Top Chapter 7 Bankruptcy Lawyers Serving Jacksonville and Orlando Florida

Chapter 7 Tips - Personal and Business Bankruptcy

According to U.S. Bankruptcy Code, to qualify for relief under Chapter 7, the debtor may be an individual, a partnership, a corporation or other business entity. A Chapter 7 differs from a Chapter 11 or Chapter 13 bankruptcy because the debtor eliminates most debt without having to repay their creditors.

A common misconception about personal bankruptcy (Chapter 7 for individuals) is that the debtor will face a total liquidation of their assets in order to become "Debt Free". This is not necessarily true. When filing Chapter 7, you are given exemptions and allowances to keep specified assets such as your homes, cars, household furnishings, and most retirement accounts. In the State of Florida for example, 100% of your homestead equity is protected. Under Chapter 7, if your exemptions are less than the total value of the assets you own, the Bankruptcy Trustee will allow you to "Buy Back" the non-exempt assets over an agreed period of time. In general, your bankruptcy attorney can negotiate buy backs through a 10 to 12 month plan with no interest payments. If you have too many assets and can't afford the buy back, then you can file for debt protection under Chapter 13. A Chapter 13 Bankruptcy allows you 3 to 5 years to complete a buy back of your assets. Some exemptions for Florida residents under Chapter 7 Bankruptcy are discussed below.

Chapter 7 eligibility for relief is determined by conducting two (2) tests of an individual's income and expenses. The Means Test compares your household income derived over the last 6 months to a similar-sized household in Florida. If the income is lower than the average, then the qualification for the means test is satisfied. If only one spouse files for Chapter 7 Bankruptcy, all income for the household (with a few exceptions) must be included in the Means Test. The second test is called a "Good Faith Test". This test compares all income (with no exceptions) at the time of filing against all necessary living expenses that the household will have after filing bankruptcy. If the expenses exceed the income, the person or persons qualify. Filers that exceed the income limits may seek relief under Chapter 11 or Chapter 13 instead.

Businesses that file Chapter 7 are typically closed or in the process of closing. There is no specific test for eligibility or exemptions. Instead, a Chapter 7 Bankruptcy for business is a true liquidation of all business assets with the proceeds distributed to the creditors of the business. Any remaining money is distributed to the owners of the company or business.

How can filing Chapter 7 help me?

• Chapter 7 can temporarily Stop Foreclosure of your home. So, this is often the choice for filers who want to surrender their home. By filing Chapter 7, the foreclosure proceedings are stopped allowing you additional time to move without recourse for the unpaid loan. Another advantage of filing before your house is sold in a foreclosure is the elimination of tax liability for the short sale. In most cases, the mortgage company will send the debtor a 1099 for the deficiency (or unpaid) balance after the foreclosure sale. This difference is considered to be income. Filing after a foreclosure happens may not discharge your IRS tax liability.
• Chapter 7 can Stop Wage Garnishments. After creditors get a judgment against you in a State Court they have the right to garnish up to 25 percent of your net wages if you don't qualify under state law as the head of household.
• Chapter 7 can Stop Bank Account Garnishments. In some cases, if the money in the bank account has been frozen by a creditor but has not been released, we can get it back. But, after a creditor receives a judgment against you, they do have the right to garnish your bank accounts if you don't qualify under state law as the head of household.
• Chapter 7 can Stop Creditor Harassment. When a debtor files for Chapter 7 bankruptcy, a protective umbrella encompasses the debtor. This umbrella is called the Automatic Stay. Creditors are NO longer allowed to contact you regarding the debt. If they do, it is a violation of the stay. If damages occur, the creditor can be held liable for their actions.
• Chapter 7 can give you a fresh Financial Start and allow you to breathe again. The main purpose in filing Chapter 7 is to discharge all (or most) of your debts. If deemed non-dischargeable, some debts will survive the bankruptcy. A few examples are most IRS debt, child support, alimony, wages or student loans. Other debts for credit cards, medical and hospital bills, deficiency judgments on repossessed vehicles or houses, bad debts, signature loans, etc. are dischargeable. Under Chapter 7, an automatic stay prevents creditors for contacting you about the debt and creditors can be held liable for willful violations.

