Chapter 7 Bankruptcy in Florida

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Bankruptcy Chapter 7 in Florida

Chapter 7 bankruptcy Florida allows the debtor to discharge all unsecured debts after he or she has dissolved all other assets. To file a Chapter 7 bankruptcy, a person must be a permanent Florida resident.

Florida law provides ample exemptions to protect a debtor’s assets from creditors in state court proceedings. In contrast, federal law reduces these exemptions in bankruptcy court, making it more likely for bankruptcy trustees to recover funds compared to a regular creditor seeking a judgment. Furthermore, filing for bankruptcy has a more detrimental effect on one’s credit score than receiving a civil judgment.


Understanding Chapter 7 Bankruptcy in Florida

Steps in filing for Chapter 7 bankruptcy in Florida:

  1. Determine if bankruptcy is the best choice. The debtor lists all of his assets and debts in order to determine if Chapter 7 bankruptcy would solve his financial problems.
  2. Assess any exemptions. Both the debtor and attorney should consider which property is exempt or excluded from bankruptcy.
  3. Fill out the bankruptcy petition. This petition contains all information regarding your assets, income, and debts.
  4. Automatic stay. Also known as a “suggestion for bankruptcy”, the automatic stay stops any collection efforts during bankruptcy proceedings. The stay to foreclose secured property can be sought relief by mortgage creditors and other unsecured creditors.
  5. Assignment to Chapter 7 trustee. An Orlando bankruptcy trustee is assigned to your bankruptcy case. The trustee and you will meet in a conference hall.
  6. Opposition to exemptions. Any exemption claimed in the bankruptcy petition can be challenged by the bankruptcy trustee.
  7. Adversary claims. An adversary claim can be filed by a trustee or creditor if the creditor believes that its debt is exempt from discharge, or if the creditor feels the debtor has abused bankruptcy.
  8. Bankruptcy discharge. The bankruptcy trustee will sell any assets that are not exempt. The proceeds of the sale will be divided among creditors. The bankruptcy court will then discharge your dischargeable debts.

Filing bankruptcy is more than just filling out forms. Debtor questions are often directed at certain areas of bankruptcy law. These include bankruptcy exemptions, the means test, keeping a vehicle, objections to discharge, and other commonly asked questions.

Florida Bankruptcy Exemptions

The bankruptcy process begins with a thorough inventory of all the assets owned by the debtor. The bankruptcy estate includes all legal and equitable property owned by the debtor. In Chapter 7 bankruptcy, the bankruptcy estate is liquidated. However, certain types of assets are exempt from inclusion in the bankruptcy estate, and the debtor can keep these exempt assets.

In Florida bankruptcy cases, the exemptions available to debtors are determined based on their residency during the 730-day (2-year) period leading up to the filing date. If Florida residents file for Chapter 7 bankruptcy but did not live in Florida for the two years before filing, they are not eligible for Florida exemptions. Instead, they must claim the bankruptcy exemptions allowed by the state where they resided for 180 days before those two years, or for the longest portion of those 180 days.

If the bankruptcy debtor was a Florida resident two years ago, they can claim Florida exemptions. However, if the debtor resided in a different state during that time, they may be entitled to exemptions from their previous state of residence (or federal exemptions if there are residency requirements for using specific property exclusions). If the debtor was a Florida resident two years prior, they can claim Florida exemptions. Conversely, if they lived in another state two years ago, they may be eligible for exemptions from that state.


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Homestead Exemption Under Florida Chapter 7 Bankruptcy

The bankruptcy process begins with a thorough inventory of all the assets owned by the debtor. The bankruptcy estate includes all legal and equitable property owned by the debtor. In Chapter 7 bankruptcy, the bankruptcy estate is liquidated. However, certain types of assets are exempt from inclusion in the bankruptcy estate, and the debtor can keep these exempt assets.

In Florida bankruptcy cases, the exemptions available to debtors are determined based on their residency during the 730-day (2-year) period leading up to the filing date. If Florida residents file for Chapter 7 bankruptcy but did not live in Florida for the two years before filing, they are not eligible for Florida exemptions. Instead, they must claim the bankruptcy exemptions allowed by the state where they resided for 180 days before those two years, or for the longest portion of those 180 days.

Chapter 7 Bankruptcy Petitions

A Chapter 7 bankruptcy is initiated when a debtor files a petition with the bankruptcy court. The bankruptcy petition is an official federal form that includes detailed financial information about the debtor, their family, and other creditors. Debtors must sign the petition under oath.

In the bankruptcy petition, the debtor is required to list both their secured and unsecured debts. Unsecured debts include personal loans, credit cards from major banks like Visa, MasterCard, American Express, Discover, and other credit card purchases. Unsecured debts also encompass vehicle leases, medical expenses, personal loans, and tax debts until the IRS issues an IRS tax lien.

Chapter 7 bankruptcy mandates that the debtor lists all liabilities, even if a claim is not fully matured. For instance, if the bankruptcy debtor is a codebtor, provides personal guarantees for corporate or other debts, or has secondary liability in a mortgage assumed by a buyer, these debts should be included in the bankruptcy petition with a brief explanation. Disputed debts and liabilities should also be listed. Additionally, the petition must include the government agency that insured the debtor’s home mortgage (such as the VA) as a contingent creditor. Even if someone else assumes the mortgage, the VA may decide to file a claim.

