Filing for bankruptcy in Florida is a legal process that allows individuals and businesses with insurmountable debt to make a fresh financial start.
Declaring bankruptcy allows you to “discharge,” or cancel, certain kinds of debt and to pay debt that cannot be surcharged.
The two most common types of bankruptcy sought in Florida are filed under Chapter 7 and Chapter 13 of the U.S. Bankruptcy Code.
Chapter 7 bankruptcy allows an individual to discharge all unsecured debt, but requires the liquidation of assets to pay other creditors. Chapter 13 bankruptcy discharges most of the individual’s debt but requires a plan to restructure certain types of debt and repay creditors over time.
Filing for bankruptcy provides immediate relief for the debtor. Once a bankruptcy case (or “petition”) has been filed, creditors must immediately stop all collection efforts against the debtor, except in certain case where the bankruptcy court permits them to continue.
Chapter 7 vs. Chapter 13: Which is Right for You?
A Chapter 7 bankruptcy is known a “liquidation” bankruptcy because many of the petitioning debtor’s assets are sold to pay debts. But Florida law allows exemptions to prevent the sale of certain assets, including your home, a motor vehicle, some personal property and retirement accounts.
After a Chapter 7 filing, a trustee is appointed to review the debtor’s finances and to sell, or liquidate, nonexempt assets and distribute the proceeds to creditors.
Filing for bankruptcy in Florida under Chapter 7 requires a means test and qualifying one of two ways:
- A debtor whose annual household income is less than the median annual household income in Florida for an identically sized household automatically qualifies.
- When the debtor’s annual household income is more than the median annual household income in Florida, the test is whether the debtor’s last six months of disposable income is greater than a specified portion of their debts. This test applies a complicated expense formula to arrive at the debtor’s “net monthly income,” which indicates eligibility for a Chapter 7 bankruptcy.
A debtor is exempt from the means test if most of their debts are not consumer debt or if the debtor is a disabled veteran who incurred debt during active duty or homeland defense activities.
A debtor who does not qualify for Chapter 7 bankruptcy may file for a Chapter 13 bankruptcy.
Chapter 13 bankruptcy is known as a “reorganization” bankruptcy, because the debtor submits a plan to repay creditors all or part of the money they owe over a three- to five-year period. Because of the repayment plan, a Chapter 13 bankruptcy does not require liquidation of assets.
Chapter 13 bankruptcy requires a debtor to making payments according to the repayment plan before any debts can be discharged. Chapter 7 bankruptcy discharges debts immediately upon liquidation of the debtor’s bankruptcy estate.
However, after a bankruptcy case has been filed and before the bankruptcy court will issue a discharge order, the debtor must complete an approved counseling and education program on personal financial management.
Florida Chapter 7 Bankruptcy ‘Exemptions’
The federal Bankruptcy Code allows the individual states to establish their own exemptions to requirements of a Chapter 7 bankruptcy, and Florida has done so.
A debtor filing in Florida must use the state’s exemptions if they have lived in Florida for at least two years before filing for bankruptcy. If the debtor has lived in multiple states, they must use Florida exemptions if they lived in Florida for a majority of the 180 days immediately preceding the two years before filing.
Under Florida’s Chapter 7 bankruptcy exemptions, a debtor can exempt from liquidation:
- Homestead – An unlimited amount of equity in a home if the property isn’t larger than half an acre within a municipality or 160 acres elsewhere. The debtor must have also owned the homestead for at least 1,215 days (about 3 years and 3 months) prior to the bankruptcy filing.
- Personal property – Up to $1,000 worth of personal property, such as furniture, electronics, or clothing, as well as education, health, and hurricane savings; prescribed health aids; a prepaid medical or health savings account; tax credits; and certain partnership property.
- Motor vehicle – Up to $1,000 of equity in a motor vehicle.
- Wages – Up to $750 per week earned by the head of the household, or the greater of 75% or 30 times the federal minimum wage. Wages earned by persons other than a head of household are subject to the latter exemption.
- Pensions and retirement funds – Most ERISA-qualified retirement plans and pensions, such as IRAs, 401(k)s, and SEP plans, and all public employee retirement benefits, firefighter and police pensions, and teachers’ retirement benefits.
- Life insurance and annuities – Proceeds from a life insurance policy, the cash surrender value of a life insurance policy or annuity, disability income benefits, and fraternal society benefits.
- Public benefits – Veterans’ benefits, reemployment assistance, local public assistance, workers’ compensation benefits, unemployment compensation benefits, and Social Security benefits.
- Alimony and child support payments – Exempt to the extent reasonably necessary for the support of the debtor and dependents of the debtor.
- Wildcard exemption – A debtor may be exempt up to $4,000 worth of any property if they do not use the homestead exemption.
Many dollar limits on exemptions increase if a debtor is filing for bankruptcy jointly with a spouse.
Benefits and Consequences of Filing for Bankruptcy
The most important benefit of bankruptcy is that debtors may obtain a fresh financial start.
Further, as soon as a bankruptcy petition is filed, by law, an automatic stay prohibits almost all bill collection activity.
A Chapter 7 bankruptcy discharges most debts upon liquidation of the debtor’s bankruptcy estate. In a Chapter 13 bankruptcy, the debtor must make payments to debtors according to the repayment plan for several years before any debts can be discharged.
It should be understood that a Chapter 7 bankruptcy filing will remain on your credit record for up to 10 years, and a Chapter 13 filing will be reported for 7 years. This may not prevent you from obtaining credit or loans, but it will increase interest rates.
Finding the Right Bankruptcy Attorney in Fort Lauderdale
You will need a Fort Lauderdale bankruptcy attorney at your side throughout the complex process of filing for bankruptcy.
Contact Our Fort Lauderdale Bankruptcy Attorneys to Learn More
Learn how a Fort Lauderdale bankruptcy attorney can help you resolve your debt problems. The legal team at Loan Lawyers focuses exclusively on providing sensible, affordable, and proven debt and foreclosure solutions for South Florida homeowners and consumers in debt.
Contact Loan Lawyers today to speak with a bankruptcy defense lawyer who can discuss solutions available to you, including how to file bankruptcy in Florida.
