(1) What if I file and don’t qualify for bankruptcy?
There are areas of legal practice where a great deal of uncertainty exists. For instance, persons making application for social security disability benefits are many times denied benefits on their first few attempts. Bankruptcy is different. While it is impossible to provide anyone with an absolute guarantee, if you are being advised by a competent attorney and have produced all requested documents for his review and responded truthfully to his questions, you can feel confident in a recommendation to file for bankruptcy.
(2) What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 Bankruptcy is often referred to as a “straight liquidation” case. This is because it permits the individual assigned to oversee your case, called a Trustee, to sell anything that you own with a value exceeding your available *exemptions (*legal protection for your assets). From start to finish, the case is generally concluded in fewer than six (6) months and even much sooner in some cases. No repayment of debt or loss of property occurs in a Chapter 7 case, unless you have assets that exceed your available exemptions. Therefore, prior to filing bankruptcy, you must carefully review all of your belongings and seek competent advice regarding their exemption status.
A Chapter 13 bankruptcy case involves proposing a repayment plan to repay some portion of your debt over a minimum of thirty-six (36) months to a maximum of sixty (60) months. Payments are made to a Chapter 13 Trustee who is responsible for distributing these payments to your creditors as outlined in your Chapter 13 Plan and required by law. The actual amount repaid is dependent upon such factors as the amount of disposable income in your household, the type of debt you are repaying and whether you own property exceeding your available exemptions. In many situations, a Chapter 13 bankruptcy can result in a very significant reduction of debt it may therefore be an option for debt relief when either Chapter 7 is unavailable for some reason, or it is advisable to adjust the terms of a secured debt or accomplish some other objective unavailable in Chapter 7.
(3) What is this means test that I have heard so much about?
The means test has important consequences for both Chapter 7 and Chapter 13 cases. Since the purpose of the means test, as well as its actual calculation, differs depending upon whether you are filing a Chapter 7 or 13 case, I will discuss each individually below.
The purpose of the means test is to create objective standards for determining whether an individual who has primarily consumer debt is able to repay at least some portion of his debt, or should be granted a discharge of his debts under Chapter 7. Based on these standards, Chapter 7 filings are classified as either abusive (unfair to creditors) or non-abusive. The means test is actually one of two initial tests that is used to determine eligibility for Chapter 7 when the debts are primarily consumer debts.
The first test is a median income test which requires the debtor to compare his gross income to that of a comparably sized household in his filing state. For instance, a four (4) person household in Florida is compared with the average income earned by four (4) person households in Florida according to government data. The gross income that is used for this comparison is the debtor’s average income for the six (6) month period ending with the last day of the month before the expected filing month. For instance, a debtor filing for bankruptcy in July would calculate his gross income based on the average income earned from January 1st through June 30th. If the debtor’s gross income is less than or equal to the average for Florida, he is able to file for chapter 7 without performing the means test.
If the debtor’s gross household income is greater than that of a comparably sized household, he must perform the means test. This involves calculating his “net disposable income” by subtracting from his gross income a combination of actual deductions and expenditures from his gross income such as taxes withheld and mortgages and expenditures that are deemed reasonable according to government standards such as operating allowances for vehicles and food/clothing allowances. It is important to emphasize that the expenses that are deemed reasonable are not your actual expenses in these categories but rather what government standards consider to be suitable.
Net income remaining after all of the appropriate deductions (too numerous to discuss here) have been made is regarded as available to repay debt. The basic principle of the means test is that when this remaining net income reaches certain levels, a debtor should be made to file under Chapter 13 and repay at least some portion of his debt. These amounts will periodically be adjusted for inflation, but at the present time they are as follows: A Chapter 7 bankruptcy filing will be presumed to be abusive if the debtor has sufficient net income to repay at least $11,725.00 to his unsecured creditors over the 60 month length of a Chapter 13 repayment plan. This is equivalent to $195.41 of net income per month. A Chapter 7 bankruptcy filing will not be presumed to be abusive if the debtor is unable to repay at least $7,025.00 to his unsecured creditors over the 60 month length of a chapter 13 repayment plan. This is equivalent to net income of less than $117.08 per month. Between these two extremes, a different rule applies. If monthly net income is between $117.08 and $195.41, a Chapter 7 filing is presumed to be abusive if the debtor can pay at least 25% to unsecured creditors.