Secured debts are those where the creditor holds collateral as security for payment. Examples of secured debts include mortgages, car loans, and loans from financial companies that are typically secured with household items. A secured creditor can be a retailer that has an interest in the goods purchased by a customer using a credit card.

In the bankruptcy petition, the debtor must indicate whether they intend to reaffirm each secured debt by keeping and continuing to make timely payments on the loan or surrender the secured property back to the creditor. If the debtor chooses to surrender the secured property, the secured creditor cannot seek monetary recovery from them.

Florida Chapter 7 Bankruptcy Procedures

Means Test

The Florida bankruptcy test is used to determine eligibility for Chapter 7 bankruptcy through a complex calculation. Debtors with household incomes below the median income of their state and debtors with primarily business debts are exempt from the means test requirement. However, debtors with a household income above the median must pass the means test to qualify for Chapter 7 bankruptcy. If the court determines that filing for bankruptcy is a “substantial abuse” of the bankruptcy laws, the debtor may be denied bankruptcy relief.

Automatic Stay

Upon filing for Chapter 7 bankruptcy, an automatic stay is imposed. This stay prevents creditors from pursuing legal actions or engaging in any collection efforts against the debtor. If there is an ongoing civil suit involving the debtor, a bankruptcy attorney can file a Suggestion for Bankruptcy, which will temporarily halt all civil litigation. To facilitate the preparation of the Suggestion of Bankruptcy, the debtor must provide their attorney with copies of any lawsuits that have been filed against them.

In Chapter 7 bankruptcy, mortgage creditors often file a Motion to Lift the Automatic Stay. This motion allows them to proceed with foreclosure on properties held as collateral if the debtor fails to make timely payments. Typically, the bankruptcy court grants this motion. Creditors can only take possession of a bankruptcy debtor’s property if the debtor has failed to make timely payments on secured loans and the creditor has obtained a judgment from a state court confirming their lien rights.

Reaffirmation of Agreements

Within 60 days after the meeting with the trustee, the Chapter 7 debtor must file a reaffirmation contract for any secured property they wish to retain. If the debtor fails to sign the reaffirmation contract or redeem the property within 60 days, the automatic stay will be lifted, and the creditor will have the right to repossess the property, even if the debtor has been making timely payments.

In a reaffirmation contract, the debtor agrees to remain personally liable for the debt even after bankruptcy. If the debtor chooses not to sign the reaffirmation agreement, the Chapter 7 bankruptcy will discharge the debt. However, secured creditors can still take possession of the secured assets.

A debtor’s bankruptcy attorney will usually co-sign a reaffirmation agreement if they believe that the debtor will have enough disposable income after bankruptcy to repay the secured debt. If the debtor is in a negative income situation or if the attorney determines that reaffirming the debt would cause an undue hardship, the attorney will not sign the reaffirmation agreement.

In cases where the bankruptcy attorney does not co-sign and approve the reaffirmation contract, the Florida bankruptcy judge may review the agreement and either approve or deny it, sometimes after conducting an evidentiary hearing. If the judge determines that reaffirming the debt would not be in the debtor’s best interest for a “fresh start,” they will deny the reaffirmation.

Many creditors may still allow a bankruptcy debtor to keep their secured property even if the reaffirmation is not approved by the court.

Meet the Chapter 7 Bankruptcy Trustees

The court selects a trustee at random immediately after the Chapter 7 petition is filed. Chapter 7 trustees are typically private attorneys or CPAs. Their main responsibility in Chapter 7 bankruptcy is to gather all non-exempt property of the debtor and sell it, either to the debtor or a third party, before distributing the proceeds among the scheduled unsecured creditors.

The bankruptcy court arranges a meeting between the appointed Chapter 7 trustee and the debtor, known as the Creditors’ Meeting or 341 Meeting. This meeting takes place in a conference hall rather than a courtroom and typically lasts around ten to fifteen minutes.

Occasionally, a representative from the U.S. trustee’s office may attend these meetings as a new trustee. Both the debtor and their bankruptcy attorney are required to attend, and in the case of joint filing, both spouses are required to attend as well. In practice, very few, if any, unsecured creditors attend the meeting of creditors. Chapter 7 bankruptcy trustees represent all creditors, regardless of their attendance at the meeting.

During the creditors’ meeting, the Chapter 7 bankruptcy trustee may ask the debtor some questions but will not interrogate, threaten, or cross-examine them. The trustee will inquire about the debtor’s assets, income, and the reasons for filing for bankruptcy. They may also ask about the debtor’s income and expenses to determine if the bankruptcy filing was abusive and whether the debtor is eligible for Chapter 7 bankruptcy.

The court will schedule the meetings of creditors based on the trustee’s availability, and the bankruptcy attorney cannot request a specific date or time for the meeting. If the debtor or their attorney cannot attend the initially scheduled 341 meetings, the trustee will typically schedule a “make-up” meeting two weeks later. If the debtor fails to attend the second meeting, the trustee may seek dismissal of the bankruptcy case.

