Chapter 7 Bankruptcy

If you are buried in debt, tired of harassing phone calls from collections agencies, and trying to find a way out, bankruptcy may be appropriate.

What is Chapter 7 Bankruptcy?

When most people think about bankruptcy, they likely imagine Chapter 7 bankruptcy. Chapter 7 bankruptcy is commonly referred to as “straight” bankruptcy and involves liquidating the debtor’s non-exempt assets to satisfy creditor claims. With some exceptions, at the end of the case, the debtor’s debts are discharged. This gives the debtor a fresh start moving forward, which is what many people considering bankruptcy want.

Chapter 7 bankruptcy petition

What Debts Are Discharged?

Debts commonly discharged in Chapter 7 bankruptcy include:

  • Credit card debt

  • Medical debt

  • Rent

  • Utility bills

  • Personal loans

  • Deficiencies after repossessions/foreclosures

  • Most court judgments

What Debts Are Not Discharged?

The following debts either cannot be discharged in a Chapter 7 bankruptcy or are not discharged without extra, adversarial proceedings:

  • Taxes

  • Student loan debt

  • Alimony

  • Child support

  • Personal injury/wrongful death due to drunk driving

  • Debts not included in the bankruptcy petition/schedules

Who Can File for Chapter 7 Bankruptcy in Florida?

Florida has strong protections for debtors, but not just anyone can claim these. You must have been a resident of Florida for at least 730 days before filing in order to take advantage of Florida’s exemptions. Otherwise, the laws of the state in which you were most recently a resident will apply.

What is the Automatic Stay?

When someone files for Chapter 7 bankruptcy, the automatic stay kicks in to protect the debtor from creditors taking certain actions against them. The automatic stay begins as soon as the bankruptcy petition is filed, and it protects the debtor from a number of things, including:

  • Collection efforts

  • Harassment from creditors

  • Foreclosure and eviction actions

  • Repossession efforts

  • New liens against property

  • New lawsuits from creditors

The automatic stay generally lasts until either the bankruptcy case is closed or dismissed, a discharge is granted or denied, or the court issues an order ending the stay.

Property Exempt from Creditors During Chapter 7 Bankruptcy

With few exceptions, Florida does not use the federal bankruptcy exemptions. Instead, Florida has specified its own set of exemptions debtors can elect to take when filing for Chapter 7 bankruptcy. In Florida, a debtor can elect to exempt the following property from being liquidated to pay creditor claims:

  • The debtor’s homestead (up to 1/2 acre within municipality limits or up to 160 acres outside a municipality), with no limit on the value of the property so long as the debtor lived there for at least 1215 days prior to filing (if the debtor has lived there less time, federal law limits the value that can be exempted). Note that this exemption does not apply to debts specifically attached to the homestead property, like a mortgage.

  • Mobile home or modular home owned by the debtor but physically on leased land.

  • Retirement accounts, regardless of value.

  • Health Savings Accounts (HSA) and education savings plans (529 plans and Florida Prepaid College Trust Fund).

  • Achieving a Better Life Experience (ABLE) accounts.

  • Cash surrender value of life insurance policies of which the debtor is the insured.

  • $1,000 in personal property.

  • Up to $5,000 in value in a motor vehicle.

  • Any professionally prescribed health aides for the debtor or debtor’s dependents, regardless of value.

  • If the debtor does not take the homestead exemption, up to an additional $4,000 in personal property.

Income Exempt from Creditors During Chapter 7 Bankruptcy

Along with the above property, certain income is also exempt from creditors during bankruptcy cases:

  • Social Security, unemployment, and local public assistance benefits;

  • Veterans’ benefits;

  • Disability benefits;

  • Alimony, support, and maintenance, to the extent needed to support the debtor and debtor’s dependents;

  • Pensions, annuities, and profitsharing plans earned or awarded due to illness, disability, age, death, or length of service, and

  • Head of household income.

Steps of a Chapter 7 Bankruptcy Case

Part of the appeal of filing for Chapter 7 bankruptcy is that the case is usually over fairly quickly (around 4 months), but there are several steps along the way:

  1. Complete an initial credit counseling course within 180 days of filing the bankruptcy petition.

  2. File the bankruptcy petition, schedules, and proof of completion of the credit counseling course.

  3. Send all required and requested documents to the bankruptcy trustee.

  4. Attend the meeting of creditors (commonly referred to as a 341 meeting).

  5. Complete and file proof of completion of a financial management course within 60 days after the 341 meeting (or first meeting, if multiple are needed).

  6. Receive the order of discharge, at which time the case is closed.

Depending on the debtor’s situation and goals, some other steps in the process may be:

  • Redeeming property: paying the creditor the value of the property in order to keep it.

  • Reaffirmation agreements: agreements to keep paying certain debts that may otherwise be discharged, but under new terms, usually more manageable for the debtor 

  • Buying back property the bankruptcy trustee would otherwise be entitled to liquidate to satisfy creditor claims.

Schedule a Consultation

Wondering if Chapter 7 bankruptcy is right for you? Michael Merhar is a Chapter 7 bankruptcy attorney handling cases in U.S. Bankruptcy Courts for the Northern and Middle Districts of Florida. Schedule a free consultation today.