What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is a legal process where a debtor’s non-exempt assets are liquidated and afterwards, most, if not all, unsecured debt is discharged. To file a Chapter 7 bankruptcy in Florida the debtor must meet some initial requirements.
The debtor must:
• Be a permanent Florida resident, and/or
• Own property in Florida
There are 67 counties in Florida, and each county is assigned to one of the three bankruptcy districts, where Florida bankruptcies are filed. The three bankruptcy districts include the Northern, Middle, and Southern District. Debtors must file their bankruptcy based on the district and locality where they reside.
Frequently Asked Questions by Debtors Filing Chapter 7 Bankruptcy
The bankruptcy process entails a lot more than simply filling out bankruptcy forms. There are certain areas in bankruptcy law which are the most frequent subject of debtor questions.
These areas include but are not limited to:
• The means test
• Discharge of income tax liability through bankruptcy
• Attorney fees
• Failing to disclose all assets
• Not disclosing all debts
• Not providing the necessary paperwork to the Trustee
• Failing to appear at the meeting of creditors
• Not completing the bankruptcy petition in its entirety
Some examples of pre-filing and pre-consultation errors in judgment by bankruptcy filers include:
• Taking unnecessary trips and/or vacations
• Using credit cards for unnecessary purchases within 90 days of filing
• Transferring property to relatives without consideration
• Repaying friends and relatives before making payments on other debts
• Making frivolous purchases
What Is a Chapter 7 Bankruptcy Petition?
The filing of a Chapter 7 petition in bankruptcy court by a debtor initiates bankruptcy. The bankruptcy petition must be signed by the debtor under oath and includes a significant amount of their financial information.
In the debtor’s bankruptcy petition, secured debts are listed separately from unsecured debts. Unsecured debts include are comprised of:
• Credit cards
• Personal loans issued by banks
• Vehicle leases and medical bills
• Tax debt; until such time that the IRS issues a tax lien, which changes the character of the debt to secured debt
Secured debts are a type of debt where a creditor gets a security interest in the debtor’s property to guarantee payment. Some examples of secured debt include:
• Auto Loans and Mortgages
Auto loans and loans from finance companies are generally secured by the item being purchased. Some goods purchased by a store credit card may have a security interest, making the store a secured creditor.
On a Chapter 7 bankruptcy petition, a debtor must indicate the status of each secured debt. The debtor must indicate whether the property is to be redeemed, reaffirmed, or surrendered to the creditor who financed the specific property. A debtor is allowed to keep secured property if the debtor continues to make timely payments to the secured creditor. If a debtor surrenders the secured property, the creditor is prohibited from taking any further recovery action from the debtor and the underlying debt is discharged. In general, if one wants to keep the property securing the debt, one must continue paying on the debt.
Do You Need a Lawyer to File a Chapter 7 Bankruptcy in Florida?
Wondering whether you can handle a Chapter 7 bankruptcy on your own in Florida? The quick answer to this is no. Because bankruptcy is complicated legal process where mistakes can cause considerable financial problems down the road.
An attorney will manage and complete all of the administrative issues in your Chapter 7 bankruptcy case, including filing all the necessary paperwork at the appropriate time. In addition, a bankruptcy attorney will also assist the filer with local or federal bankruptcy exemptions to protect as much of the filer’s property as possible. If creditors object a filer’s discharge or request relief from the automatic stay, the filer’s attorney may answer their motions and ensure that the filer is relieved from as much debt as possible. However, this is usually outside the standard bankruptcy attorney fees and is usually an extra charge.
Bankruptcy Credit Counseling
The federal government enacted the Bankruptcy Act in 2005; which imposed two requirements for all individual bankruptcies filed after October 17, 2005. The first requirement was to complete credit counseling 6 months prior to filing for bankruptcy protection. The second requirement was that the debtor complete a financial management instruction course after filing bankruptcy.
What is the Bankruptcy Means Test?
In addition to credit counseling, the Bankruptcy Act also required the debtor to complete a means test prior to filing for bankruptcy relief. The bankruptcy means test is an analysis of a debtor’s expenses and income. The bankruptcy means test is used to ascertain whether a debtor qualifies for filing a Chapter 7 or Chapter 13 bankruptcy. Bankruptcy courts apply the means test by examining a debtor’s income for 6 months prior to filing bankruptcy and compare it to Florida’s median income. Debtors whose income is lower than Florida’s median income, may qualify for relief under Chapter 7 bankruptcy. If the debtor’s income is greater than Florida’s median income, the debtor may have to file under a Chapter 13 bankruptcy.
What Is A 341 Meeting?
A 341 meeting, also called a creditors’ meeting, is scheduled by the bankruptcy court. Attendees include the appointed trustee and requires mandatory attendance by the debtor and debtor’s attorney. The Court schedules the 341 meeting around the trustee’s availability, approximately 30 days after bankruptcy is filed.. This is a relatively short meeting lasting around fifteen minutes and held in a conference room rather than a courtroom. If the Debtor or their counsel cannot attend the scheduled creditors’ meeting a make-up meeting will be scheduled by the Trustee within 2 weeks of the original meeting. Failure to attend the rescheduled meeting by the Debtor may result in the Trustee filing a dismissal of the bankruptcy.
