ALL YOU NEED TO KNOW ABOUT BANKRUPTCY
Bankruptcy is fast becoming a common trend in America, Florida inclusive, as many people and businesses battle with economic upheavals and life’s hurdles. As more and more individuals and businesses file for bankruptcy gone are the days when filing for bankruptcy is viewed in a disapproving light. Yet, most of us do not fully understand bankruptcy, its process and how it affects your debt.
What is Bankruptcy?
So many life challenges –job loss, emergency health conditions, student loans, divorce and so much more – can incur huge, unexpected debts. These debts often start out manageable but build faster than one can imagine if even one payment gets missed. When drowning in debt it is only natural to begin to look for an escape route, a safety net.
Bankruptcy may not instantly make all your financial problems go away, but it can provide reprieve and, in some cases, provide you with that safety net that that you are looking for. As different loans and debts mount that are beyond your ability to pay, you may file for bankruptcy, and officially declare your inability to repay your debts. Bankruptcy legally offers a debtor a way out of debts, affording you a second chance, a fresh start. It allows options for reorganization, repayment, or forgiveness of debts.
When we talk about debts we say they are either “secured,” which means the creditor has a lien over your property, or they are unsecured, which means there is no lien over the property. Unsecured debts are those like credit cards, medical debts and other judgments.
Types of Bankruptcy
There are three main types of consumer bankruptcy that we deal with. Each type is named after its corresponding chapters in the Bankruptcy code of the United States. Some of the common bankruptcies include Chapter 7, Chapter 11 and Chapter 13 bankruptcies. Other types of bankruptcy relief include Chapter 9, Chapter 12 and Chapter 15.
Chapter 7 Bankruptcy
This is a common and simple bankruptcy often referred to as a “straight bankruptcy” or “liquidation bankruptcy.” An individual or married couple lists all his or her assets and liabilities out on bankruptcy “schedules,” or pre-approved bankruptcy forms. Assets are your property- real estate, money in the bank, coin collections, microwaves, motorcycles, etc..
Debtors are entitled to keep all their assets up to a certain value, depending on the laws of the debtor’s state (or the federal government if the state laws are silent). These assets are called “exempt” assets. Any assets over the state limit are considered “non-exempt.”
If the debtor(s) has non-exempt assets then a bankruptcy trustee may sell the assets off to repay creditors. Any of the debts that cannot be repaid from the liquidation proceeds of a trustee sale (if any) will be discharged.
“Discharged” means that creditors may not collect the debt ever again.
There are certain income requirements to file a chapter 7 and chapter 7 is unavailable to individuals who own real property over a certain dollar amount. Chapter 7 is not generally a good option if a debtor is trying to stop the repossession of a vehicle or foreclosure of a home because chapter 7 does not allow debtors to catch up missed payments.
Individuals are only allowed to obtain a chapter 7 discharge every eight years. Debtors may “reaffirm” certain finance agreements in a chapter 7, but only with Court approval. Because a ‘fresh start’ is so valuable and only available every eight years, Courts are understandably reluctant to allow debtors to remain in high interest or high payment contracts after filing for bankruptcy relief.
Debtors are required to take an approved credit counseling course prior to filing a chapter 7 bankruptcy and must take an approved financial management course prior to obtaining a discharge. The average chapter 7 bankruptcy case takes between 90-120 days to finalize. Debtors are required to attend a meeting of their creditors, referred to as the “341 meeting.” We accompany all of our clients to their 341 meeting and to any reaffirmation hearings.
Chapter 11 Bankruptcy
This reorganization bankruptcy is basically considered a business bankruptcy though individuals can also file Chapter 11. It allows businesses to restructure their debts while still having control and possession of their business. However, the debtor can no longer make most other decisions independently.
The debtor is expected to provide a plan which restructures debts in a manner that must be approved by the creditors and the judge.
If a debtor’s debt exceeds that legally allowed in a Chapter 13 bankruptcy, then Chapter 11 is the next option. Chapter 11 can be time consuming, complicated and expensive.
Chapter 13 Bankruptcy
Chapter 13 is the most common consumer bankruptcy filed by people who are trying to avoid repossession or foreclosure. The filing of a bankruptcy can “stay” or stop a repossession or foreclosure from happening. The debtor then proposes a repayment plan which includes the arrearage, which is made up of the missed payments, collection costs, etc., and the regular payments going forward. If the debtor can show that he or she has the income to make the regular payments and make up all the missed payments, the debtor’s plan is “confirmed.”
The chapter 13 repayment plan is based on the debtor’s income. Sometimes the debtor has sufficient income to pay secured creditors and unsecured creditors. In other cases the debtor’s income is only sufficient to repay his or her secured creditors. At the end of the debtor’s chapter 13 plan period the debtor will receive a discharge just like the chapter 7 debtor.
A debtor may file for chapter 13 bankruptcy protection once every four years, but the repayment plan must be ‘feasible,’ which means that the debtor has enough income to pay their regular bills, necessities like groceries and utilities, and the chapter 13 plan payment.
Certain debts can be “crammed down” in a chapter 13 bankruptcy. For example, if you bought a car more than 920 days ago and the car is upside down, you may be able to prove the car is worth less than what you owe on it, and you can pay the value of the car back over the life of the chapter 13 plan.
Are Bankruptcies Public Record?
When you file for bankruptcy it is automatically entered into the public record, though the news will probably not make headlines. Anyone seeking information about you or your business will probably have access to your bankruptcy records from the bankruptcy court.
The details of your bankruptcy file are also available online via the Federal court’s PACER account. In addition, the information about your filing for bankruptcy is evident in your credit report for up to 10 years, depending on the type of bankruptcy filed.
When should you file bankruptcy?
Determining whether or not the time is right to file for bankruptcy can leave you anxious and uncertain. The fact that you are even considering bankruptcy is enough to fill you with dread. If your creditors are always on your neck, your bills keep rising, you are making minimum payments on your credit cards and are not even aware of the exact amount you owe, then maybe you should begin to think seriously about filing for bankruptcy.
But before you file for bankruptcy;
- Critically examine your budget to see if you can free up some cash
- Consider direct negotiation with your creditors
- Attend credit counseling
How to claim Bankruptcy
- Assess your financial situation and assemble your financial records.
- Acquire credit counseling online or via phone call.
- Employ an experience bankruptcy attorney
- Attend the legal proceedings and
- Claim your bankruptcy
The federal government of the United State has special courts set up solely for handling all forms of bankruptcy cases. The court proceedings are governed by federal laws.
Each judicial district will cater to the filing and hearing of bankruptcy cases within its jurisdiction based on the location of the debtor or the business.
The federal bankruptcy courts in Florida include
- US Bankruptcy Court for the Northern District of Florida
- US Bankruptcy Court for the Middle District of Florida
- US Bankruptcy Court for the Southern District of Florida
On a final note, it should be said that it is risky to file for bankruptcy especially on your own without an experienced bankruptcy lawyer. The process is complicated and requires knowledge of the process to make sure that you get the best outcome possible.