard. For all practical purposes, the vast majority of student loans are not dischargeable under current law. There are grumblings in congress that they may change this provision in the bankruptcy code – we will keep a close eye on this.
Yes. All medical bills will be eliminated with a bankruptcy filing.
If you are filing a Chapter 7, you can file bankruptcy without a lawyer. Even though you can do this, it’s not advisable. Filling out the forms can be done but “you don’t know what you don’t know” about the bankruptcy laws. Many people have made the mistake of thinking that it’s only about filling out forms only to lose their car, home or other possessions because they couldn’t protect them under exemption law. It’s cheaper to get a lawyer then to replace a car. Many lawyers offer affordable bankruptcy payment plans. It’s worth the legal fees to have the peace of mind that either you won’t lose any assets or you are prepared to surrender an asset and have already made plans.
You can also file a Chapter 13 yourself but it won’t get very far. Chapter 13 bankruptcy is a very complicated chapter to file under that requires many court appearances and the knowledge on how to calculate the payment plan, how to get the most benefit from the bankruptcy code and it requires experience and knowledge. I’ve seen lawyers from other areas of law think they can do it themselves only to have to hire a bankruptcy attorney after filing. The Chapter 13 trustee’s will usually strongly encourage pro-se filers to get an attorney. Those that don’t usually have the case dismissed on procedural deficiencies within a short time.
In most cases, the answer is no. The answer will turn on the following factors:
Your auto loan lender cannot repossess your car while you are in an active Chapter 7 bankruptcy. They must wait until the case is over to repossess it. In a Chapter 7, you must decide whether you are going to keep the car and reaffirm the loan or surrender it to the creditor. If you surrender the car during the proceeding, you must turn it over within a short time frame after the 341 meeting. If you are behind on your car payments and want to keep your car, talk to an attorney about a Chapter 13 where you can keep the car and make up the missed payments.
You can file for a Chapter 7 if you are unemployed. A Chapter 13 is a wage earner plan and you must have some form of income in order to for a court to approve a repayment plan.
The 341 meeting of creditors is a formality where the trustee asks everyone a standard set of questions. They are free to ask any additional questions that they see fit during the actual meeting. In South Florida, these are some of the questions that a Fort Lauderdale bankruptcy trustee will ask.
This is one of the most important decisions you will make after you’ve decided to file bankruptcy. Many different factors should be considered such as experience, cost, competency and the overall vibe you get from the attorney and their staff. For more suggestions, click here.
So, one of the questions people ask often is how do I know if I’m a candidate for a personal bankruptcy? There’s no one answer but there are usually a number of telltale signs. Below are a few red flags that you may benefit from filing a Chapter 7 bankruptcy or a Chapter 13 bankruptcy:
Although everyone knows more about Chapter 7 bankruptcy, there are many situations where filing a Chapter 13 may be a better option for you. Some of those are:
The most widely known bankruptcy chapter is Chapter 7 bankruptcy. It’s time to consider a chapter 7 bankruptcy filing if:
To determine whether you are eligible to file a Chapter 7 bankruptcy, the bankruptcy code requires every debtor to apply a mathematical formula that is commonly referred to as the bankruptcy “Means Test.” The Means Test looks back at your income over the prior six months and determines whether you have enough disposable income left at the end of the month to pay back part of your debt to unsecured creditors. If the Means Test determines that you can afford to pay back something, then you must file a Chapter 13 payment plan. The good news is that the formula does take secured debt such as car payments, mortgage payments and other secured debt into account. A good bankruptcy lawyer can help you identify expenses that are deductible from your gross monthly income so that you can pass with flying colors!.
Although garnishment laws vary state-by-state, the list below is a very brief look at the wage garnishment relief available in Florida. Check your local state laws if you live somewhere other than Florida.