In some cases, in addition to the court appointed trustee, a U.S. Trustee’s office representative may attend the creditors’ meeting. In addition a small number, if any, unsecured creditors attend. Irrespective of whether a creditor attends the 341 meeting, the trustee works on the creditors behalf to maximize the money available for repayment of the creditor’s debt.
During the 341 meeting, the debtor is asked questions by the bankruptcy trustee which may include:
• Reason for filing a Chapter 7 bankruptcy
• Debtor’s assets
• Debtor’s sources of income and expenses
• Additional questions necessary to ensure the debtor has followed the bankruptcy rules and furnished accurate and truthful information to the bankruptcy court
A debtor may sign a Reaffirmation Agreement for property that the debtor would like to keep. The Reaffirmation Agreement states that the debtor acknowledges personal liability and will continue to pay the debt after bankruptcy. The reaffirmation agreement must be filed within 60 days of the creditor’s meeting (341). A debtor’s failure to sign a reaffirmation agreement or redeem secured property within the 60 days will lift the stay. If the automatic stay is lifted, the creditor may repossess the property even if the debtor’s payments are current. Furthermore, failure to sign the reaffirmation agreement may result in the secured creditor taking the property even though the debt was wiped out.
In most cases, the bankruptcy lawyer representing the debtor will generally co-sign a reaffirmation agreement. This is done where the lawyer feels that the debtor has adequate disposable income to pay the secured debt after the conclusion of the bankruptcy. Conversely, if the debtor has insufficient disposable income or the reaffirmation agreement would create an undue hardship, the debtor’s lawyer will not co-sign the agreement.
In Florida, a bankruptcy judge can assess a reaffirmation agreement and either approve or deny the agreement. The reaffirmation agreement may be denied if the debtor’s attorney fails to approve and/or co-sign the agreement. If the bankruptcy judge believes that the reaffirmation agreement is not in the best interest of the debtor for a fresh start the agreement will be denied. In cases where a creditor will allow the debtor to keep the property, the creditor will require a reaffirmation agreement from the debtor.
Redemption In Chapter 7 Bankruptcy
In bankruptcy, redemption is a process by which a debtor can retain some secured property. Debtors filing Chapter 7 bankruptcy are provided with a variety of options for loans which are secured by personal property. Secured personal property (cars, computers, furniture, etc.) or property bought on credit may be redeemed by a debtor.
Redemption involves a debtor purchasing the collateral securing debt from the secured creditor at current fair market value of the property The current fair market value of the collateral I determined as of the date of bankruptcy. Redemption can be a great financial benefit for the debtor, particularly where the property’s current fair market value is lower than the amount due under the loan.
Executory Contracts in Chapter 7 Bankruptcy
Legally, an executory contract is an agreement where both parties are required to perform in consideration for a benefit. Some examples of executory contracts include automobile and residential leases. Contracts such as employment agreements, personal service agreements, and other “at will” type contracts are not considered executory contracts.
Under a Chapter 7 bankruptcy either the debtor or trustee is permitted to accept or reject an executory contract. Debtors can continue to be obligated by an executory contract after a discharge is issued by the Court. However, the debtor must inform the bankruptcy court prior to the court issuing a discharge.
For example, if a debtor decides to reject a car lease, the car may be surrendered to the leasing company. If the car is surrendered, the debtor has no further personal liability. A debtor accepting to continue the lease may keep the car if payments continue to be made. Moreover, if a default in lease payments occurs, the car can be repossessed by the leasing company.
Discharge of Student Loans in Chapter 7 Bankruptcy
Generally, student loans are not dischargeable in Chapter 7 bankruptcy. There is an exception where the debtor can show that the student loans impose an “undue hardship.” and that the undue hardship is expected to last for a significant period of time. If the debtor believes the undue hardship exception is applicable, the debtor must file an additional motion with the bankruptcy court and provide evidence of the hardship to the judge. Due to the strict circumstances regarding the proof needed to determine whether a debtor is suffering an undue hardship that is expected to last for a significant period of time, most Chapter 7 bankruptcy debtors are usually unable to successfully discharge their student loan debts. In cases where undue hardship was successful the debtor was unable to sustain a minimal standard of living and the condition was expected to last 10 years.
Bankruptcy courts use a specific standard when determining hardship called the Brunner test. Under the Brunner test, to discharge student loans in a Chapter 7 bankruptcy, the debtor must demonstrate that:
• Based on current expenses and income, if forced to repay the student loans, the debtor will be unable to support a minimal standard of living
• There are other circumstances which suggest that the debtor’s financial position will continue for a significant duration of the student loan repayment period
• Good faith efforts have been made by the debtor to repay the loans