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:
- Eliminate most or all of your debts. At the end of the case, the Court issues an Order of Discharge which eliminates most debt and places a prohibition on creditors from trying to collect on a discharged debt.
- It can stop a foreclosure sale (or the process of foreclosure in any stage) on your house. Under a Chapter 13, you can catch up on delinquent payments over 3 to 5 years if you want to keep the house. The mortgage holders must accept the terms of your payment plan once approved by the court.
- Stops repossession of your car and allows you to make up the payments if you want to keep the car. Under certain guidelines, you may also be able to cram the loan balance to what the car is actually worth on the day you file.
- It will immediately stop wage garnishment, creditor phone calls and any other action to collect a debt.
- Either eliminate IRS debt or allow you to pay over 3 to 5 years without penalties and interest being added while you pay.
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:
- Stops foreclosure sales
- Stops wage garnishment
- Stops car repossession
- May eliminate IRS debt or gives you a chance to pay it off without further penalties and interest
The 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:
- Secured creditors are have lent you money and kept a security interest in collateral that you either bought or already had. The most common secured creditors are those holding mortgage loans and car loans. Although in a Chapter 13 bankruptcy, you can force secured creditors to accept a loan restructuring (only with a car), you must still pay the loan to keep the collateral. In the case of a mortgage, there is a Mortgage Modification Program in the Southern District of Florida that facilitates the mortgage modification process under court supervision.
- Some categories of debt are granted special treatment under the bankruptcy code. These include domestic support (child support or alimony), most student loans, most debts owed to government agencies, court-ordered victim restitution and criminal fines and some taxes.
- If someone co-signed on a loan for you, they are not protected if you file bankruptcy. Even if you get the debt discharged, the creditor has the right to require the cosigner to repay the loan. Bankruptcy will only discharge debts that were incurred before the filing date except for very limited exceptions upon conversion from one chapter to another.
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?
- If you filed a Chapter 7 and received a discharge, you must wait 8 years to file another Chapter 7.
- If you filed a Chapter 13 and received a discharge, you must wait 2 years to file another Chapter 13.
- Chapter 13 filed and now you want to file a Chapter 7: If you received a discharge under Chapter 13 and want to now file for a Chapter 7 discharge, you need to wait six years from the date you filed the Chapter 13 bankruptcy.
- Chapter 7 filed and now you want to file a Chapter 13: If you filed Chapter 7 and received a discharge, you have to wait 4 years from the date you filed the Chapter 7 to file a Chapter 13 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 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 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
- You may protect personal property up to $1,000. Personal property are things like furniture, electronics, firearms, jewelry, cell phones, ipads, and tools. If you do not claim the benefit of a homestead exemption on your home, you have an additional $4,000 that you can protect property or cars with. (Art. 10 Sec. 4, Fl. Constitution)
- College pre-paid plans, health savings accounts or hurricane savings account as outlined in the statutes. (Fla. Stat. Ann. § 222.22)
- Prescribed health aids. (Fla. Stat. Ann. § 222.25)
- Earned Income Tax credits and refunds (Fla. Stat. Ann. § 222.25(3))
- Funeral costs per Florida's Preneed Funeral Contract Consumer Protection Trust Fund (Fla. Stat. Ann. § 497.456)
- Disability income benefits received under any life, health or accident policy or other insurance of whatever form. (Fla. Stat. Ann. § 222.18)
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:
- Domestic support obligations such as child support or alimony
- Debts owed to government agencies such as court fines, code enforcement liens,
- and some taxes;
- Loans that you received because you gave false information on the credit application and the creditor reasonably relied on it when they approved the loan;
- Debts that are a result of “willful and malicious” harm (drunk driving is an example);
- Student loans unless you challenge them and the court decides that repayment would be an undue hardship;
- Mortgages and other secured liens on collateral. If you surrender the collateral in a bankruptcy or if it was repossessed before filing, you will not be liable for any deficiency judgment once the creditor sells the collateral.
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.
