The Bankruptcy Basics from an experienced Orlando Bankruptcy Lawyer
One of the first things a person needs to understand is that there are remedies that do not require filing a bankruptcy; you could open direct negotiations with your creditors for example. We’ll request for the modification of loan terms including reduced installments and an extension of the repayment period. Debt consolidation could also help as would the credit counseling required before bankruptcy filing. Our Badgley Law Group Orlando bankruptcy lawyer has an extensive background and knowledge of the bankruptcy process.
In instances where bankruptcy is the best path, however, you can’t wait too long. Some legal rights would be in jeopardy the longer you wait. An example is asset repossession or home foreclosure. A bankruptcy filing can prevent this from happening but only before the sale has been completed. Once the asset is sold, the debtor has lost their legal interest in it and cannot reverse the process.
Consulting with an Orlando bankruptcy lawyer early on could make the difference in a successful outcome, whether that is bankruptcy or another option. Badgley Law Group has assisted thousands of clients in Orlando file bankruptcy, won several major victories and have distinguished ourselves in our singular pursuit of our client’s interests.
Each bankruptcy case is unique and requires careful assessment before determining the right course of action. You will need the services of a chapter 7 attorney Orlando, a chapter 11 lawyer or a chapter 13 lawyer Orlando to help guide you along the right path. So which type of bankruptcy might be right for you?
Types of Bankruptcy
Bankruptcy filings in Orlando may fall in one of several categories. Each category is named after the chapter of the bankruptcy code that describes it. Overall, the bankruptcy chapter you file under mainly depends on your income, your debts, your assets, type of debt (secured vs. unsecured) and your overall goal of filing bankruptcy. Most debtors will file for either Chapter 7, 11 or 13. Individuals mostly utilize Chapters 7 and 13 while Chapter 11 is mostly associated with businesses.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a process of liquidating a debtor’s nonexempt assets in order to pay off creditors. It is usually the choice of persons without a regular income, little to no assets and who have been unable to service their consumer debt. The typical Chapter 7 debtor has large unsecured debt (such as credit card debt or medical bills) and hardly any assets. One must pass a Means Test to be eligible for chapter 7 bankruptcy.
Most of the person’s debts are discharged while a trustee is appointed to manage the liquidation. Exempt assets include home equity, vehicle equity, household goods, life insurance not payable to the deceased’s estate, workers compensation benefits, 401(k) plans and IRAs. It’s perhaps unsurprising that the majority of Chapter 7 bankruptcies are no-asset cases meaning there is nothing for the trustee to sell in order to repay creditors.
When filing with their district bankruptcy clerk, the debtor submits an official petition, financial history, schedules of liabilities and assets, schedules of income and expenditure, schedules of unexpired leases and executory contracts, and creditor mailing addresses. The schedules must contain accurate and complete information. A debtor risks being charged with perjury if some information is false or has been deliberately excluded. Both dischargeable and non-dischargeable debts should be included.
Filing immediately stops creditors from collection actions including lawsuits, written communication and phone calls. The trustee appointed by the court notifies all creditors on the bankruptcy filing. A 341 Meeting between the debtor, creditor and trustee is arranged (the meeting is discussed in more detail further down this page). If accepted by the judge, debtors will receive their discharge (copied to their creditors) about 4 months after filing.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is a used for debt reorganization and repayment of most outstanding debts. It calls for the development of a 3 to 5 year court-enforced debt repayment plan. The debtor promises to pay off part or all of their debt using future income. Keep in mind that a person will not qualify for this type of bankruptcy if their debt is too large or income too low.
It is however the best alternative for persons who want to safeguard nonexempt assets that would otherwise be lost in a Chapter 7 bankruptcy. The debtor is probably running behind on their business or mortgage repayments but has the required income to catch up under the right conditions. The filing halts the running of late charges and interest on unsecured debt. It also suspends levying of late charges on car loans, mortgages and other forms of secured debt.
Chapter 13 filing begins in much the same way as Chapter 7 bankruptcy. The debtor files a petition, schedules and a statement of monthly income. However, instead of a Means Test, the person provides a calculation of disposable income and a repayment plan. The plan details what, when and how creditors will be repaid.
This is followed by a 341 Meeting with creditors. If the plan is accepted by the judge, court-appointed trustees will be in charge of the distribution of payments to creditors as means of ensuring the plan is being honored. Creditors who intend to participate in the repayment distributions should file their claim within 90 days after the 341 meeting. If the court rejects the plan, the debtor may opt to either submit a modified plan or convert the case into a Chapter 7 liquidation.
Creditors are obliged to accept the repayment plan. The total amount the creditors receive under a Chapter 13 filing must at least equal to what they would have received under a Chapter 7 filing. Once the plan is in force, the debtor is not allowed to take on new debt without the trustees’ approval.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is often used as a last resort where no other chapters will apply. It is usually filed by businesses as means of reorganization either through debt restructuring. Chapter 11 bankruptcy may be filed by individuals who have very large debts that disqualify them from filing Chapter 13 bankruptcy.