In Chapter 13 bankruptcy, the median income means test serves basically two purposes: (1) it determines the required length of your Chapter 13 Plan (either 36 months or 60 months) (2) it is the starting point in determining the amount of monthly disposable income available for repayment of your unsecured debts. When average gross income exceeds the median for a comparably sized household, the Chapter 13 Plan must be proposed for sixty (60) months, unless you can repay 100% of your unsecured debt. If average gross income is below the median for a comparably sized household, the Chapter 13 Plan must be proposed for at least thirty-six (36) months, unless you can pay 100% of your unsecured debt. In determining whether the disposable income figure determined by the means test will be the actual amount required to be paid to unsecured creditors, the court considers whether your circumstances are expected to change and whether your true income and expenses reflect a greater ability to pay. For instance, if due to illness during the six (6) month period used for the means test calculation, you worked fewer hours than normal, your income would be understated on the means test. Assuming that you are now healthy and working full time, your creditors would be shortchanged if your were permitted to make payments based on this lesser amount of income. Therefore, the trustee would insist upon a larger payment reflecting your true ability to pay.
(4) My creditors are contacting me several times each day. Will the phone calls stop after I retain your office and file bankruptcy?
Yes. Something called an “automatic stay” takes effect immediately upon the filing of a bankruptcy case that requires creditors to cease all collection efforts and discontinue contacting the debtor.
However, we recognize that some individuals will not be able to pay for their cases in a lump sum, we therefore offer liberal payment plans that enable you to get started with as little as $250.00 down. After paying the initial retainer, we ask you to select a payment plan suitable for your circumstances. As long as you continue to make the payments that you have selected, you are welcome to refer your creditors to our office. Due to your rights under the The Fair Debt Collection Practices Act (FDCPA), it will be unlawful for your creditors to contact you once they are made aware of your representation by an attorney. (see the overview of Fair Debt Collection Practices Act section)
(5) Will I lose my home, car and personal property if I file for bankruptcy?
You don’t need to be concerned with losing property when filing under Chapter 13. If you have assets that exceed your exemptions in a Chapter 13 bankruptcy case, the excess value is paid to your unsecured creditors through your plan. Even in a Chapter 7 case, the average person is able to keep his property because of the exemptions that are available in Florida. In most instances, Florida debtors are able to protect 100% of the value in their homes as homestead. They are also able to protect 100% of the value in such assets as retirement accounts, annuities and cash value in insurance policies. The Florida Constitution provides a separate $1,000 exemption for personal property and the Florida Statutes have a provision protecting $1000.00 of a vehicle’s value. A debtor who is a non-homeowner, owns a mobile home on leased land, or who voluntarily surrenders his home in the bankruptcy is entitled to the above exemptions in addition to a separate $4,000 of personal property exemption.
(6) I’ve been hearing commercials lately stating that the new bankruptcy laws require me to repay my debt. Is that true?
Misleading statements such as these are sometimes used to persuade you that bankruptcy is no longer available as an option for discharging debt. The shred of truth in this statement is that the purpose of the new bankruptcy law is to cause more people to repay some of their debt in a chapter 13 case. However, these changes in the law actually exclude very few people from filing chapter 7 bankruptcy who would have qualified under the prior law.
(7) Are there any debts that will not be discharged in bankruptcy?
Yes, the Federal Bankruptcy Code contains an extensive listing of non-dischargeable debts including but not limited to: most taxes, domestic support obligations, student loans, fines, penalties, forfeitures, criminal restitution obligations, personal injury or death caused by the operation of a vehicle, vessel or aircraft while intoxicated; debts for which a reaffirmation agreement has been signed.
