For many people, the term, “bankruptcy,” or hearing that someone “went bankrupt” might elicit feelings like fear, embarrassment and/or loss of control. The reality is, bankruptcy is simply a legal proceeding meant to provide relief to an individual or family who is unable to pay their debts. It is a stop-gap measure that prevents your creditors from seeking repayment while you get your debts in order with the assistance of the bankruptcy court. This is not to say that going through the bankruptcy process is stress-free, but rather that it can be an empowering process for those who have felt overwhelmed by their debt.
Think of bankruptcy as a new beginning. In some cases, starting over without crippling debt gives people the opportunity to learn how to live within their means, not use credit cards, and to determine what they really need in their lives. Some debtors can finally pull themselves out from under a failed business or an unexpected medical emergency. People file bankruptcy for a number of different reasons. The most important thing to us is not why you are in debt, but how we can help you get out of it.
In the state of Florida, most people who file bankruptcy file Chapter 7 or Chapter 13. Other options are chapter 11 and Chapter 12 which provide relief for companies or individuals with significant debt and family farmers, respectively. Here we will discuss the two primary types of bankruptcy filings available to individuals to help you determine which type is right for you.
Chapter 7 Bankruptcy
The purpose of Chapter 7 bankruptcy is to eliminate the debts of the filer. In this type of filing some of your personal assets may be sold off in order to pay your debts; however, there are types of assets that are exempt from this process. For instance, an individual cannot be forced to part with their homestead, life insurance policies, pensions, or tools required to perform their job. Assets that are subject to being sold are second homes, additional vehicles, and valuable collectibles.
This may sound simple, give up some of your excess belongings, and get out of debt, but not everyone is eligible to file under Chapter 7 Bankruptcy. In order to file under Chapter 7, you must pass a means test. The means test is a way to determine whether or not you are in a position to repay some of your debts, which would cause you to be ineligible for Chapter 7 filing. The test is performed by comparing your average household income to the median household income in the state of Florida. If your income is higher than the median, you may be ineligible to file Chapter 7.
Once you have filed bankruptcy under Chapter 7 in the state of Florida, you may not refile again for another 8 years. This is something to keep in mind during and after the bankruptcy process.
Chapter 13 Bankruptcy
The alternative option to filing Chapter 7 Bankruptcy is filing Chapter 13 Bankruptcy. In a Chapter 13 filing, the debtor is given a repayment plan to pay back a portion of their debt over a period of 3-5 years. Once the repayment plan is completed, the remaining debt is discharged. The means test helps identify the people who qualify to set up a repayment plan and pay back their creditors.
Chapter 13 Bankruptcy is ideal for people who want to keep their valuable, non-exempt assets and pay their debtors back over an extended period of time. Once the repayment agreement is fulfilled (generally taking place over a 3 to 5 year period), the remainder of the debt is wiped clean.
Under both chapters, filing for bankruptcy stops your creditors from trying to collect your debt, but unlike a Chapter 7 Bankruptcy filing, a debtor can file at any time with no time limit between filings.
While filing bankruptcy is not a process that most people want to go through, it is also not meant to be a punishment. The bankruptcy process is an opportunity for people to find freedom from crushing debt and get back onto their feet financially. Filing for bankruptcy helps keep Florida families in their homes and restores a sense of security that may have been missing. In some cases, it may even improve their credit score down the line.
If you are so far behind on your bills that you don’t think you’ll ever catch up, filing for bankruptcy may be the best option for you to regain your sense of financial freedom. Our team would love to help you through the process, contact us today for more information.