Chapter 7 Bankruptcy

Chapter 7 Bankruptcy

Filing Chapter 7 Bankruptcy in Florida

Chapter 7 Bankruptcy is the legal procedure where the debtor’s unsecured debt is discharged after the debtor’s non-exempt assets have been liquidated. To file a Chapter 7 bankruptcy in Florida, a person must be a permanent Florida resident or own property in the state. Florida has three bankruptcy districts (Southern DistrictMiddle District, and Northern District), and each of Florida’s counties is assigned to one of the three bankruptcy districts. People must file bankruptcy in the district and division where they reside.

There are numerous circumstances that may warrant this type of filing, including:

  • If you have significant unsecured debt, such as credit card debt and medical bills and you don’t have a lot of non-exempt assets
  • Creditors and debt collectors are harassing you
  • You own a business and you have personally guaranteed some of the business’ debt
  • You have garnishments, repossessions, or lawsuits being threatened or pending against you
  • Your home is in foreclosure or a foreclosure action is being threatened
  • You have lost your job or had a significant reduction in your paycheck
  • Your divorce has left you with unmanageable debt
  • You own investment property that is underwater (the property is worth less than the mortgages encumbering them)
  • You are living paycheck to paycheck and are still unable to pay your bills
  • You are always worried about money and ready to obtain relief from your debt

An important concept in Chapter 7 bankruptcy is exemptions or exempt property. Bankruptcy exemptions describe the personal and real property a bankruptcy debtor may keep through the bankruptcy process and retain after the bankruptcy. As soon as a debtor files Chapter 7 bankruptcy in Florida, a Chapter 7 Trustee takes control of the debtor’s “non-exempt” property for the benefit of the debtor’s unsecured creditors. The bankruptcy debtor may retain his exempt property regardless of its value and amount. What property is “exempt” and what property is “non-exempt” depends on the exemption laws of the applicable state.

The most common Florida bankruptcy exemptions include:

  • Homestead – the debtor’s primary residence situated on up to 1/2 acre in a city and 160 contiguous acres in the unincorporated county.
  • Personal Property – Debtors who claim a homestead exemption are permitted to also exempt $1,000 of miscellaneous personal property, such as household furniture. Non-homestead debtors may exempt $4,000 of personal property.
  • Motor vehicles – Cars are exempt up to $1,000 equity.
  • Wages – The wages and earnings of a bankruptcy debtor who is head of household are exempt.
  • Retirement accounts – The bankruptcy debtor’s IRA, 401k, pension, and similar retirement accounts are exempt under section 222.21(2)(a) of Florida law.

The recent economic downturn has forced many individuals to consider filing for bankruptcy. Chapter 7 bankruptcy, also called “liquidation bankruptcy,” is available to those who reside in, or have property or a business in the United States. The advantage of filing for Chapter 7 bankruptcy is that it discharges debts such as credit card and medical bills.

Chapter 7 Bankruptcy Petition

A debtor initiates a Chapter 7 bankruptcy by filing a Petition with the bankruptcy court. The bankruptcy petition is a universal federal form that covers a substantial amount of financial information about the debtor and his family. Debtors must sign their Petition under oath.

The bankruptcy Petition requires the debtor to list all his secured debts separately from his secured debts. Unsecured debts include personal loans and credit cards issued by banks, such as Visa, MasterCard, American Express, or Discover, and other credit cards used to purchase consumable items. Vehicle leases, medical bills, and personal loans are also unsecured debts. Tax debt is also unsecured until the IRS issues a tax lien.

Secured debts include those debts where the creditor has a security interest in the debtor’s property to guarantee payment. Examples of secured debts include mortgages, car loans, and loans from finance companies (usually secured by household items. If a debtor has purchased goods using a store credit card, such as a card from Rooms to Go, Best Buy, etc., the store probably has a security interest in certain items purchased, which makes the store a secured creditor.

The debtor must indicate on the bankruptcy Petition whether he wants to either reaffirm or redeem each secured debt or surrender the secured property to the secured creditor. A bankruptcy debtor is entitled to keep any secured property if the debtor continues to pay the loan for that property in a timely manner. If, however, the debtor elects to surrender secured property, the secured creditor may not thereafter recover any money from the debtor.

Chapter 7 Bankruptcy Procedures

The Chapter 7 bankruptcy debtor is required to list all liabilities, no matter how remote. The Petition should list any claim that anyone might have against the debtor even if the claim has not yet matured. For example, if the bankruptcy debtor is a co-debtor on a note, has personally guaranteed corporate or other debt, or is secondarily liable on a mortgage that has been assumed by a purchaser, the debt should be listed along with a brief explanation of the liability. Disputed debts and liabilities should also be listed. Also, if the debtor has ever had a home mortgage that was insured by a governmental agency (such as the VA), the Petition must list that agency as a contingent creditor. This should be done even when someone purchased the property and assumed the mortgage since they might default, and the VA could decide to pursue a claim against the debtor.

The first step in the Chapter 7 bankruptcy is the filing of the petition. The filing of a Chapter 7 bankruptcy creates a bankruptcy estate. The bankruptcy estate refers to all of the debtor’s non-exempt property that subject to administration by a bankruptcy trustee. A trustee is randomly appointed by the Court immediately upon the filing of a Chapter 7 Petition. The Chapter 7 trustee is usually a private attorney or CPA. The trustee’s job in Chapter 7 bankruptcy is to gather all of the debtor’s non-exempt assets, sell those assets (to either the debtor or an outside party), and distribute the proceeds among the debtor’s scheduled unsecured creditors.

Exempt assets, such as the debtor’s homestead and IRA, are not part of the bankruptcy estate, and the trustee cannot interfere with exempt assets.

An automatic stay is imposed immediately upon the filing of a Chapter 7 bankruptcy. The stay prohibits creditor harassment and the pursuing legal action against the debtor and stops all creditor legal collection efforts. The bankruptcy attorney can file a Suggestion of Bankruptcy in ongoing civil lawsuits involving the debtor. The Suggestion of Bankruptcy suspends all such litigation. It is important for debtors to provide their attorney with a copy of any lawsuits filed against them so that the attorney may prepare a Suggestion of Bankruptcy.

In Chapter 7 bankruptcy cases, mortgage creditors typically file a Motion for Relief from the Automatic Stay so that they may foreclose on secured property if the debtor does not pay payments in a timely manner. The bankruptcy court will usually grant this motion. The creditor can take the bankruptcy debtor’s property only if the debtor does not pay secured loans in a timely manner, and only after the creditor forecloses its lien in state court.

Supporting You Through Difficult Law Issues

At Holiday Hunt Russell PLLC it is of the utmost importance to treat you with compassion and understanding during this time, while providing timely and creative solutions. Holiday Hunt Russell PLLC provides creative solutions for your debt management needs, including bankruptcy, foreclosure defense, and loan modification. If you have a bankruptcy question or concern, or want to find out what type of debt relief you qualify for, please contact Holiday at 954.920.5153 or online for a free initial consultation.

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