Florida Bankruptcy: Will You Still Be Able to Keep Your House?

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!

Bankruptcy in Florida: How to Pass the Means Test for Chapter 7

Are you considering filing for bankruptcy in Florida? If so, your situation probably sounds a lot like this…

You have evaluated your financial situation and it is far from pretty. It’s clear you’re tired of the dunning calls and notices to catch up on your credit cards and medical bills, knowing full well that you would be paying those important debts if you were not so far behind. You think you may be eligible for bankruptcy so you can wipe away those debts, but the little information you can find online ends up creating more questions than answers. Perhaps the most confusing and intimidating aspect of bankruptcy is passing the means test. You’ve always hated tests in school, and now that your financial life is at stake you have to face yet another test to prove you are worthy of bankruptcy. Here is where you can relax and learn how to pass the means test for chapter 7 bankruptcy with the least stress possible.

Why There Is a Financial Means Test When Filing Bankruptcy in Florida

There are two types of bankruptcy that a person may file: a Chapter 7 bankruptcy or Chapter 13 bankruptcy. Chapter 7 is for the person who is so deep in debt they are seeking complete relief of their debts (called a discharge in the bankruptcy courts); conversely, a Chapter 13 filer believes that with some modifications to their current debt situation they can work their way out of some or all of the debt. However, it can be quite convenient for a person who has accumulated a lot of unsecured debt to try to duck out from under it by filing for Chapter 7 when their economic circumstances are such that with a little creative planning and adjustments, along with better management of their expenses, they can find a way out from under their mounting debt without needlessly stiffing their creditors. In other words, the financial means test is intended to identify those unfortunate individuals whose best path to a new financial start is a complete discharge of all debts and to also prevent the bankruptcy system from being abused by those able to settle their debts without full discharge.

There are several situations that will automatically exempt you from taking the financial means test. First, if most of your debts are not consumer debts, you are exempt from the financial means test. If your liabilities are mainly https://www.nolo.com/legal-encyclopedia/consumer-non-consumer-debts-bankruptcy-means-test.html consumer debts, but you are a disabled veteran and accumulated that debt while on active duty or participating in a homeland defense incident, you are not required to take the financial means test.

Income Limits May Exempt You From the Financial Means Test

There is also a circumstance where you automatically qualify for Chapter 7 and are thus not required to take the financial means test. The state of Florida has developed a table of median income for Florida households with between 1 and 10 (or more) qualified members. If your income (for the last 6 months) falls below the median for the number of people in your household, you automatically qualify to file for Chapter 7 bankruptcy.

Income Guidelines for Chapter 7 Means Test

These are the annual median income levels for various household sizes (for cases filed on or after May 1, 2019):

  • 1 Member – $49,172 ($4,097/mo)
  • 2 Members – $60,400 ($5,033/mo)
  • 3 Members – $66,872 ($5,572/mo)
  • 4 Members – $78,833 ($6,569/mo)
  • 5 Members – $87,833 ($7,319/mo)
  • 6 Members – $96,833 ($8,069/mo)
  • 7 Members – $105,833 ($8,819/mo)
  • 8 Members – $114,833 ($9,569/mo)
  • 9 Members – $123,833 ($10,319/mo)
  • 10 Members – $132,833 ($11,069/mo)

If your income exceeds the amount in the table for your household size, you need to perform the financial means test to see if you qualify for a Chapter 7 filing. Alternatively, if your income dropped dramatically within the last 6 months, it may make sense to wait another month or two and see if you then fall below the median levels and are exempt from the financial means test.

For instance, let’s say you have a household of 4 members. If your income for the last 6 months averaged more than $6,569 per month, you are not exempt from the financial means test. But let’s further say that your income for the last 3 months was $6,000 per month and it was $7,500 per month for the three months preceding that, which would total an annual average income of $81,000. This was calculated by adding 3 months of income at $6,000 ($18,000) to the three earlier months of $7,500 income ($22,500); that total ($18,000 + $22,500) equals $40,500 for six months, or $81,000 for the year. As the table above illustrates, a household of four cannot have annual income exceeding $78,833, so they are disqualified thanks to an annual difference of $2,167 (or less than $200 per month), even though their monthly income plummeted by $1,500.

If you run the test again two months later, the picture changes dramatically. Now you have 5 months of income at $6,000 ($30,000) plus just one month at $7,500; added together, this totals $37,500 for six months or $75,000 annually ($6,250 per month). Now you fall below the median income level for a household of 4 and may file for a Chapter 7 bankruptcy without having to take the financial means test.

Comparing Your Income to the Annual Median Income

If your income exceed the levels shown in the table above, you must perform the financial means test to see if you qualify for a Chapter 7 filing. In this case, you need to calculate your income (this includes retirement and pension income, salaries, interest and dividends, unemployment income, and any amounts paid by others for your own household expenses). Once you have determined your total income, then deduct allowable expenses (mortgage or rent payments, personal expenses like food, household supplies, and transportation); the state establishes acceptable amounts for each type of expense depending upon the area in which you live in Florida.

After you have crunched all those numbers, subtract the allowable expenses from the declared income; this determines your total monthly income. If this number is less than $7,475, you pass the means test and can file for Chapter 7 bankruptcy. If this number exceeds $12,475, you fail the financial means test and cannot file for bankruptcy under Chapter 7. If you income falls between those two values, there are more calculations that need to be run before determining your eligibility for a Chapter 7 filing.

Financial means test forms can be obtained through the United States Courts website if you wish to take a closer examination of the different forms used. However, even when you know how how to pass the means test for chapter 7, wading through government forms intended for attorneys and others more conversant in bankruptcy laws can be frustrating and discouraging. Fortunately, for Florida residents, there is a better option: Florida Law Advisors. We are deeply familiar with the laws and procedures involving bankruptcy and can even provide you with a financial means worksheet that is easy for lay persons to understand. Contact us now and let us help you get back on track without being further harassed by your creditors.