The debtor submits a reorganization plan to the court. The plan may include renegotiating debts and selling off non-core divisions. If the debtor fails to submit a plan, the judge allows the creditors to do so instead. Once the judge agrees to the plan, the debtor is prohibited from making certain major decisions without the court’s approval. These include asset sales, rental agreement initiation or termination, and expansion of business operations.
Businesses will emerge from bankruptcy a few days to two years after filing.
How Orlando Bankruptcy Law Works
The bankruptcy process can be misused, so bankruptcy courts want to make sure all filings are done in good faith. Debtors may try to do things a few days or weeks before filing (such as racking up credit card debt or try to conceal of assets). These actions won’t be taken kindly by the judge and those debts may be excluded from the discharge.
Bankruptcy fraud is actually a criminal act and could even result in imprisonment. By engaging an Orlando bankruptcy lawyer early in the process, you can avoid seemingly innocent pre-filing actions that may be interpreted as dishonest by the court.
For any consumer bankruptcy, debtors must within 180 days before filing sign up for credit counseling and submit a certificate of completion. Only certificates from organizations authorized by the U.S. Trustee Program to provide credit counseling will be accepted.
Pre-filing counseling will usually include an assessment of your finances, a discussion on bankruptcy alternatives and the preparation of a personal budget. The counseling usually lasts for between 60 and 90 minutes. It can be conducted in person, online or over the phone.
Everyone who files for Chapter 7 bankruptcy will be required to take a ‘Means Test’. The goal of the test is to ensure persons with considerable income are not allowed to file for Chapter 7 bankruptcy. It’s a means of protecting creditors from individuals who would want to get off easy yet have the means to pay at least part of what they owe.
If a debtor’s average monthly income over the preceding six months is below Florida’s median income for a similarly sized household, they automatically qualify to file for Chapter 7 bankruptcy. No further evaluation is required. Disabled veterans who incurred their debt while on active duty are exempt from the means test as well.
If the debtor’s income is above the state median, the testing becomes more complex. It requires a comparison of their basic monthly expenses (such as food, other household necessities, transportation and housing) to their average monthly income to determine the disposable income.
Income would not only cover the debtor’s salary (if employed) but any other sources including rental income, business income, dividends, interest earnings, pensions, unemployment income and any payment by someone else for their household expenses. If their disposable income is substantial relative to their debt repayments thus allowing repayment of at least a portion of the debts, they can only qualify for Chapter 13 bankruptcy.
Contrary to widespread belief, simply having a high income does not mean an individual will be automatically barred from Chapter 7 bankruptcy. The size of their financial obligations matters too.
The 341 Meeting
The 341 Meeting follows days after the bankruptcy filing. It is the initial meeting of creditors and is named after Section 341, the bankruptcy law section that describes when and how this meeting should be conducted.
Creditors rarely attend and it is often just the debtor and the trustee. Regardless of their absence, the trustee proceeds to interrogate the debtor under oath about their liabilities and assets. The 341 Meeting is very brief and hardly lasts more than 10 minutes. It is usually the only court appearance that a debtor will make during the entire process.
Creditors and the trustee have 60 days after the 341 Meeting during which they can file an adversary proceeding disputing the dischargeability of a specific debt or question the debtor’s right to discharge. Adversary proceedings are rare and will usually arise when the debtor is suspected of fraud or bad faith.
The overarching goal of bankruptcy is to give individuals and businesses a dignified fresh start. This is why the law classifies some assets as exempt from liquidation. The debtor can focus on rebuilding their finances without struggling with the basics. Exemptions vary by state and Florida’s are often considered one of the more generous.
A person must have lived in Florida for at least 2 years for them to use the state’s bankruptcy exemptions. Otherwise, the debtor would be restricted to either federal exemptions or the exemptions of the state they lived in the 6 months preceding the 2 year window.
Debtors list their exempt assets in the schedule accompanying the bankruptcy petition. The exemptions are considered final if no objections are raised 30 days after the 341 Meeting. Exempt assets are subsequently separated from the bankruptcy estate and cannot be sold by the trustee or attached by creditors.
An asset’s value refers to its present sale value as opposed to its replacement value or purchase price. In instances where the debtor co-owns an asset, bankruptcy proceedings will only calculate the debtor’s portion in the item’s equity.
FAQs about Bankruptcy Case
What are the advantages and disadvantages of a Chapter 7 filing?
