BANKRUPTCY

• I can’t take it anymore, the bills keep coming & the creditors keep calling
• What does discharging a debt mean?
• I heard that bankruptcy can wipe out all my personal debts no matter what
• What will bankruptcy do to my credit?
• Will bankruptcy affect opportunities for employment and renting?
• What else can I do besides filing for Bankruptcy?
• I have no choice and I know it, what are my options in Bankruptcy?
• Are the creditors allowed to call me anymore? Will they stop?
• I have heard that you can keep certain assets even if you file under Chapter 7
• What if I have assets I want to keep that I still owe money on?
• What if I think someone has stolen my identity and my credit?
• What if I don’t find the answer here?

FAQ's (Frequently Asked Questions) about Bankruptcy

“I can’t take it anymore, the bills keep coming & the creditors keep calling”

Many people have felt that they have reached the end of the line when it comes to their personal finances. If you feel that there is no way you can get out from under the pile of bills that continue to stack up, think twice before jumping onto the bankruptcy bandwagon. The best way to approach your financial issues (or problems as we know them better) is to do so knowledgeably. Nothing is worse than approaching something without knowing what you are getting into. Bankruptcy may be an option for you, but think carefully before you decide what route to travel.

“What does discharging a debt mean?”

One of the many reasons people file for bankruptcy is to obtain a “discharge.” A discharge is a court order which states that you are not responsible for the debts any longer. Discharging a debt is the same as extinguishing a debt forever. Some forms of bankruptcy can discharge, or wipe out, all of your debt. Other forms of bankruptcy can create a way to pay some or all of your debt over a period of time, not to exceed five years. Bankruptcy may be suitable for a business or for individuals. This article will only focus on personal bankruptcy issues.

“I heard that bankruptcy can wipe out all my personal debts no matter what”

Be aware that there are some debts that cannot be discharged or erased with bankruptcy. Wake up and smell the coffee!!! (If you can’t smell it here on the internet, then go to your local coffee shop and sniff.) Some debts do not and cannot be wiped out in bankruptcy. For example, you cannot discharge debts for:

most taxes;
child support & alimony;
most student loans;
personal injury caused by driving drunk or under the influence of drugs;
court fines and criminal restitution; and
debts incurred through fraud or theft.

The bankruptcy trustee will scrutinize your financial history very carefully to be sure you are being candid with them. Also, if you have assets, these may have to be sold or cashed out to pay those debts. Florida law does provide that certain assets are exempt from creditors in bankruptcy. You will need to seek the advice of an attorney to find out which assets are exempt.

“What will bankruptcy do to my credit?”

Let there be no mistaking this, bankruptcy leaves a negative impression on your credit report and will not go away for a long time. Under federal law, bankruptcies remain on your consumer credit report for at least seven years and with most personal bankruptcies, for at least 10 years. Also, beware that most creditors look at business credit reports and federal law doesn’t regulate how long a bankruptcy can remain on your business credit report. It’s probably a good idea to know what’s on your credit report anyway and you can consult an attorney to assist you with obtaining and reviewing your credit report.

Before filing bankruptcy, think carefully because the bankruptcy first appears on your credit report just after the initial filing in bankruptcy court. Even if you change your mind after you file and the judge does not grant you the bankruptcy, the bankruptcy will stay on your credit report.

Be mindful that after the bankruptcy, it may be difficult to obtain a new mortgage, personal loan or even a credit card. Upon finding someone who will give the debtor another chance, they may not be able to get much credit and whatever credit they do obtain will be at a high rate of interest. Often times, credit cards may give more credit knowing you can’t file again for at least seven years and this situation is worse than if you never filed for bankruptcy.

“Will bankruptcy affect opportunities for employment and renting?”

Federal law allows landlords and employers to review credit reports and bankruptcy can result in the loss of a rental home, new job or promotion. Employers may question whether you have filed bankruptcy because this may indicate your ability or inability to handle personal finances.

“What else can I do besides filing for Bankruptcy?”

There are other options to bankruptcy and you should consider all your options to bankruptcy before filing. Sometimes reviewing your options with an accountant or an attorney who is familiar with consumer issues may be helpful. Initially, it is a good idea to speak with the creditor or creditors to see if you can work something out. Some creditors are willing to work with debtors before taking the “hit” from a debtor who files for bankruptcy. Perhaps they might work out an arrangement where they accept less than the full balance or give you a chance to repay your debts over a longer period of time.

“I have no choice and I know it, what are my options in Bankruptcy?”

There are several different kinds of bankruptcy. An individual can select a specific type based on the amount of debt owed and other financial circumstances.