Objections to the Debtor’s Bankruptcy Exemptions

After the conclusion of the creditors’ meetings, the Chapter 7 bankruptcy trustee has the option to object to any property exemptions claimed by the debtor in the bankruptcy petition. This objection must be made within 30 days.

If the trustee does object, the court will schedule a hearing where the debtor can provide evidence and arguments in support of the claimed exemption. However, if the trustee does not object within 30 days, the property that the debtor has designated as exempt in the petition will be excluded from the bankruptcy estate. This includes the homestead property, if applicable.

Adversary Claims & Objections

A creditor who believes that his debt should not be discharged can initiate an “adversary” case within the bankruptcy proceedings. The most common reason for a creditor to file an adversary case is fraud.

In this context, fraud does not refer to a criminal offense. Instead, it means that the debtor has abused their relationship with the creditor or the bankruptcy process. For instance, fraud that supports a creditor’s objection to discharge could involve a debtor who used their credit card to make purchases or obtain cash advances shortly before filing for bankruptcy, despite being financially insolvent.

If a creditor suspects that a debtor has engaged in fraudulent activities, they may contest the discharge of the debt.

Bankruptcy Discharge

The bankruptcy discharge is a legal procedure that relieves a debtor of their legal obligation to repay unsecured creditors. The bankruptcy court grants the discharge as part of the bankruptcy proceedings.

Once a debt has been discharged through bankruptcy, creditors are prohibited from attempting to collect it again. If creditors do attempt to collect discharged debts, debtors have the right to take legal action against them, seeking damages and sanctions. It’s important to note that the discharge order issued by the court does not automatically close a Chapter 7 bankruptcy case. Once all matters related to the case have been resolved, the court will issue an order to officially close the case.


Chapter 7 Bankruptcy: Issues to Consider

Keep Your Car in Bankruptcy

The debtor is permitted to retain their car during bankruptcy proceedings. In Chapter 7 bankruptcy, debtors have the option to “redeem” personal property, including items such as computers, furniture, automobiles, or other secured assets that were acquired through credit.

Redemption involves purchasing the secured property from the creditor at its current fair market value. When the fair market value of the property is lower than the remaining loan amount, the debtor can benefit financially from the redemption process. Typically, the value of a car is lower than the outstanding loan balance, allowing the debtor to redeem the car and receive a discount on the remaining loan amount.

Chapter 7 Bankruptcy: Executory Contracts

An executory agreement is a legal term used to describe a contract in which both parties are obligated to fulfill their respective obligations as compensation, such as a car lease or residential lease. It does not include “at-will contracts” like employment agreements or personal service contracts.

In Chapter 7 bankruptcy, the debtor or trustee has the option to accept or reject executory agreements. The debtor needs to decide their intention to honor these contracts before the bankruptcy court grants a discharge, typically around 90 days after filing.

For example, a car lease is considered an executory contract. The debtor has the choice to reject the car lease and surrender the vehicle to the leasing company, thereby being relieved of personal liability. Alternatively, the debtor can choose to retain the car by assuming the lease and continuing to make lease payments. If the debtor fails to make the lease payments, the leasing company may repossess the vehicle.

Student Loans

In Chapter 7 bankruptcy, it is generally not possible to discharge student loans unless the borrower can demonstrate that repaying the loans would cause “undue” hardship. To establish undue hardship, the borrower needs to file a motion with the bankruptcy court, provide evidence of the hardship, and present their case before a bankruptcy judge. However, in reality, it is challenging for bankruptcy debtors to prove undue hardship unless they become physically incapable of working.

To discharge student loan debt in bankruptcy the debtor has to show:

  1. The debtor is unable to maintain a “minimal” standard of living, based on his current income and expenses if he were forced to pay back the loan.
  2. There are additional circumstances that indicate this situation is likely to continue for a substantial portion of the repayment term of student loans.
  3. The debtor must have made good-faith attempts to repay the loan.


FAQs about Chapter 7 Bankruptcy

What is the average time it takes to rebuild credit after Chapter 7 bankruptcy?

It will take most people between 1 and 2 years to rebuild credit. Most people can then get a loan for a new loan such as a mortgage or home loan. Credit card applications can be made even sooner.

What amount of cash can you keep in Chapter 7 bankruptcy

A person in Florida is entitled to $1,000 worth of personal property exempted from bankruptcy. The exemption is increased to $4,000.

What is the average time it takes to file Chapter 7 bankruptcy papers?

Chapter 7 bankruptcy in Florida takes approximately 6 months. This includes the preparation of court paperwork, filing the case, meeting with the trustee, and finally the formal discharge.


Call Our Experienced Florida Bankruptcy Attorney Today

At Bruner Wright, P.A., we have protected the rights of individuals and businesses in bankruptcy matters for over 30 years. We built our successful practice on a commitment to personal service and attention, combined with a high level of responsiveness. At our office, you will always work directly with attorney Robert C. Bruner or attorney Trey Wright. Contact us today!

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