(8) Are my federal income taxes ever dischargeable in bankruptcy?
The short answer is yes, (but it can involve complex determinations and it is advisable to seek professional assistance). Various bankruptcy code sections establish five (5) rules that must be satisfied in order for tax debts to be dischargeable in either a Chapter 7 or Chapter 13 bankruptcy. These are as follows (1) The most recent due date for filing the return is more than three years ago; (2) The tax return for the year in question was filed more than 2 years ago; (3) The IRS assessed (established the liability owed) more than 240 days ago; (4) the tax return was not fraudulent and (5) the taxpayer was not guilty of engaging in an attempt to evade or defeat payment of the tax
(9) What is the difference between a secured debt and an unsecured debt?
A debt is said to be secured when the creditor to whom the debt is owed has the right to claim an item of collateral in the event of non-payment. There are two types of secured debts: (1) purchase money security – a transaction wherein the item purchased serves as collateral for the debt. A common example would be the financing of a vehicle. (2) non-purchase money security – a transaction wherein a loan is extended to a borrower using as collateral an item already in the borrower's possession. A common example would be pledging household items (i.e., tv, stereo, etc.) as collateral for a loan from a finance company.
A debt is said to be unsecured when a creditor extends a loan or performs services without requiring any collateral to protect against non payment. Common examples would be credit card charges or receiving medical treatment for which you will later be billed.
(10) I’m married, is my spouse required to file with me?
No. You may file individually, but if your spouse has significant debt, a joint filing may relieve her debt as well at a fraction of the cost of two individual cases. You should also be aware that you are required to provide the Court with certain financial information concerning your non-filing spouse. This is because your non-filing spouses’ income does have some bearing on your ability to repay debt.
(11) How do I value my personal property for bankruptcy purposes?
The bankruptcy code requires you to list your property at its replacement value, defined as the price that a retail merchant would charge for property of the same kind, considering the age and condition of the property at the time its value is determined. It is important to emphasize that the replacement cost is not the cost of a new item.
Retail outlets that sell secondhand merchandise such as electronics, household furnishings and clothing tend to price these items at deeply discounted yard sale values or values comparable to what you might find on craigslist. (www.craigslist.com) You should be guided by values found on sites like craig’s list and yard sales that you have attended in determining the value of your items.
Several published guides are available for vehicles. Bankruptcy trustees usually rely upon values determined by the National Association of Auto Dealers (www.Nada.com) or Kelley Blue Book (www.kbb.com) It is important to note, however, that values found in these guides may be based on certain assumptions that do not hold true for your vehicle. If the value of your vehicle appears to exceed your allowable exemption, it may be advisable to have a certified appraisal performed. (*I tend to only use appraisers who regularly perform appraisals for the bankruptcy court and would be happy to share contact information for any of these appraisers with anyone who is interested)
(12) How do I value real property for bankruptcy purposes?
When the real estate market was more stable, increasing the tax assessed value by 15%-20% would usually yield a fairly accurate estimate. Today, I would recommend visiting web sites such as www.homegain.com or www.zillow.com if you do not have a recent appraisal.
(13) When I am listing my personal property am I required to include items that I received by gift?
Yes. The court does not take into consideration how you acquired an asset. You are required to list its’ replacement value as you would for any other item.
(14) Am I required to retain an attorney in order to file bankruptcy?
No. You always have the right to file bankruptcy on your own without the assistance of an attorney. However, bankruptcy law has become quite complex. Many of the issues addressed in a bankruptcy petition have legal significance that would not be apparent to someone unfamiliar with bankruptcy law and may cause unexpected results in your case. Even if you are able to obtain the Official Forms from a paralegal typing service, you will not have any guidance as to the consequences of the information that you provide to the court and may suffer the unnecessary, avoidable (with proper advice) loss of your property or dismissal of your case.
(15) I filed bankruptcy several years ago and have incurred a great deal of credit card debt over the last few years. Am I eligible to discharge this debt with a Chapter 7 bankruptcy filing?
