While a person may make a good living and pay all financial obligations and debt, a bad business decision can cause a business closure. A person may fall behind on a rental property mortgage because the tenants are not paying their rent. There are so many outside factors that can cause financial issues that are not planned for, leaving a person feeling stuck or trapped. When you are earning a good living and are financially responsible, bankruptcy may not appear to be an option for you, but it actually can be an option.
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What Property Can I Keep If I File Bankruptcy?
Before filing bankruptcy, either chapter 7 or 13, you need to do some planning to be sure all your assets are protected, and that any debt you are trying to discharge can and will be discharged. If you file a chapter 13 bankruptcy, you get to keep all your property/assets. This is a reorganization of your debt. While you still may have to pay some of the unsecured creditors, it is usually just pennies on the dollar, depending on the assets you own and want to keep.
If you file a Chapter 7 bankruptcy, you can keep all property that the law says is “exempt” from the claims of creditors. There is a list of exempt properties that include the following (with some restrictions that you will have to determine pursuant to your facts):
- Your homestead (depending upon how long you have resided in FL at the time of filing) OR $4,000 in “extra” exemptions if there is no homestead exemption claimed
- $5,000 for equity in a vehicle
- $1,000 of personal property (valued at garage sale prices)
- your wages / social security benefits
- your qualified retirement plans (up to a certain value).
- There are more.. these are just the most popular
If you are over these exceptions and you desire to keep these assets, you can file a chapter 13, pay the difference you are over in exemptions (and other amounts you are over with your income), and keep your property/assets.
Why am I Receiving a Notice of Foreclosure After Filing for Bankruptcy?
One area of chapter 7 bankruptcy that seems to confuse people is that even though they have filed chapter 7 and did not reaffirm the debt to the mortgage company, meaning they surrendered their home, they still get notice of a foreclosure proceeding. This process has to happen for the bank or mortgage company to gain ownership over the property. This has nothing to do with the debtor at this point.
Some mortgage companies work faster than others, and the discharge may not have been filed yet. There is a Request for Relief From Stay, meaning they want to move forward with the foreclosure lawsuit. Since the debtor is technically still the owner of the home, they will get served on the lawsuit and request for relief. This is all typical, and what will happen in the next few weeks should be explained to you.
Should I File Bankruptcy Pro Se?
Filing for bankruptcy requires careful preparation and understanding of specific legal issues and rules. Pro se litigants in bankruptcy court are expected to understand and follow these rules and procedures in federal courts, just as if an attorney represented the
Failure to follow the rules and procedures of the United States Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and the local rules of the court in which the case is filed can have dire consequences which can affect your rights, such as loss of your home or car, dismissal of your case or even, depending on the severity of the mistake, federal criminal charges.
An experienced Bankruptcy attorney can:
- Explain the bankruptcy law and procedures to you (a licensed attorney can only provide legal advice, not a paralegal).
- Determine eligibility to file a bankruptcy petition and provide information for you to choose which chapter to file under (7, 11, or 13).
- Advise which debts can be discharged, and advise whether or not you can keep your home, car, or other property after your case is discharged.
- Advise of potential tax consequences of filing.
- Advise whether you should continue to pay creditors and which creditors you should not pay.
- Complete and file all required schedules.
What is a non-consumer bankruptcy?
A non-consumer bankruptcy means you need to file bankruptcy to get out of debt that is not associated with credit card debt. You may qualify if:
- you are in an accident or have a child that is ill, and your medical debt is uncontrollable
- you have a business studio and have closed your business, and there is a foreclosure on your studio
- your non-consumer debt (credit cards are considered consumer debt) is more than fifty (50) percent of the debt you are attempting to discharge
A chapter 7 is the bankruptcy most people are familiar with: you file bankruptcy, you discharge all of your debt, and you get a clean slate. With chapter 7, there are still certain debts you have to pay (i.e. student loans, alimony, etc.), and there may be some assets you have to relinquish.
Chapter 13 is a reorganization payment plan: you keep all your assets and pay a percentage of the debt that you owe. Sometimes it can be a high percentage – 60 or 80 percent – and sometimes, it can be 0 or 5 percent (there is a range, and these are just examples… everyone’s plan is different, and the percentages they pay vary).
What does the term “automatic stay” mean?
Automatic stay means that upon the filing of a bankruptcy case, any other pending litigation is automatically stayed or stopped. If your house is about to be sold in a foreclosure action, the sale will be canceled/suspended. If you have a family law case, the trial will be canceled/suspended as it relates to assets and liabilities. No matter what happens (except for a criminal matter), the litigation will temporarily stop.
This is one of the best benefits of a bankruptcy filing. If your income is being garnished, it will stop, and lawsuits will stop. If the bankruptcy is dismissed (this is an unsuccessful bankruptcy, a “discharge” is a successful bankruptcy), the stay will be lifted, and all litigation can resume.
Suppose you file a second bankruptcy within one year of the first bankruptcy being dismissed (after a chapter 7 discharge, you cannot file another chapter for 8 years). In that case, there is a presumption that this bankruptcy is filed in bad faith, and your automatic stay will only last for thirty (30) days (11 U.S.C. § 362(c)(3)).
To extend the stay past thirty (30) days, you will have to prove to the court that you did file the second bankruptcy in good faith. You must present clear and convincing evidence that you are not filing in bad faith to extend the stay. This does not mean that you cannot file for bankruptcy, but it does mean that you may not have a stay regarding the creditors.
If your second bankruptcy is dismissed and then you file a third bankruptcy, there is no automatic stay at all. You will have to file a motion to request that a stay be imposed, and again, you must prove to the court with clear and convincing evidence that your 3rd bankruptcy is filed in good faith.
Can I use my tax return to pay for bankruptcy?
If you have a credit card or secured debt that is overwhelming, and you can never get ahead of it, this may be the perfect time to discuss bankruptcy. You are permitted to use your tax refund to pay for the cost of bankruptcy. This means that you can finally use that refund to satisfy all the debt, not just to pay most of your debt and still leave that little bit that creeps back up to an uncontrollable amount.
There are two different chapters for individuals, Chapter 7 and Chapter 13. In a nutshell, Chapter 7 is when you discharge all your debt and have a clean slate. Chapter 13 is a reorganization payment plan that reduces your debt significantly and allows you to keep all your assets (that you may have to relinquish in Chapter 7). There is also a Chapter 11 which is sort of a hybrid.
What options do I have?
The unknown becomes very scary, so it is important to have an experienced attorney who can walk you through the process and advise you as to what to expect before you file, after you file, during the process, and after the process. Here at Schwam-Wilcox & Associates, we are strong believers in the phrase knowledge is power. We like to give our clients the knowledge to know exactly what is happening in their case and how the stages of their case will or will not affect them, so the fear of the unknown is diminished.
For more information on filing a chapter 7 or chapter 13 bankruptcy, you can fill out our Bankruptcy Consultation Form, and we’ll schedule you for a complimentary 30-minute virtual consultation, or you can come into the office to speak with an attorney.