Assets that can be protected under Chapter 7 exemptions

The following is a list of exceptions under Florida law that are generally allowed. However, it is important to note that there are many exceptions, and the determination of all of the exemptions you may qualify for can only be accomplished on a case-by-case basis:

• Homestead:

  The Constitution of the State of Florida permits a filer to claim his homestead exempt from the claims of creditors. Provided the property does not exceed the applicable restrictions on acreage, the exemption allowed is of an unlimited value. There are limitations and exceptions to homestead exemptions for those who have recently moved to or purchased a home in Florida. Always consult with an attorney to determine your exact exemptions.

• Personal Property:

  The Constitution of the State of Florida also allows for a claim of $1,000 of personal property to be exempt as well as tenancy for certain property owned by a husband and wife. Florida Statutes also provide for an additional $4,000 of personal property exemptions for filers who do not claim or receive benefits from a homestead exemption. If both the husband and wife file Chapter 7 bankruptcy, they each are entitled to these exemptions.

• Annuities & Life Insurance Policies:

  Annuities and life insurance policies (in an unlimited value) are exempt from creditor claims and the bankruptcy estate.

• Automobile:

  For a given vehicle, $1,000 of equity is an individual's allowed exemption.

• Wages:

  With some restrictions, wages earned by the head of the household are eligible for exemption.

There are additional exemptions allowed under Florida Law which include, but are not limited to, unemployment compensation, medical items, such as wheelchairs, prepaid college funds and disability income. There are additional exceptions a filer may be eligible for under Chapter 7 that are not listed above. Always consult with an attorney before making any type of bankruptcy exemption claim.

Should I surrender my house to foreclosure before filing?

It's best to file the Chapter 7 before a foreclosure sale to prevent receiving a 1099 for the deficiency or unpaid balance. The IRS will tax a debtor for the difference in what the mortgage company was owed at the time of the foreclsoure and the amount received through the sale. Example: If you owe $250,000 on your house and it sells at the foreclosure sale for $150,000, the mortgage company will send a 1099 to you and the IRS for the difference, $100,000. This amount could be added to your gross income in the year the foreclosed property was sold causing a huge tax liability. Most tax liabilities are non-dischargeable. So, we recommend filing bankruptcy before the sale and preferably before any judgment against you. In some cases, there are tax provisions that may prevent the 1099 income from being taxed. Always consult a tax attorney beforehand for this type of advice.

How often can you file Bankruptcy?

1. Filing Chapter 7 after a Chapter 7 Bankruptcy?
   You can file chapter 7 after 8 years from the date of filing the first chapter 7 filing date (not the discharge date).
2. Filing Chapter 13 after a Chapter 7 Bankruptcy?
   You can file chapter 13 any time after filing chapter 7. But, you can't get a discharge in the chapter 13 unless the chapter 13 bankruptcy is filed 4 years after the filing date of the chapter 7.
3. Filing Chapter 7 after a Chapter 13 Bankruptcy?
   You can file chapter 7 after 4 years from discharge date of the chapter 13 (or anytime after the discharge of the chapter 13) as long as your chapter 13 to unsecured creditors is 100% paid.
4. Filing Chapter 13 after a Chapter 13 Bankruptcy?
   You can file chapter 13 anytime after the discharge date or dismissal of the previous chapter 13. However, if a discharge was received in the prior case and that case was filed less than 2 years prior, you cannot receive a discharge in the subsequent case. But, you are protected by the "Automatic Stay". If the previous chapter 13 was dismissed, you can re-file at anytime but there are some rules to be addressed regarding the Stay. Always contact an attorney if you have previously filed bankruptcy.

