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Chapter 7 Bankruptcy

Before you decide to file for bankruptcy protection under Chapter 7, you need to know if this type of bankruptcy is available to you and most importantly whether it makes economic sense for you. First, you need to compare your current monthly income with the median income in Florida for a family of your size and number of dependants. If your "annualized" current monthly income isn't higher than the median income for Florida, there will be no "presumption of abuse" - meaning you will probably qualify to file a Chapter 7 bankruptcy case. There are cases however where the debtor's right to file a Chapter 7 was challenged even though the individual's household income was less than the state's median income because the income significantly exceeded the individual or his or her family's monthly expenses - in such a case one might be forced into filing under Chapter 13 and pay some or all of the filer's unsecured creditors over a 3 to 5 year plan period.

If your income exceeds the median income for Florida, you will have to pass the "means test calculations" to determine if you have enough income to fund a Chapter 13 plan. If you do, you will be required to file under that Chapter in most cases. There is however an exception that may apply if you are a disabled veteran and the debts you seek to discharge were incurred while you were on active duty.

You will not qualify for Chapter 7 if you obtained a "discharge" of your debts in a Chapter 7 case that was filed within the previous 8 years OR if you obtained a Chapter 13 discharge of debts within the past 6 years unless certain requirements are met.

You will also be barred from filing a Chapter 7 bankruptcy if you were a party to a Chapter 7 or Chapter 13 bankruptcy case that was dismissed within the previous 180 days because you violated a court order or because you asked to have the case dismissed after a creditor asked the court for relief from the "automatic stay."

Another requirement to qualifying for Chapter 7 is that you meet the mandatory credit counseling requirements. To satisfy these requirements you must take a pre-filing credit counseling course within 180 days of actually filing your case and you must file a certificate of completion for that course within 15 days of filing the bankruptcy petition unless you fit within one of the exceptions. You will also have to take another credit counseling course and file your certificate of completion after you file your bankruptcy. This is known as the "post filing" credit counseling course. Failure to take this course and timely file the certificate of completion may result in your not receiving a discharge of your debts. In order to rectify that problem, you would incurr additional attorney fees and the full court filing fee to "reopen" your case and file the required certificate.

There are other reasons that may cause the bankruptcy court to deny you the right to have your debts discharged and in certain cases may even lead to criminal charges. Remember bankruptcy laws are designed to relieve the honest debtor from burdensome debt - generally, bankruptcy relief is intended to give the debtor a "fresh start." Bankruptcy FRAUD is a federal crime which may subject a perpetrator to incarceration.

Once you have met the criteria for filing a Chapter 7, you will need to be sure that this type of bankruptcy case will meet your needs. How will you decide? That will depend on whether filing for Chapter 7 protection will help you get rid of your current debt problem. Some debt may not be removed by bankruptcy (child support, taxes, and debts that are secured by property like a car or house, debts arising out of fraudulent activities or breach of your duty as trustee, to mention just some of the non-extinguishable types of debt). It might also depend on whether filing a Chapter 7 will cause you to have to give up property that you really want to keep. And it might turn on the nature of your debts and whether or not your behind on your payments. All of these issues need to be fully analyzed before you decide which was to go.

Will I lose any assets by filing a Chapter 7 bankruptcy case? That will depend on the kind of assets you have and how much equity you have in them (equity is the difference between the value of the asset and the total of all debt due to lenders, taxes, and judgment lienholders). It will also depend on whether the assets in question are "exempt" property under Florida law (Exempt property is property that is not part of your bankruptcy "estate" and thus not subject to the claims of creditors nor is it subject to administration by the bankruptcy trustee. For example, in Florida generally all equity in your homestead is exempt, with certain specific limitations for relatively recent residents, as is up to $1,000 of equity in your car; up to $1,000 in other personal property ($4,000 if you do not claim or benefit from the Florida homestead exemption and as mentioned below, double the exemption for married couples filing jointly); life insurance and annuity contracts; pension and retirement benefits; social security income; property held jointly with your spouse if your spouse is not filing and is not jointly responsible for payment of the debt. These are the most common exemptions in Florida, there are more. And, some of the exemption limits mentioned above are "doubled" if you are filing jointly with your spouse.

In some cases one of the most compelling considerations is the ability to put a stop to harassment by creditors. Filing for bankrupcy protection under Chapter 7 immediatly puts a stop to wage garnishment, home foreclosure, eviction, repossessions and harassment by your creditors.

Will a joint debtor or cosigner be held responsible for payment of your debts even if your responsibility is discharged in bankruptcy? The answer is yes. Even if your responsibility for the debt is discharged, a friend or relative who co-signed with you will still be liable for payment. Therefore, if you have a co-signer that you want to protect, you will need to consider alternative to bankruptcy or consider filing under Chapter 13.