- Provides a clean slate so the debtor can begin rebuilding their finances a fresh
- Wages earned and property acquired after bankruptcy filing are shielded from creditors and the court-appointed trustee
- Immediate protection from wage garnishment and creditor collection actions
- Quick. A discharge is usually received within 3 to 6 months of filing
- Nonexempt assets are taken over by the trustee and sold
- Can only temporarily prevent home foreclosure
- Co-signors of your loans may be required to continue repaying the debt unless they too file bankruptcy
- You can only file another Chapter 7 bankruptcy 8 years after receiving a discharge
What are the advantages and disadvantages of a Chapter 13 filing?
- Allows you to keep both exempt and nonexempt property
- Immediate protection from wage garnishment and creditor collection actions
- Debt co-signors are immune from creditors if the plan is geared toward full payment
- Protection from home foreclosure as long as you stick to the plan
- Ties up your income and provides little flexibility over the course of the repayment plan
- More complex than Chapter 7 filing and thus attracts higher legal fees
- Your debt is not discharged for at least another 3 years
- Involvement in bankruptcy court proceedings for the next 3 to 5 years
Should my spouse and I file joint or separate petitions?
There is no legal obligation for married couples to file either joint or individual petitions. Both are acceptable. It is however important to note that filing jointly does not exempt either partner from fulfilling all requirements.
What fees are involved in a bankruptcy filing?
Currently, the filing fee is $310 for a Chapter 13 bankruptcy and $335 for Chapter 7. An Orlando bankruptcy lawyer will charge a Chapter 7 filing retainer whose exact value will depend on the amount of work anticipated. If there are no ‘good faith’ concerns such as credit card charges a few days or weeks before filing, the legal fees are likely to be lower.
For Chapter 13 filing, Badgley Law Group may allow our attorney fees to be paid as part of the bankruptcy repayment plan in case you cannot afford to raise the funds right after filing. This flexibility is vital since the bankruptcy proceedings is already a marker of your financial strain. The last thing you need is even more monetary pressure.
Will I be required to go to court?
For the vast majority of bankruptcy cases, the debtor’s only appearance in court will be attending the brief and one-off 341 Meeting. This is supposed to be a meeting with the trustee and creditors though in reality creditors rarely attend. However, if there’s a dispute over the facts of the case, a judge may require you to appear before them at a hearing. You will be notified of the date and time of the hearing.
What creditor collection actions are illegal?
Bankruptcy proceedings prohibit creditors from harassing you. However, even before filing for bankruptcy, certain creditor actions are prohibited under federal and state law. Creditors are for instance barred from using or threatening violence, using abusive language, publishing or threatening to publish a ‘deadbeat list’ that includes you, communicating to you with unreasonable frequency, contacting you between 9.p.m. and 8 a.m., communicating with you while knowing you are now represented by an attorney etc.
A creditor is still trying to collect after my bankruptcy filing. What do I do?
When you file bankruptcy, it is best that you notify all creditors in writing while providing them the case details including case name, number and filing date. The court does send out notices to creditors but this may take a couple of weeks. If a creditor continues with collection measures, you can pursue legal action to obtain a specific court order prohibiting them from any further activity. If this does not stop them either, the court would judge the creditor to be in contempt of court and fine them accordingly.
Will a bankruptcy filing appear in my credit report? If yes, for how long?
Yes. The Fair Credit and Reporting Act requires that a bankruptcy be reflected in the consumer’s credit report for 10 years after the filing. This is 3 years more than the 7 years mandated for other types of credit default information. Your credit score will certainly be impaired. Nevertheless, this will not necessarily prevent you from accessing credit. Lenders will usually assign greater weight to your current financial circumstances.
Actually, persons who file bankruptcy often have serious credit problems already due to missed payments, repossessions, judgments and collection accounts.Their report may improve not long after filing. Some or all the overdue debts have been discharged and credit reporting agencies advised that they are no longer outstanding. A foreclosure is a much bigger impediment than bankruptcy as far as your ability to buy a home in future is concerned.
Won’t everyone know that I have filed for bankruptcy?
That is unlikely. A bankruptcy filing is not a secret document. However, it is not easy for someone to find it unless they are actively searching for it and know exactly where to look. The court database is not crawled by major search engines such as Google and Bing. This means a Google search for your name will not bring up your bankruptcy as part of the results. That would only happen if you are a famous person and a news website or Wikipedia page reported on it.
Will I be discriminated against if I file bankruptcy?
Your credit report will be available to potential employers (only with your permission nevertheless). In addition, some of the debts you may be requesting to be discharged of could have been provided or arranged by your employer. That could raise concerns of discrimination by a current or future employer.
Fortunately, most government arms are prohibited from treating persons who have filed for bankruptcy differently. In addition, private entities cannot fire or otherwise discriminate against an individual for filing bankruptcy or being discharged of their debts.
What are Creditor Workouts?
