Bankruptcy
Purpose of Bankruptcy
Over one and one-half million families file consumer bankruptcy cases each year. Excessive interest rates on credit cards and car loans, as well as lenders financing mortgages that they know the consumer will likely not be able to afford, has created a downward spiral for many hard working families in America.
Bankruptcy was enacted by Congress to give people a fresh start in his or her life. Enabling people to file bankruptcy helps avoid discouragement that would prevent a person from becoming reestablished as a hard-working member of society, striving to find the good life and fulfill the American Dream. The Supreme Court of the United States has described bankruptcy as “a new opportunity in life, unhampered by the pressure and discouragement of pre-existing debt.” Bankruptcy helps stimulate a capitalist economy by offering a form of a safety net for those who may have not fared well in the free-market.
Types of Bankruptcy
The three most common forms of bankruptcy that are filed are referred to by the chapters in the U.S. Code. They are referred to as chapter 7, chapter 13 and chapter 11 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often referred to as a straight liquidation bankruptcy. Basically, all of the debtor’s nonexempt assets may be converted to cash by the trustee in the bankruptcy court and distributed to creditors in accordance to bankruptcy rules. At the conclusion of the bankruptcy proceeding, the debtor receives a discharge, which wipes out his or her obligation to repay most debts.
Many bankruptcies that are filed are considered "no asset" cases, which means the debtor doesn't lose any of his or her assets because all their assets are exempt and cannot be subject to liquidation. In cases where the debtor has some assets that are not exempt, the debtors attorney usually negotiates with the trustee to have the debtor enter into a payment arrangement to buy back the non-exempt dollar amount in order to avoid having any of the debtor's assets liquidated.
At our firm, the first step is to determine if a chapter 7 bankruptcy is right for you. One of our attorneys will review your financial situation. In this review, we will discuss things such as household income, expenses, assets, debts and other information that will be relevant to determining whether a chapter 7 is the best option for you.
Typically, when discussing income for a chapter 7 bankruptcy, you and your spouse’s income will factor in to determine whether you qualify, even if your spouse is not filing with you. If you are separated from your spouse, then his/her income will likely NOT affect your ability to qualify.
The first step we do in analyzing whether you qualify to file a chapter 7 bankruptcy is to compare your household income to the median income in Florida (assuming you live in Florida). The window of time that is initially most relevant, is the average of the six months prior to the month you file your chapter 7 bankruptcy. If your gross income is lower than the median for your household size in Florida, then the “presumption” is that you would qualify. Our attorney would also need to compare this 6 month average to you current income to make sure there is not a big discrepancy that needs to be analyzed.
If you are over median income, then you still may be able to qualify through a formula called a “means test”. The means test is really equivalent to an ability to pay test. The means test formula starts with your gross income then gives you various deductions for expenses to ultimately determine what amount you have left, on a monthly basis, to go to your unsecured creditors. If this amount is minor or negative, you may likely still qualify for a Chapter 7 bankruptcy.
Click here to learn about Chapter 7 Bankruptcy
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is not a liquidation bankruptcy. The debtor is typically allowed to keep all of his or her assets and pay some or all of his or her debts according to a plan approved by the bankruptcy court. At the completion of this plan, with some significant exceptions, the debtor receives a discharge similar to the discharge received in a chapter 7 case. This plan is typically over a 3-5 year period.
The most common reasons people choose to file a chapter 13 bankruptcy are as follows:
- The debtor wants to save his or her home from foreclosure.
- The debtor has assets he or she doesn’t want liquidated in a chapter 7 bankruptcy.
- The debtor makes too much money to qualify for a chapter 7 bankruptcy.
- The debtor wants to pay back his or her debts, but they can't afford to pay what the creditors are asking for (credit card debt as well as many other types of debts are not entitled to get paid any additional interest or fees once the bankruptcy is filed).
- The debtor wants to "strip" the second mortgage or home equity line of credit lien off his or her home, if there is no real equity left after the first mortgage is taken into consideration.
If an individual is behind in his or her mortgage payments, the filing of a chapter 13 bankruptcy may stop a foreclosure and allow the past due payments to be caught up in a repayment plan. The filing of a chapter 13 may also stop the repossession of a car and allow the debtor to catch up on the payments through the plan.
Click here to learn about Chapter 13 Bankruptcy
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is similar in some ways to a chapter 13 bankruptcy in that there is a plan that allows the debtor to pay back some or all of his or her debts over a period of usually 5 years. Chapter 11 bankruptcy is usually for businesses that want to reorganize and be able to continue conducting business without being suppressed by creditors. Individual debtors that have too much debt to qualify for a chapter 13 bankruptcy may also be required to file a chapter 11 bankruptcy.
Free Consultation
The filing of bankruptcy is a very important decision. There are many questions that people have pertaining to bankruptcy and their individual situation. We offer a free consultation in which you will be able to sit down with a bankruptcy attorney, not a paralegal or other staff member, to help determine whether bankruptcy is the right option for you.
We offer a FREE CONSULTATION
for bankruptcy, debt defense, and foreclosure defense cases.
