Filing for bankruptcy is more common than most people think. In the first three months of 2019, the United States Bankruptcy Court for the Middle District of Florida received 6,406 cases, making it the third busiest bankruptcy court of the 90 federal districts in the nation.
What is Bankruptcy?
Bankruptcy is essentially a court proceeding. Here, a judge, in conjunction with a court trustee, examine the assets and liabilities of any individual or business who can’t pay their bills and wants to discharge such debts, so they are no longer legally required to pay them.
Individuals that file for bankruptcy have debts they won’t be able to pay in a timely manner. People that took financial obligations like a mortgage, student loans, and auto loans, or in most cases all of them at once, are the ones that seek help from bankruptcy the most. Surprisingly, people, not businesses, are the ones filing for bankruptcy most frequently.
However, while bankruptcy can offer people a chance to start over, it does affect credit score, people’s future ability to use money, and can even prevent foreclosure on a home.
Does Bankruptcy Clear All Debts?
No. Bankruptcy will only apply to qualifying debts. Some financial responsibilities can’t be discharged through bankruptcy. For these type of debts, you’ll have to look at other options such as debt consolidation or a debt settlement. Debts and financial obligations that can’t be solved with bankruptcy include:
- Federal student loans
- Child support
- Debts after filing for bankruptcy
- Fraudulent loans
- DUI debts
Types of Bankruptcy
There are several types of bankruptcy proceedings available for individuals and businesses. The most common types are Chapter 7 and Chapter 13. They each serve a specific purpose, and your debts will qualify you to either one or the other.
Chapter 7 Bankruptcy
Chapter 7 is the most common form of bankruptcy filed in Florida. With 4,499 cases, that’s about 70% of the bankruptcy cases filed so far in 2019. Also known as “liquidation bankruptcy,” Chapter 7 is meant to discharge most of your unsecured debt, which includes credit card debt, medical bills, and other personal loans.
To qualify for Chapter 7, you must pass the “means test.” This test looks at your financial records, income, expenses, and debt. The process to file for Chapter 7 lasts between three and four months. In Florida, if your current monthly household income is less than the Florida median income for a household of your size, there is a high probability you’ll qualify for Chapter 7 bankruptcy.
Chapter 7 bankruptcy does get rid of your qualifying debt. However, it does so by selling nearly all your assets. This type of bankruptcy reflects on your credit report for at least 10 years.
Chapter 13 Bankruptcy
Although not as popular, Chapter 13 bankruptcy still accounted for 1,830 filings so far in 2019; that’s 28% of the cases. Also known as “wage earner’s bankruptcy,” Chapter 13 is the only option individuals have when repaying debt is impossible.
To qualify for Chapter 13, individuals must have less than $394,725 in unsecured debt, such as credit card bills. They also must have less than $1,184,200 in secured debts, such as mortgages. However, individuals who file for Chapter 13 must live with a court-appointed trustee that will oversee their spending for years, and will also collect and distribute most of your payments.
Chapter 13 bankruptcy allows you to keep most of your assets and enables you the possibility to repay all your debt with a 3-5 year payment plan. This type of bankruptcy reflects on your credit report for at least 7 years.
Other common types of bankruptcy include:
- Chapter 9, which applies only to cities and towns.
- Chapter 11, which was designed for businesses.
- Chapter 12, which applies to family farms and family fishermen.
- Chapter 15, which applies to cross-border insolvency cases, which means the debtor has assets and debts both in the United States and in another country.
Steps to File for Bankruptcy
There’s no perfect time to file for bankruptcy, but if you’ve been asking yourself if you should, that’s a sign you should at least seek legal counsel to consider it. The bankruptcy code was meant to help people, not punish them, so if you believe you won’t be able to pay your debts in the next five years, start looking into bankruptcy.
Bankruptcy won’t just make your debts disappear, the process will either reduce, restructure or eliminate your debts to an extent.
Step 1: Before you can even start filing, you have to compile all financial records, including your debts, assets, expenses, and income. This will give you and anyone helping you a better picture of your financial situation.
Step 2: To even qualify to file for bankruptcy, you must complete credit counseling from an approved agency at least six months before you submit your petition. Credit counseling often takes about an hour or two, can be done over the phone or online, and is under $100 per session. Without this step, your petition won’t be accepted. A credit counseling agency will help you determine the type of bankruptcy you should file, as well as help you draft a payment plan.
Step 3: At this point, you will file for bankruptcy. Once your petition has been accepted, your creditors will receive a notice that you’ve included their debt in your petition. This is the first step of setting the creditor’s meeting or 341 meeting. Its purpose is to allow lenders to question you or the trustee. At this point, you will confirm you wish to move forward with the bankruptcy proceeding.
Step 4: After these meetings, the next steps will take place according to the type of bankruptcy you file. If you filed for Chapter 7, the next step would be the liquidation of your assets. If you filed for Chapter 13, the next step would be to approve your payment plan.
Step 5: Lastly, once you undergo the previous step, you have to undergo a post-bankruptcy credit counseling course. If you don’t complete this course, you will not be able to complete the bankruptcy process, and your debts will not be discharged.
Do I Need a Lawyer to File for Bankruptcy?
Individuals can always file pro se, which means filing for bankruptcy without an attorney. However, seeking legal advice from a qualified attorney is highly recommended. Bankruptcy has long-term financial and legal outcomes that can be challenging to manage without proper legal guidance.
Those who file without an attorney are expected to follow the rules and procedures in deferral courts, as well as to be familiar with the United States Bankruptcy Code, the Federal Rules of Bankruptcy, and Florida bankruptcy rules. It’s important to note that bankruptcy judges and court employees are prohibited by law from offering legal advice.
Working with a qualified team of attorneys is the best way to aim for the best possible outcome. At LJW Legal, our attorneys will guide you through every step of the bankruptcy process, assist you in the gathering of financial records, form filling, and more. Having the legal support of a trusted lawyer is not only comforting, but also the smartest choice you can make as filing for bankruptcy follows a specific set of steps that can be complex and intimidating. In the case you are unable to afford an attorney, you may qualify for free legal services to assist in your bankruptcy filing.