A creditor workouts is a formal, negotiated debt modification that doesn’t involve bankruptcy filing. It is an agreement between a debtor and his or her creditors on debt repayment. Workouts may be compositions, extensions or both. Compositions are contracts where the creditor accepts partial payment in exchange for the complete satisfaction of their debt claim. Extensions extend the period within which the debtor may make payment for their claim.
The key disadvantage of credit workouts is that they are voluntary which means creditors who do not agree with the terms can still continue to pursue collection action. This is unlike bankruptcy where all creditors must abide by the orders of the bankruptcy judge.
I saw an advert by a credit repair service that promises to eliminate my debts without bankruptcy filing. Is that possible?
Regrettably, the debt management industry has been infiltrated by agencies who make unfounded claims. Most credit repair services lack authorization to practice law. Unlike bankruptcy proceedings, credit repair depends on the voluntary agreement of creditors to accept a lump sum in exchange for reducing the overall debt. This means the creditors can still continue with collection action.
Credit repair services may not be worth it especially when you consider they may actually cost more than hiring an Orlando bankruptcy lawyer right off the bat.
What is a Reaffirmation Agreement?
A reaffirmation agreement allows you to keep secured debt such as a car loan or mortgage. It is a commitment by a debtor to their creditor that they will pay part or all the money owed despite filing for Chapter 7 bankruptcy. The creditor in turn commits not to repossess the debt’s collateral as long as payments are being made. To qualify for a reaffirmation agreement, your repayments for the specific secured debt must be current.
What happens if I do not make a scheduled Chapter 13 repayment?
Delayed or failed payment under a Chapter 13 repayment plan can happen. If you anticipate that you cannot make a payment on time, contact the trustee immediately by phone and in writing. Indicate what is the cause of delay and your assessment of whether the problem is temporary or permanent. If the problem is temporary, advise on when and how the delayed payment will be made. If the trustee is fine with it, that should settle the matter as long as you pay on or before the agreed date.
On the other hand, if the problem is long term and you no longer have the ability to pay in accordance to the plan, the trustee will request the bankruptcy court for a dismissal of the case or a conversion to another bankruptcy chapter (usually Chapter 7). You may also request for a modification of the repayment plan to accommodate your new circumstances.
Should I forego an attorney and hire a bankruptcy paralegal or petition preparer instead?
There are no required qualifications or standards for paralegals and petition preparers. Only an attorney is allowed to offer legal advice, represent a debtor in court, and write legal documents on the debtor’s behalf. Orlando has many bankruptcy paralegals and petition preparers who, oddly, may levy even higher retainers than lawyers.
How frequently can I file bankruptcy?
It depends. If you have received a discharge under Chapter 7 bankruptcy, you cannot file Chapter 7 bankruptcy for the next 8 years or Chapter 13 bankruptcy for the next 4 years. If you have received a discharge under Chapter 13 bankruptcy, you cannot file Chapter 7 bankruptcy for the next 6 years or Chapter 13 bankruptcy for the next 2 years.
What debts are exempt from a bankruptcy discharge?
Some debts cannot be discharged including alimony, child support, student loans, most taxes, liability for DUI death or injury, criminal fines, court restitution orders, and debts from fraud, embezzlement and breach of trust. There are rare exceptions. For instance, a court may discharge a student loan if the debtor shows that repayment will impose serious hardship on themselves and their dependents.
What next after obtaining a discharge?
Your goal is to improve your credit report and avoid another bankruptcy in future. Work with a budget that takes cognizance of your income and expenses. Smaller expenses can be particularly subtle and may seem to creep up on you. To make sure you are capturing everything, note down every expense you incur over a period of 2 months.
At the end of each month, compare your expenses against your total income. If the expenses exceed your income or if the difference is too small to help you accumulate a significant savings buffer over time, identify expenses that are unnecessary and that you need to cut back on. You can also contact a professional financial advisor or get in touch with a reputable not for profit organization such as the CCCS.
Speak With an Experienced Attorney For Free
Nothing legally prevents you from representing yourself in a bankruptcy proceeding. However, bankruptcy can be a complex process with numerous points to consider. A few wrong moves and you could emerge from bankruptcy in a much worse state than you had anticipated. There is no guarantee that the court will discharge your debts once you file.
It is therefore important to obtain wise counsel on whether filing is a good idea, what chapter to file under, how to leverage exemption provisions and knowing what bankruptcy will protect you from. Whereas you can always assess your own circumstances, it always helps to have a trained and objective eye take a look at your assets, liabilities, income and expenses. Get in touch with a Badgley Law Group Orlando bankruptcy lawyer for a free evaluation of your case.
Remember, creditors do not have a blank check in their quest to collect their debts from you. State law (Florida Consumer Collection Practices Act) and federal law (Fair Debt Collection Practices Act) provide clear guidelines on what creditors can and cannot do even before you file bankruptcy. Actions that fail to adhere to these acts are illegal and you should approach Badgley Law Group for assistance.