Chapter 7 Details

Chapter 7 Details

Some of the exemptions allowed under Florida law include:

  • Homestead: The Constitution of the State of Florida permits a filer to claim his homestead exempt from the claims of creditors provided the property does not exceed the applicable restrictions on acreage. There are limitations and exceptions to homestead exemptions for those who have recently moved to or purchased a home in Florida. Under the old law, when you declared bankruptcy, the amount of your home equity that was protected from creditors was determined by the state where you filed. In Florida, for instance, your home would have been entirely exempt, even if you bought it soon before filing. The new law, however, is more stringent about the homestead exemption. For example, if filers haven’t lived in a state for at least two years they may only take the state exemption of the state where they lived for the majority of the time for the 180 days before the two-year period. And if their home was acquired less than 40 months before filing or if the filer has violated securities laws or been found guilty of certain criminal conduct, filers may only exempt up to $125,000 per person, regardless of a state’s exemption allowance.
  • Personal Property: The Constitution of the State of Florida allows for a claim of $1,000 of personal property to be exempt as well as tenancy for certain property owned by a husband and wife. Florida Statutes also provide for an additional $4,000 of personal property exemptions for filers who do not claim or receive benefits from a homestead exemption. If both the husband and wife file Chapter 7 bankruptcy, they each are entitled to these exemptions.
  • Annuities & life insurance Policies: Annuities and life insurance policies are exempt from creditor claims and the bankruptcy estate.
  • Automobile: For a given vehicle, $1,000 of equity is an individual’s allowed exemption.
  • Wages: With some restrictions, wages earned by the head of the household are eligible for exemption.

There are additional exemptions allowed under Florida Law, which include, but are not limited to, unemployment compensation, social security income, medical items, prepaid college funds, and disability income. It is recommended that you consult with Attorney Robert Pflueger before making any type of bankruptcy exemption claims as he can help you determine what exact exemptions you are eligible to receive. You should understand that not all debt is discharged under Chapter 7 bankruptcy, although mortgages and car payments usually survive the process. This means that while you will not be forced to sell your home when you file for Chapter 7, it may still be foreclosed on if you are behind on the payments.  Chapter 7 bankruptcies do not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt if you are delinquent.  Court-ordered payments due to damages caused by malicious actions or intoxication, child support, spousal support, back taxes that are less than three years old, and any judgments from a court are generally not discharged either. Student loans may be discharged, but only if the debtor is able to show extreme hardship, which is difficult to prove.

In recent years, the process for filing bankruptcy for consumers has become more difficult. Former President George W. Bush signed the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act and it went into full effect for cases filed on or after October 17, 2005.  The act was to ensure that people would not be able file Chapter 7 bankruptcy when they were able to pay off their debts. The most important element derived from the act was a requirement that a debtor would have to qualify to file for Chapter 7 by taking the “Means Test,” which involves a comparison of the debtor’s income to the average income of the state.  The first part analyzes the applicant’s income and determines if they are able to pay back 25% of unsecured debt. In this test, the debtor’s monthly income for the past six (6) months is measured against the Census Bureau’s Median Family Income Data in the debtor’s geographical state.  When making this calculation, essential expenses such as rent are reduced from the total dispensable income.  If it is found that the debtor’s average income exceeds the median state income, they must apply the “Means Test” which is applied by subtracting presumed expenses, such as living expenses, healthcare, and education, from the debtor’s average income. If the applicant’s income is higher than the state median or they are found able to pay back 25% of their debt, then they will be denied Chapter 7 bankruptcy. A presumption of abuse arises when the debtor fails the means test and does not outright qualify for Chapter 7. The debtor can rebut this presumption with documentation, if they can establish the additional expenses and amounts. If they fail, a Chapter 13 bankruptcy may be available, which consolidates a person’s debts for a repayment plan instead of wiping their debts out completely.