If you had a case pending in the past year, then the "Automatic Stay" is only good for 30 days. To extend the stay beyond 30 days, a motion to continue the stay must be filed. If you had more than one case pending in the past year, then the stay is not automatic and a motion to impose the stay must be filed. A hearing must take place within 30 days of filing the case or you are not protected. If the case gets confirmed, you can argue the automatic stay is reactivated.

What is a Buy Back?

A "Buy Back" case is where the debtor makes an offer to purchase their unencumbered, non-exempt assets back from the Trustee. When you file chapter 7, you are required to list all your assets. Your attorney will then put your state and constitutional exemptions on these assets to protect any equity they may have. If they can't be completely protected, then the Trustee has the right to sell them to the highest bidder. Generally, that is the debtor. Your attorney will make the offer to buy back the equity in the assets and request that the payments be made over a period of time. Generally, most trustees will allow 10-12 months with no interest for a buy back. This way the person isn't forced to give up their vehicle and or personal belongings that can't be exempt. Please hire an attorney. The cost of an attorney will likely be less than the property value you might lose because you didn't know the law.

Why does the Court assign a Chapter 7 Trustee?

In short, a Trustee is a person appointed by the United States Department of Justice to review a bankruptcy case and investigate the debtor's assets. A main goal of the Bankruptcy Trustee is to make sure they have an accurate accounting of the debtor's assets. This allows the Trustee to determine if any of the assets are subject to the Court's control. If the assets are not encumbered by a creditor's lien or protected by Florida's constitutional exemptions, as provided to each debtor by state law, then the Trustee has rights to the asset and can sell your assets to the highest bidder. In Jacksonville, Orlando and Daytona Beach, Bankruptcy Trustees in the Middle District typically allow the debtor to "Buy Back" their assets at a reasonable value.

Most debtors who file bankruptcy are having financial problems. Trustees will oftern allow the debtor to make payments over 10-12 months to make the buy back manageable, especially for situations where you own something outright, like a vehicle. The Trustee will allow any exception and allow the debtor to keep the vehicle while making equal payments for the balance of the asset's value. An important job of the Trustee is to prevent bankruptcy fraud. The Trustee is allowed to investigate and ask questions of the debtor about any of their past financial transactions. If the debtor has done something wrong, the Trustee can request the Court revoke or disallow the bankruptcy discharge. Remember, the Bankruptcy Court was established to serve honest, but unfortunate debtors, who cannot afford to pay their bills.

What are the Pitfalls of Chapter 7?

Chapter 7 Bankrutpcy has pitfalls and you should always hire an attorney to guide you through the legal process. If you fail to do so, then you may lose assets that could cost you more than a good attorney. A good Bankruptcy Lawyer should be able to prevent the majority of your assets from being taken by the Trustee. By placing the correct State and Constitutional exemptions on your assets, you should get a fair deal. Should the overall value of the assets exceed the exemption amount, then a "Buy Back" is a good option. If the buyback is too high, then you may have to consider filing a Chapter 13 Bankruptcy for debt protection.

Most of the Pitfalls of Chapter 7 Bankruptcy are associated with your Trustee. A Chapter 7 Trustee finds non-exempt assets and will be sell your property to pay your debtors. Assets that are generally at issue are vehicles paid-in-full with an equity above $3,000.00, money in bank accounts, CDs, investment accounts that are not considered retirement accounts, your next year's tax refund, your children's bank accounts (in your name), vehicles that you transferred ownership within the last couple of years, recent gifts, and repayment of loans to family members or friends.

When you file Chapter 7 Bankruptcy you have to complete a petition with schedules. In those schedules, you are required to answer certain questions that relate to assets and financial issues like those mentioned above. It is very important to answer all questions truthfully. If you don't and the trustee finds out, then you can be criminally prosecuted and lose your bankruptcy discharge. By telling the truth, you allow your attorney to address all issues and assets before you file. In most cases, if you tell your bankruptcy attorney about your assets, he or she can find a way to protect them. If not, they can discuss your Buy Back or options for filing Chapter 13 Bankruptcy.

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