We provide compassionate and knowledgeable legal counseling to individuals who are considering bankruptcy.
Bankruptcy protection may provide the relief some individuals need to alleviate their financial hardships. Chapter 7 is one type of bankruptcy that can offer debt-burdened individuals the help they need to start.
Chapter 7 Bankruptcy
Individuals typically file for bankruptcy under either Chapter 7 or Chapter 13 of the bankruptcy code. Chapter 7 is the most common type of bankruptcy case. It is essentially a liquidating bankruptcy, where you turn over some of your property to a trustee, with the exception of certain property that the law allows you to keep (otherwise known as exemptions). The trustee then liquidates, or sells, the non-exempt property.
Once the assets are liquidated, the money is used to pay off creditors. There is typically not enough money to pay all of a person’s debts, so creditors are paid in order of priority. The law establishes which creditors are paid first. Whatever debt is outstanding after the liquidation is discharged. This means that you emerge from Chapter 7 with no liability for the remaining debt.
Eligibility for Chapter 7
To be eligible for Chapter 7, you must pass what is called the “means test.” This test prevents high-income individuals from wiping out all their debts without paying something to their creditors. You automatically pass the means test if your monthly household income is below the median monthly income for Florida families of the same size as yours.
If the income is above the median, then your disposable income is calculated. If you have enough disposable income to pay some of your credit cards and other unsecured debts, then you are not eligible for Chapter 7 bankruptcy and may need to consider filing under Chapter 13. If you pass the means test, you can file for Chapter 7.
To initiate a Chapter 7 case, a petition is filed with the federal bankruptcy court in your area. It will include various schedules listing your assets, liabilities, income, expenses, and any exempt property. You may be able to reaffirm certain secured debt, such as a car, which means you agree to remain liable for that debt after the bankruptcy proceeding is complete.
A trustee will oversee the liquidation and payment process and schedule a creditors’ meeting. The creditors and trustee will ask you questions regarding your finances and property, and you will answer their questions under oath. If the trustee determines that you have non-exempt property, you may have to turn it in or provide its cash value. The trustee may abandon the property, however, if it is too difficult to sell or has little value.
The entire Chapter 7 bankruptcy process is completed within 3-6 months after the petition is filed. Your debts are discharged, except for the debts that survive bankruptcy as a matter of law, such as student loans, some taxes and child support.
Advantages & Disadvantages of Chapter 7
There are many benefits to filing for Chapter 7 bankruptcy, including:
•No obligation to pay any remaining debt, except for reaffirmed and non-dischargeable debts
•Shorter process, usually a few months, whereas Chapter 13 can take years
•Automatic stay on collection actions, lawsuits, and wage garnishment
However, Chapter 7 does have its disadvantages, including:
•Loss of non-exempt assets and any assets not fully covered by Florida’s exemptions
•A defense against foreclosures that is only temporary
•A wait of at least eight years between Chapter 7 filings