The new bankruptcy law was designed to make sure that Chapter 7 protection is given to those who need it the most.  The Chapter 7 “Means Test” is also a formula applied to determine whether or not the consumer has enough money available to make minimal payments to creditors in a Chapter 13 bankruptcy plan.  The court’s goal is to reserve Chapter 7 for those who have no means to repay their debts, as prior to the law change there were few eligibility restrictions on who could wipe out debts regardless of their ability to repay. Chapter 7 is essentially asset liquidation. In this process, a court-appointed trustee will try to extract as much money as possible to repay your creditors. This means you will have to give up extravagant items such as boats, recreational vehicles, extra cars, savings and whatever liquid assets you may have not considered exempt.  Putting items in the safekeeping of a friend or family member is easily traceable and can result in criminal charges. A chapter 7 discharge may be denied for any of the reasons described in section 727(a) of the Bankruptcy Code, including the transfer or concealment of property with intent to hinder, delay, or defraud creditors; destruction or concealment of books or records; perjury and other fraudulent acts; failure to account for the loss of assets; violation of a court order; or an earlier discharge in a chapter 7 or 11 case commenced within six years before the date the petition was filed. A creditor who desires to object to your discharge must do so by filing a complaint in the bankruptcy court before the deadline determined in the notice. Filing of a complaint starts a lawsuit referred to in bankruptcy as an “ adversary proceeding.”  If the issue of the debtor’s right to a discharge goes to trial, you have the burden of proving all the facts essential to the objection.

Another change as a result of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act is that once it is determined that you do qualify for Chapter 7 Bankruptcy, you must complete credit counseling education within six months prior to filing for bankruptcy. The agency must be an approved Bankruptcy Court Approved Credit Counseling Course, not just any credit counseling company.  The course usually takes two hours or less and it is available on the Internet, by phone, or in person. After you complete this requirement, Attorney Robert H. Pflueger will prepare your bankruptcy petition. The petition will contain schedules and statements substantiating your monthly income, expenses, household size, property, debts, and your “Means Test” evaluation. Once your petition is filed, you will be assigned a case number and a United States Trustee who will oversee your bankruptcy case. The next step is for you to complete a post filing financial management course and at your hearing, you will affirm that you have read and signed the petition as prepared by your attorney.  The second financial education course is required in order to receive your bankruptcy discharge and Robert Pflueger will give you information about how to complete all requirements through an approved course provider. The bankruptcy courses are educational programs to advise you about financial issues, budgeting, and to teach you personal financial management.  You will not receive a bankruptcy discharge until you submit proof to the court that you have fulfilled your credit counseling course requirements.

One of the biggest advantages when choosing a Chapter 7 bankruptcy is the “automatic stay.” Once you file for this type of bankruptcy, creditors cannot seek payment or continue with other debt collection proceedings against you. A Chapter 7 bankruptcy is one of the most effective ways to immediately stop garnishments, which can quickly diminish your hard-earned income making it nearly impossible for you to afford basic necessities.  Under the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, you are no longer required by law to pay any debts that are discharged. The discharge operates as a permanent order directed to your creditors that they refrain from taking any form of collection action on discharged debts, including legal action and communications such as telephone calls, letters, and personal contact.  While you might be afraid that bankruptcy could ruin your credit history, the fact is that bankruptcy can actually raise a credit rating because the negative value of a bankruptcy is less than that of high debt.  Although the bankruptcy will stay on your credit report for up to ten years, all debts that qualify for Chapter 7 relief will be canceled.  Some lenders will do business with you and extend you new credit because the discharge obtained in bankruptcy leaves all future earnings free from the claims of past creditors. Essentially, they know that you now have more funds available to spend and they see you as less of a risk because they know that you cannot file another bankruptcy for several years, reducing the risk of their accounts being lost in a bankruptcy discharge. Chapter 7 bankruptcy will help you end lawsuits, rebuild your credit, and stop potential judgments and license suspensions.

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