You can choose the type of bankruptcy that best meets your needs:

Chapter 7

Sometimes called a “straight bankruptcy”, this chapter is the one most people who file individually are familiar with. Under chapter 7, most or all debts are cancelled. A trustee is appointed to take over your property. As discussed earlier, however, some specific assets must be surrendered to the trustee or sold in order to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the state where you live. There is a discussion below regarding exemption of assets. Be aware that if you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition. Please consult with an attorney if you have filed within the last 180 days.

If you were granted or denied a chapter 7 discharge in a prior case within the last 6 years, you might not be entitled to receive a discharge in bankruptcy and probably are not a candidate for a chapter 7 bankruptcy proceeding. However, there may be some exceptions.

Chapter 13

This is sometimes referred to as “wage-earner” bankruptcy. Under this chapter, a debtor with a regular wage or some other source of regular income can continue to pay some or all of their debts back to their creditors under a court-approved repayment plan. You can usually keep your property and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan. This chapter is not cheap. Included in the repayment plan is also the trustee’s fee.

There are also certain requirements to filing a chapter 13 besides a regular income. You must owe less than $250,000 in noncontingent, liquidated, unsecured debts and owe less than $750,000 in noncontingent, liquidated, secured debts. Also, if you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition. Please consult with an attorney if you have.

Chapter 12

This chapter is like chapter 13, but it is only for family farmers.

Chapter 11

This is mostly used by businesses. This article is only focusing on bankruptcy for individuals.

“Are the creditors allowed to call me anymore? Will they stop?”

Once the petition for bankruptcy, whether under Chapter 7 or Chapter 13, an automatic stay is entered in your case. The automatic stay prevents bill collectors from taking any action or attempting to collect the debt. As soon as the creditor becomes aware of the fact that you have filed for bankruptcy, all collection efforts must cease. Upon filing for bankruptcy, the court is directed to mail a notice to all the creditors listed in your bankruptcy schedules. This can take a few weeks and if you don’t list the creditor on your schedule, they will not get notice and will not be prevented from contacting you. If a creditor calls you during this period and you know that they have been listed properly, supply them with the case number. It is usually good practice for you to notify your attorney when a creditor calls.

“I have heard that you can keep certain assets even if you file under Chapter 7”

For example, in Florida, if you own the home you live in, your home is protected from all creditors except those holding a mortgage or lien on your residence. You can exempt or protect your home from a forced sale depending on the acreage and where it is located. Also, the Florida Constitution gives you the right to exempt up to $1,000.00 in personal property from confiscation by a creditor. Unless the judgment creditor has a lien or security interest in the property, this exemption allows you to protect up to $1,000.00 worth of personal property from execution or attachment. For example, cash in the bank, clothes jewelry and personal effects.

Wages of the head of a household are exempt from garnishment unless net wages of persona are more than $500.00 per week and person has agreed to allow wages to be taken to pay the debt. Your vehicle is exempt up to $1,000.00 of its value. This means that your vehicle cannot be taken to satisfy a judgment unless the value of the car, less debts for which the vehicle is collateral, is greater than $1,000.00.

Other types of income, including Social Security benefits, worker’s compensation, unemployment benefits, disability benefits and retirement benefits are exempt from garnishment.

“What if I have assets I want to keep that I still owe money on?”

Sometimes there are special reasons why you may want to promise to pay a debt even you discharge others. For example, you may want to keep your car because it is the only means of transportation that you have, but you still owe the bank on a finance agreement. In order to keep the car, you can promise to pay that debt by working out a plan with the bank to keep the car and file a reaffirmation agreement with the Court. These reaffirmation agreements are voluntary and are regulated very carefully under special rules. You are not required to file them under bankruptcy law or any other law for that matter.

The requirements for reaffirmation agreements are as follows: they must be voluntary, must not place too heavy a burden on you or your family, must be in your best interest, and can be canceled at anytime before the Court issues your discharge or within 60 days after the agreement is filed with the Court, whichever gives you the most time. The
agreement will not be legally binding with the Court until the Court approves it.

Beware though, if you reaffirm a debt and then fail to pay it, you will owe the debt the same way as though there was no bankruptcy at all. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor may also take legal action against you to recover a judgment.

“What if I think someone has stolen my identity and my credit?”

There are situations where you may encounter debts you know that you did not incur. If you think that you may be a victim of identity theft, please see the Identity Theft page.

“What if I don’t find the answer here?”

If you are not able to find the answer in this discussion, you may want to seek the advice of an attorney. Also, there is information about your rights in bankruptcy available in a pamphlet titled “BANKRUPTCY” provided by the Florida Bar. You may contact the Florida Bar at (850) 561-5600.

Ms. Khani and Mr. Auerbach are admitted to practice in the State of Florida and in the U.S. Southern District Court. Bankruptcy law is complicated and advice of an attorney is always recommended before taking any action. Khani & Auerbach will provide free initial consultations regarding these matters. We can be reached at (954) 921-1517.

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