In a Chapter 7 bankruptcy, most of the debtor’s unsecured debts can be discharged, or eliminated.    Non-exempt property owned by the debtor may have to be liquidated, or sold for the benefit of creditors.  However, the vast majority of  Chapter 7 filers have no non-exempt assets, and are able to keep their property. 

WHAT TYPE OF PROPERTY IS EXEMPT FROM CREDITORS IN A CHAPTER 7 CASE?

Exemptions vary according to state law.  In Florida where we practice, the exemption laws are fairly liberal, allowing most people to keep their home and many of their personal possessions. 

The following property is exempt under Florida laws:

·        Homestead:  Your home and land (up to ½ acre in a municipality and up to 160 acres outside a municipality) are protected , without limitation as to value.  However, the new bankruptcy laws only allow you to protect unlimited equity in your home provided you purchased the home at least 40 months prior to filing bankruptcy.  If you purchased the home less than 40 months prior to your Chapter 7 filing, the new law exempts $137,000 of equity.

·        Automobile:  You may exempt $1,000.00 in equity in your vehicle, or $2,000 of equity in a car jointly owned with your spouse.

·        Statutory Exemptions:  Florida Statues specifies many categories of exempt property, including the following:  pensions, 401K plans, tax deferred retirement accounts, Social Security income, IRA’s, disability benefits, annuities, cash value of life insurance, prepaid college investment plans (including 529 Plans), health savings accounts, and hurricane savings accounts.

·        Miscellaneous Personal Property Exemption:  Each debtor is permitted to exempt $1,000 ($2,000 for joint filings) of any other personal property, including cash, furnishings, clothing, etc. 

·        Wildcard Exemption:  Effective July 1, 2007, a “wildcard” personal property exemption became available to debtors who did not claim a homestead exemption.  So if you do not own a home, you may claim an additional $4,000 ($8,000 for joint debtors) in personal property exemptions that you can apply to whatever personal property you wish.

DO I QUALIFY FOR A CHAPTER 7 DISCHARGE IN FLORIDA?

First of all, any permanent Florida resident can file bankruptcy in Florida.  To qualify for the Florida exemptions mentioned above, however, you must be domiciled in Florida for 2 years prior to filing bankruptcy here.  Otherwise, you will likely be subject to the exemptions provided in the state where you lived for 180 days immediately preceding the two year period. 

Assuming you’ve passed the residency requirement, there is still another hurdle to jump through.  It’s called the Means Test. 

WHAT IS THE MEANS TEST?

The Means Test is a provision that was included in the new federal bankruptcy laws of 2005.  Now, in order to file for Chapter 7 bankruptcy, you must first pass the Means Test.  This test is a somewhat confusing and complex mathematical formula that compares income to allowable expenses to determine whether you will be permitted to file for Chapter 7 relief.  A variety of government statistics from multiple sources are incorporated into this formula.   Using a computer program designed specifically for this purpose, we will evaluate your particular circumstances to determine whether you qualify.

IS ANYONE EXEMPT FROM THE MEANS TEST?

Yes.  If your income is less than the Florida median income, or your debts are primarily non-consumer debts, you are exempt from the Means Test.  Consumer debts can include credit cards, mortgage on a primary residence, and car loans.  Non-consumer debts include debts from failed business ventures, taxes, investment liability, and delinquent mortgages on investment real estate.

DO I HAVE TO TAKE A CREDIT COUNSELING COURSE PRIOR TO FILING?

Yes.  Under the new bankruptcy laws, a debtor must complete a credit counseling briefing from a certified credit counseling agency prior to filing bankruptcy.  This can be done telephonically or on the internet, and usually takes less than an hour.  After filing and prior to discharge, another counseling session is required. 

WHAT HAPPENS IF I DON’T QUALIFY FOR CHAPTER 7 BANKRUPTCY?

 If you don’t qualify for Chapter 7 bankruptcy relief, you may still be able to file Chapter 13 bankruptcy.

WHAT IS A CHAPTER 13 BANKRUPTCY?

In a Chapter 13 Bankruptcy, a plan is established to repay all or part of your debts over the course of 3-5 years.  Unlike Chapter 7, there is no Means Test in a Chapter 13 filing.  In fact, it helps to have more income to show that you will be able to make the payments established by the plan.  Chapter 13 is used most often to save a home from foreclosure.  It can also be a useful tool to discharge tax penalties, eliminate or reduce tax liens, and impose an interest-free repayment plan for recent taxes.

ARE THERE ANY LIMITS TO FILING A CHAPTER 13 BANKRUPTCY?

Yes.  You must have a regular income and have secured debt of no more than $1,010,650, and unsecured debt of no more than $336,900 (these figures change every three years.)  A corporation can not file a Chapter 13 Bankruptcy.

WHAT IS MEANT BY SECURED AND UNSECURED DEBT?

Secured debt is debt where the creditor has a security interest in the property to guarantee payment.  For example, a car loan is a debt secured by the car.  If you don’t pay the debt, they can repossess your car.  A mortgage is another example of a secured debt, as it is tied to your home.  Unsecured debt is debt like credit cards, medical bills, and personal loans.  These debts are not tied to a tangible item.

WHICH ONE IS BETTER, CHAPTER 7 OR CHAPTER 13?

The answer to that depends on your particular situation.  During our initial consultation, we will carefully evaluate all of the unique circumstances surrounding your finances, as well as the specific objectives you hope to accomplish with bankruptcy.  Based upon this, we will recommend a course of action which would be most appropriate for you.

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