- If you qualify as Head of Household in Florida, you can file a Notice of Exemption with the Court to stop them from garnishing your wages. This may take a while for the garnishment to stop because the creditor may contest it and have it set for a court hearing. They are not required to stop the wage garnishment until a court orders them to if they contest it. You will have to go to court to show proof of your exemption status.
- You can also file bankruptcy and it will immediately stop the garnishment upon filing because of the bankruptcy automatic stay.
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 using the services of 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 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 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:
- whether your mortgage is current or not – a Chapter 7 will not help you keep your home long term if your payments are not current but upon filing, it will stop a foreclosure sale or temporarily stop a foreclosure lawsuit until the case is over. After the case is over, the bank can continue with their foreclosure. If you want to keep your home, talk to a bankruptcy attorney about a Chapter 13.
- How much equity you have in your home, if any, and whether you can protect it all under an available exemption. In Florida, there is unlimited equity protection if you’ve owned your home long enough.
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:
- You are getting a lot of collection calls and collection letters from debt collectors.
- You are being threatened or are a current defendant in a credit card lawsuit.
- You have car loans and mortgages that you would like to restructure if you can.
- You would like to get rid of your credit card debt and medical debt.
- A creditor is about to repossess your car or foreclose on your home.
- You have a wage garnishment against your paycheck or a garnishment against your bank account.
- You own a home or rental property that is underwater and would like to eliminate or reduce the balance on the loan.
- Lawsuits are being threatened by creditors or are already filed against you.
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:
- If you are unable to apply an exemption and protect an asset that you want to keep;
- If you are behind on your mortgage payment or car payment and you want to catch up on the payments to avoid foreclosure or car repossession;
- If the value of your home is less than what you owe on the first mortgage and you can get rid of a second mortgage, get a loan modification or catch up on payments that you’re behind on;
- If the value of your rental property is less than what you owe on the first mortgage and you can get rid of a second mortgage, or reduce the loan balance down to what the rental property is worth today and pay it off through your bankruptcy plan;
- If the value of your car is less than what you owe on the car loan and you want to reduce the balance of your car loan down to what the car is worth today and lower the monthly payment;
- If you have IRS tax debt, you can include these debts in your Chapter 13 plan and pay them off over time without additional interest or penalties. In some cases, you can get rid of the IRS debt completely if certain timelines are met.
- You’re behind on condo association dues and want to force them to take payments over a time frame that works for you - or they are either threatening a foreclosure action against you or already have a condo association foreclosure sale date set;
- You’re behind on homeowners association dues and want to force them to take payments over a time frame that works for you or avoid a homeowners association foreclosure lawsuit or HOA foreclosure sale
The most widely known bankruptcy chapter is Chapter 7 bankruptcy. It’s time to consider a chapter 7 bankruptcy filing if:
- You have a lot of unsecured debt that you can’t make the minimum monthly payments on - such as credit card debt, deficiency judgments, payday loans, personal signature loans, and medical bills;
- You are being constantly harassed by creditors, collection companies and debt collectors;
- You signed a personal guaranty on business debt and the business defaulted;
- You have been served with a wage garnishment notice, bank-freeze garnishment, or you’re are hiding your car from the repo-man while credit card lawsuits are being threatened against you or have already been filed against you;
- Your home is already in some stage of foreclosure, scheduled for foreclosure sale or a foreclosure lawsuit is being threatened by your mortgage company;
- You have been laid-off or otherwise lost your job, or had your hours reduced at work;
- You just got divorced and have been left with too much debt that you can’t repay;
- You are living paycheck to paycheck and always a paycheck behind. You are still unable to pay your bills even though you have cut expenses down to the bone and are still worried about money and getting harassing calls from debt collectors.
- You are tired of all of the above and ready to start over again with no debt and a ton of wisdom!
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 “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.
- You can always stop a wage garnishment by paying the debt in full though if you could do that, you probably would have already.
- You can stop a wage garnishment by claiming that you are exempt from garnishment. Florida law exempts head of households, income from social security and disability payments. You must fill out a Notice of Exemption and file it with the court in the credit card lawsuit that produced a judgment against you.
- You can immediately stop a garnishment by filing either Chapter 7 bankruptcy or Chapter 13 bankruptcy.