Common Types of Bankruptcy
There are two main types of bankruptcy that most people qualify for: Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 is a “liquidation” bankruptcy. This type of bankruptcy generally involves a person getting a discharge on most/all of their debts and beginning a clean slate with no debt other than mortgage obligations and car payments (should the client choose to keep those obligations). Many clients are concerned about losing homes, vehicles and other assets if they file under Chapter 7. Due to exemptions permitted by the Florida and federal laws, in most circumstances, the client can keep many of these items after filing. Sometimes in a Chapter 7 bankruptcy, a client may not have enough available exemptions to protect all assets without turning the asset over to the trustee or “buying back” the equity in the property. When you meet with a bankruptcy attorney, he or she will go over all of your assets in detail to determine if this circumstance applies.
The Chapter 7 Means Test
A Chapter 7 bankruptcy requires a qualifying process based on the bankruptcy Means Test. This test is based first on yearly gross household income. The amount is set by IRS and state guidelines and is based on household size. If a client does not qualify on the first leg of this test, additional information is provided which includes taxes, mortgage payments, car payments, insurance and other qualifying monthly expenses to see if the person then falls below the means test requirement to still be eligible for a Chapter 7 bankruptcy. If a person is not eligible for a Chapter 7 bankruptcy, a Chapter 13 bankruptcy is still a viable option.
Chapter 13 Bankruptcy
Chapter 13 is a “reorganization” bankruptcy. This bankruptcy is a good option for a client who does not qualify for a Chapter 7, has mortgage arrearages that need to be paid back, or tax debt that needs to be paid back and does not qualify for discharge through a Chapter 7. This bankruptcy option involves creating a plan for a monthly repayment by the Debtor to the trustee. The bankruptcy attorney will prepare a Chapter 13 plan with a proposed monthly payment prior to filing the bankruptcy petition.
Pursuant to federal bankruptcy law (11 USC §523), some debts may not be dischargeable and, therefore, a Chapter 13 bankruptcy may be more appropriate. Some circumstances where debts may not be dischargeable include:
- Some tax debt obligations and fines
- Some fraudulent conduct by the Debtor(s)
- Debts that were not listed in the bankruptcy petition
- Alimony, child support and/or other certain debts arising from a divorce proceeding or legal separation
- Debts that are a result of willful and malicious injury by the Debtor to another person
- Some student loan and tuition debts
- Condominium or cooperative owner’s association fees post-bankruptcy
- Debts that are a result of death or personal injury to another by the Debtor while the Debtor was intoxicated
Even if any of these provisions apply to you, it is still a good idea to speak to an attorney about whether bankruptcy may be a feasible option for you.