That would depend upon the chapter and filing date of your previous case. If your previous case was filed under Chapter 7, you will not be able to begin another case to receive a Chapter 7 discharge until eight (8) years have elapsed since the filing date of your previous case. If your previous case was filed under Chapter 13, you will not be able to begin another case to receive a Chapter 7 discharge until six (6) years have elapsed since the filing date of your previous case.
If your previous case was filed in the State of Florida and you are uncertain as to your filing date, you may obtain this information by calling the Bankruptcy Court’s automated Voice Information Case System: (866) 879-1286 (for Middle District Cases) (866) 222-8029, press 11 (for Northern District Cases in) and (866) 222-8029, press 74 (for Southern District Cases). You may access this information using either your previous case number, if known, or your social security number.
(16) I am only considering bankruptcy to discharge my credit card debt, is it necessary for me to list the other debts that I intend to keep?
Yes, all debts must be listed. Even though you may sometimes hear someone remark that they are filing a “credit card bankruptcy” or a “medical bankruptcy”, you are not able to pick and choose the debts that you will list in your case. If there are debts that you wish to maintain, the creditor may permit you to sign a contract known as a reaffirmation agreement to remain liable for that particular debt while discharging your others.
(17) I have recently relocated to Florida from another state where I incurred quite a bit of debt, may I discharge these debts in a bankruptcy case here in Florida?
For purposes of a bankruptcy discharge, it is unimportant where the debt was incurred. A debt which meets the required conditions for discharge will be discharged in bankruptcy without regard to where it was incurred.
Your question does, however, raise two other very important issues. First, in order to file bankruptcy in Florida you must satisfy certain requirements. For consumer debtors this usually means having resided here for a majority of the previous 180 days. Based on this rule, on the 91st day of residency here you would be eligible to file your case in Florida.
The second important issue is which exemption law will apply? The new bankruptcy law requires you to be domiciled in a state for 730 days (2 years) before you can claim the benefit of its exemptions. Domicile is a legal term which refers to presence in a place with the intention to remain. If you have not maintained your domicile in a single place for 730 days, the court would apply the exemption law for your place of domicile during the 180 day period before the 730 day period. If you have not maintained your domicile in a single place for 180 days prior to the 730 day period, the court would apply the exemption law of the state where your were domiciled for the majority of this 180 day period.
This restriction was added to avoid having individuals move into a state temporarily merely to take advantage of its favorable exemptions. The issue of which exemption law applies can literally mean the difference between losing valuable property and being able to keep it. Anyone who has recently relocated to Florida must receive competent advice regarding which state’s exemptions will apply to his case.
(18) Will the bankruptcy court take an income tax refund that I expect to receive?
If you are involved in a Chapter 13 case, and have income below the state median for your household size, your yearly refunds may be regarded by the trustee as resulting from excessive withholding that otherwise would have increased the available funds for payment to your unsecured creditors. In this instance, the trustee would require the refunds to be applied to your Chapter 13 Plan payments.
In a Chapter 7 case, it is possible that you may be required to turn over all, or some portion, of your refund to the bankruptcy trustee. Some trustees will rely upon you to turn over the refund at their request, while others will notify the Internal Revenue Service to delay your refund until they authorize its release. A few of the basic principles that determine whether your refund may be at risk are as follows:
First, your tax refund for next year is gradually earned month by month in the current year. For instance, by June, you have earned 6/12’s of next year's tax refund. Your filing month will determine which portion of your tax refund is potentially at risk. The later in the year that you file, the greater the likelihood that your trustee may attempt to seize your tax refund.
Second, a tax refund may result from excess withholdings from your pay, earned income credit or some other credit like the additional child tax credit. The only portion of a tax refund that a trustee is prohibited from seizing is the portion of your tax refund resulting from the earned income credit.
Lastly, after determining how much of your refund you had earned as of your filing date and excluding the portion resulting from the earned income credit, the trustee will apply any remaining exemptions available to you to arrive at the amount, if any, that he will claim for your creditors.