For the thousands of families and individuals considering bankruptcy because of excessive debts with too little income to service them, they are often concerned about losing the little they still have hung on to. Most especially, those who have worked long and hard to finally buy their own home simply cannot stand the idea that their one piece of paradise will be lost thanks to credit cards, student loans, and medical debts.
Which Is For You: Chapter 7 or Chapter 13?
For those persons who are not conversant with the basics of bankruptcy, here is a quick overview. Most individuals will either file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. There are different reasons for using one of these two types of bankruptcies, but the major difference is how assets and debts are handled.
A Chapter 7 bankruptcy is typically filed by people with very little income and too much debt; essentially they cannot continue on their current path without complete financial ruin and are seeking a clean start. A Chapter 7 bankruptcy is also referred to as a liquidation, since assets with any value will be sold to pay down debts; once that step is completed, the remaining debts are discharged.
A Chapter 13 bankruptcy is considered a reorganization of debt; in this instance, the filing party still earns significant income and, with some adjustments to their existing debts, may be able to pay the debt off. In this case, assets are not sold, but arrangements are made with creditors to begin paying down their debts on a different and easier schedule.
Chapter 7 Florida Bankruptcy: A Closer Look
Because a Chapter 7 bankruptcy is intended to discharge all debts, the filing party must surrender all assets that can be sold to help pay down the debt. It is easy for such an individual to imagine the very worst scenario: losing everything they own, from books and televisions to vehicles and houses, they envision standing on the street corner left with only the clothes on their back.
Fortunately, a Chapter 7 bankruptcy is not that harsh. The federal government offers certain property exemptions in a bankruptcy, including homes, vehicles, and other personal assets; these exemptions can be used unless the state also offers property exemptions. Depending upon the state, some states will allow you to choose either the federal schedule or state schedule of exemptions (no picking and choosing between the two!). The Federal Homestead Exemption allows Chapter 7 bankruptcy filers to keep their home if the equity in it is $25,150 or less; if the equity is higher, you will have to sell the house or buy it out of the estate by paying the trustee the equity value.
Florida Bankruptcy Property Exemptions Explained
For Florida residents, there is good news. The Florida property exemptions and their terms and conditions are much more generous than the federal guidelines; in fact it is one of the most favorable schedules of all 50 states. If the filing party has any equity in their home, it is an exempt asset. This only applies to one residence (second homes or vacation properties are not exempt), and the filing party must reside in the home, must have owned the property for at least 1,215 days, and title is held in the name of the filing party (cannot be held in the name of a corporation, partnership, LLC, or irrevocable trust).
In addition to the homestead exemption, filers are also granted a personal property exemption of $1,000 (for furnishings, electronics, etc.) and another $1,000 exemption for a personal vehicle (which doubles to $2,000 if the bankruptcy is filed jointly). If the filing party does not take advantage of the homestead exemption, they may apply an additional $4,000 exemption to a personal vehicle.
IMPORTANT NOTE: If you have fallen behind on your mortgage payments before filing for protection under Chapter 7, you will probably lose your house; a Chapter 7 case will allow you to remain in the home for another month or two, but it will ultimately go through foreclosure. This is another key reason why you should not wait to the last minute to consider filing for Chapter 7 but should be preparing for bankruptcy and evaluating options as soon as finances start looking shaky. As you can see, bankruptcy and foreclosure are two separate issues that must be carefully coordinated if you want to save your residence.
Chapter 13 Florida Bankruptcy: A Closer Look
Because a Chapter 13 bankruptcy is more of a reorganization than a liquidation, homes are treated slightly differently. In this situation, if you have already missed some mortgage payments but foreclosure proceedings have not yet begun, you still have the chance to save your home by filing a Chapter 13 bankruptcy. In that event, the past due payments can be included in the repayment plan, thus giving the filing party from 3 to 5 years to pay back those missed payments. Of course there is a catch: in addition to making payments on the repayment plan, you also still need to keep making payments on your mortgage. As long as both of those payments are made, the lender cannot foreclose on the property.
Theoretically, persons filing for Chapter 13 are still enjoying a higher level of income and therefore should be able to service both payments. However, this may not be the case at all. According to a recent survey by lawyers.com, Americans who have filed for bankruptcy have shown varying degrees of success in keeping their homes through the bankruptcy process, depending upon whether they filed for Chapter 7 or for Chapter 13. Of the survey respondents who filed for Chapter 7, 68% of them were able to hang on to their home through the process. In comparison, they discovered that, of the survey respondents who filed for Chapter 13, almost half of them had their bankruptcy case dismissed before completing the planned payments under reorganization. It was assumed that most of these cases were dismissed because, even with a higher cash flow, the monthly plan payments, added to the normal monthly costs of living, exceeded their income and expenses. Consequently, most of these dismissed cases lost their residence at the time of dismissal.
While protecting your home may be your highest goal, you can see that it is not as simple as deciding to go bankrupt and, voila!, all your worries are gone. Even for those who are filing under Chapter 7 and expect to lose everything and start over from scratch, you can see it is not a simple process. This article only addresses the residential asset; there are many more issues that need attention. Only an experienced bankruptcy attorney is truly qualified to cover all the bases in a possible bankruptcy. For instance, understanding how Florida wage garnishment works may be important for salaried employees. Another complicated but essential aspect of filing for bankruptcy is performing the financial means test, which is best left to experts who understand these complicated government forms.
The most highly recognized and respected Tampa bankruptcy attorneys practicing today are found at the firm of Florida Law Advisors. We treat every case as important and special; we avoid boilerplate solutions that often create new problems and instead offer solutions especially tailored to your specific situation. Contact us today and make the process of bankruptcy easier and more likely to attain the goal you need: relief from your mounting debts and the stress that comes with it!