Bankruptcy may be the solution to settling your financial debts. Many individuals and corporations file for bankruptcy to be discharged from their debts when they find themselves in an unstable financial position. The Federal Bankruptcy Law, Title 11, governs the process of bankruptcy but our focus will be Chapter 7 of Title 11.
Introduction To Chapter 7 Bankruptcy In Florida
How Bankruptcy Saved My Family And How It May Save Yours
Chapter 7 Bankruptcy is a legal process designed to liquidate a person’s non-exempt assets to repay their unsecured debts. Liquidation means that the court will sell the debtor’s non-exempt property to repay their debts. Non-exempt property is generally classified as jewelry, artwork, second homes or motor vehicles. It includes any property that is not exempt from liquidation under the Florida bankruptcy law.
In Florida, an individual must be a permanent Florida resident for at least 2 years or a property owner to qualify for relief under Chapter 7 bankruptcy. The Florida bankruptcy laws can specifically be applied to your case if you reside in Florida for at least two (2) years prior to filing for bankruptcy. Individuals usually file for bankruptcy in their residential district while corporations file where they have their principal place of business or their location of assets which must be related to the business.
Florida applies a complex formula called the means test to determine a person’s eligibility to qualify for relief under Chapter 7 bankruptcy. The means test requires individuals filing for bankruptcy to earn below a specified amount which is calculated based on the median income of the state.
It is also a requirement that individual filers complete credit counseling prior to filing for bankruptcy and a debtor education course before the court grants the bankruptcy discharge.
Information regarding the means test and the completion of the financial courses in Florida can be found on the U.S Trustee website.
Process of Filing Chapter 7 Bankruptcy
- Pre-filing Bankruptcy Course- this is the first credit counseling course which must be completed within 180 days immediately preceding filing for bankruptcy. The pre-filing bankruptcy course must be completed with an agency approved by the U.S Trustee’s office. The debtor will receive a certificate of completion which must be submitted to the court upon filing for bankruptcy.
- Filing Petition– the bankruptcy petition is filed in the local bankruptcy court which creates a bankruptcy estate. The bankruptcy estate includes all the assets or property in which the debtor has an interest at the time of filing. The bankruptcy estate is managed by a trustee appointed by the court and all payments to the creditors will come from the estate. The debtor can file for claims of exemption to extract assets from the bankruptcy estate. The court charges a bankruptcy filing fee unless the debtor qualifies for a fee waiver. The cost for filing for bankruptcy is usually between $300-$400 in addition to any fees that will be charged by the bankruptcy lawyer or financial consultant.
- Disclosure of Debts and Assets- the debtor is required to provide a list of all creditors, and the nature of the debts owed to each and to disclose income and expenditures, assets, and liabilities and any other documents required by the court.
- Notice of Filing– once the petition is filed, the court prepares a notice of filing which is issued to all the creditors listed by the debtor. The creditors are prohibited from initiating any legal action against the debtors and all ongoing proceedings are ceased by an automatic stay pursuant to bankruptcy law 11 U.S Code 362. The creditors are also refrained from withholding the debtors’ property.
- Meeting of Creditors– a meeting of creditors is held between 20-40 days after the petition is filed as required under section 341 of the Bankruptcy Code. The debtor must be in attendance along with all the creditors and the trustee appointed by the court. The debtor’s petition for bankruptcy may be dismissed if he fails to attend the meeting. During the meeting, the creditors may inquire about the debtor’s assets and financial affairs. The trustee has a duty to examine the debtor at this meeting to ensure that he is aware of the potential risks or consequences of filing for bankruptcy. The creditors may also form a committee at the meeting. The members of the committee can query the administration of the debtor’s estate and provide suggestions to the trustee. The creditors cannot act on their own or receive any professional representation. They will have to send all queries to the court.
- Liquidation of Assets– the court appointed trustee will be responsible for administering the debtor’s non-exempt assets. The trustee sells the debtor’s assets and uses the proceeds of sale to settle the debts owed to the unsecured creditors. The trustee is only allowed to sell the debtor’s non-exempt assets. The trustee cannot interfere with any asset that is not a part of the debtor’s bankruptcy estate. The proceeds of sale will be distributed to the creditors based on the classes of claims outlined in section 726 of the Bankruptcy Code. The creditors are divided into classes based on the nature of their claims. The creditors that took the most risk are in the higher class and they are paid in full first. The creditors that took the least risk are in the lower class and they are generally paid last.
- Debtor Education- the debtor education course must be completed before the court grants the debt discharge. The purpose of the course is to teach you how to manage your finances and secure your credit after the completion of the bankruptcy process. The course can be completed with any state approved debtor education provider.
- Debt Discharge- the court generally grants the bankruptcy discharge to the debtor approximately 60 to 90 days after the meeting of the creditors. The discharge that flows from filing for Chapter 7 bankruptcy gives debtors an opportunity to obtain a new financial start. The discharge removes all debt and the obligation to pay the creditors. The next step is to start the process of rebuilding credit.
Florida provides exemption for many assets owned by an individual. This means that these assets are not subject to liquidation and creditors cannot claim any benefit from these assets. Florida does not allow the use of the federal exemptions listed in the bankruptcy code. The only exemptions that can be used in Florida are those listed in the Florida bankruptcy laws such as but not limited to:
- Homestead Exemption– this protects your residence with unlimited value from liquidation once you have resided in Florida for a minimum of 40 months and your property size is no more than half an acre in municipality or 160 acres elsewhere. However, this exemption will be limited by federal law if you have not owned the property for at least 1215 days prior to filing for bankruptcy.
- Wildcard Exemption– this can be used to protect any property valued up to $4000 where there is no application for the homestead exemption.
- Motor Vehicle Exemption– this offers the debtor protection up to $1000 in motor vehicle equity. The value will increase for persons who are married and filing jointly.
- Personal Property– this includes anything other than real property that is valued up to $1000. The value increases to $4000 if you do not apply for the homestead exemption.
- Wages– the wages earned by the head of a family are exempt up to $750 per week, or the greater of 75% or 30 times the federal minimum wage.
Chapter 7 bankruptcy can provide financial relief within three to six months of filing provided that the case has no complexities. It gives a quick and efficient resolution to individuals seeking to eliminate their debts within a short period of time. The process can be completed by hiring an efficient lawyer or a competent financial advisor. This is to ensure that your financial situation is properly assessed, and your petition is made in accordance with Florida’s bankruptcy laws, so you have a higher chance of receiving debt relief.