Bankruptcy - Chapter 7
Chapter 7 provides a fresh start where all or most of your debt is eliminated. It generally takes approximately five months to complete, and upon discharge, you begin to reestablish your credit. There are two main “hurdles” to get into chapter 7, income and equity.
As to income, under the new bankruptcy laws, you must first pass a means test to file Chapter 7 bankruptcy. If your current monthly income is below the Florida adjusted median income, you can file Chapter 7 bankruptcy. However, even if your income is above the Florida adjusted median income, you may still be able to file after expenses such as car payments and retirement plan contributions are deducted from your income. We have helped many people file Chapter 7 bankruptcy after other attorneys told them that they did not qualify due to the means test.
As to equity, Chapter 7 is sometimes referred to as "liquidation" bankruptcy because the bankruptcy trustee can seize assets to pay your debts. However, certain property is exempt from seizure in Florida. Exempt property includes all equity in your home, up to $1,000 of equity in your car, and up to $1,000 in other personal property ($4,000 if you do not claim the Florida homestead exemption). We are very skilled at using exemptions to help our clients retain important items. If the value of your assets exceeds the allowable exemptions, you must either surrender some of your assets to the Trustee or pay the Trustee to keep that property. Generally there are three broad scenarios when dealing with equity: (1) all debtor’s property is exempt from the bankruptcy estate; (2) there is a large enough amount of un-exempt equity which stops you from wanting to file; or (3) there is a small amount of non-exempt equity and it makes sense to pay the Trustee to keep that property when compared to the amount of debt that is being discharged. Once past these two hurdles, Chapter 7 becomes a viable option for a person to get a fresh start.
Chapter 7 can also provide relief to mortgage stress and/or a mortgage foreclosure. The filing can temporarily halt a foreclosure action and/or foreclosure sale. The filing of the Chapter 7 creates an automatic stay that stops all creditors from moving against you. Although a secured creditor can subsequently file a motion to lift that stay and proceed with the foreclosure, your obligation on the note of that mortgage is discharging along with most of your other debts.