In general, Chapter 7 wipes away unsecured debts like credit card debt, medical bills, money judgments, and contractual debt. There are exceptions, and a competent attorney should be consulted. When you file Chapter 7, you are turning over control of your finances to the Trustee, appointed by the court. He or she will throughly examine your situation and determine what property you may keep, and whether there is any property in excess of your exemptions that are available to pay off your creditors.
"Exempt property" is property you may keep. In Florida, the are many categories of exemptions. Basically, assuming you qualify for the Florida state exemptions, each filing debtor can exempt equity in a motor vehicle up to $1,000 and any personal property up to $1,000. In addition, if there is no equity claimed as exempt in the homestead, or any 'benefit' derived from the homestead exemption, each filing debtor may claim another $4000 each in personal property--222.25(4) Fla.Stat) This means if you rent, you can keep $5000 each in personal property (money, clothes, electronics, basically ANYTHING). If you own where you live, it gets more complicated, and you should consult an attorney. If you bought your home within the 40 months prior to filing, you may keep up to about $136,000 equity in your home. If you bought earlier than 40 months before you file, what you keep in equity is unlimited in Florida. Annuities are typically exempt, too.
Most retirement plans are exempt, as well Social Security Payments. There are many more types of exemptions that Debtors may be entitled to, and a competent attorney should be consulted.
SECURED LOANS
When you still owe money on property secured by a loan (such as a car or home), you have three choices: Reaffirm, Surrender, or Redeem.
REAFFIRM
Suppose you decide to "reaffirm" the debt. First, this is subject to the approval of the court, and you have to show you can afford the payments. When you reaffirm, you keep the property and keep the loan. Everything just goes on like before. You no longer have the option of continuing your payments, and keeping the propety, without reaffirming the loan. Once the loan is reaffirmed, if you default on your payments and the property is taken back (repossessed, foreclosed) after your case is closed, you could be liable for any deficiency between the balance owed on the loan and the value derived by the lender when he resells the property (usually at auction), plus attorney's fees. Your bankruptcy case will not protect you from this deficiency. So be SURE that you can and will make the payments when you reaffirm.
SURRENDER
Surrendering the property is doing just that. This is hard for some people but financially necessary. If you simply can't afford that BMW, it is much better to simply turn in the keys and get a used Ford until you get back on your feet. Some people don't even need a vehicle. If you will be surendering, bankruptcy is the place to do it because there is no judgment against you for deficiency or attorney's fees. If you are being sued for default, bankruptcy stops the lawsuit and you simply turn in the car/boat/house, and that's the end of it.
REDEEM
You also have the option to 'redeem' secured property (such as the car) within 45 days of the "341 meeting" by buying it from the secured creditor in a single payment for its present value. What is remarkable is that under sec 722 of the Bankruptcy Code, debtors have the right to redeem secured property at FAIR MARKET VALUE, rather than the amount owed. This means that "underwater" property can be purchased at its real, current value. This procedure can save a debtor thousands of dollars in one motion.
Of course, you're asking: Where do I get the money to pay off the Fair Market Value of my car?? Good question. If you had a lot of money lying around, probably you would not be filing bankruptcy.
Well, there are redemption companies that offer funds for this purpose under sec 722. They loan you value of your property and pay off the prior loan. Usually the redemption loan is high interest, and they charge fees, but sometimes the saving makes it worthwhile. Tthe balance due is much lower on the new loan, which make the payments comparable or less than the old loan. This is a good choice for some people who may be able to pay off such a loan after their case is finished. Because they have most of their other debts off their backs, their cash flow can be redirected to paying off the 722 loan. Each case is different and a qualified attorney should be consulted.
In Sum---Under Florida bankruptcy laws, you can keep (partial list):
• Unemployment, disability, veterans and social security benefits
• Retirement plan and life insurance proceeds
• Alimony
• Any personal property, up to $1,000 in value, or $5000 depending on circumstances
• Business partnership property
• Crime victim and workers compensation
• Any professionally prescribed health aids
. Equity in your homestead (see above)
MEANS TEST
Most people have heard about the dreaded 'means test'. In 2005, Congress changed bankruptcy law in several ways. Under pressure from banks and credit card companies, our lawmakers required the imposition of a means test on people filing for Chapter 7 who also make more than the median income for persons of a certain sized household. The idea was to determine whether a debtor could afford to pay back a portion of their debt. Therefore, for a 1 person household, anyone making a gross income of more than about $41,000/year must take the means test, for a 2 person household, the threshold is raised to about $52,000, and so forth. the bigger the household size, the higher the threshold. It is important to understand that the relations between the persons in the household do not matter. If you are single and share a household with an unrelated person, you may file as an individual and still claim the $52,000 threshold (based on a 2 person household). However, you also must claim as 'income' any money you receive from that person that you receive on a regular basis for living expenses.
Being required to take the means test doesn't mean you fail it. In my experience, many if not most people pass the test. The means test is very complicated, and to add to the complexity, there are a few gray areas of law that are still unresolved in the courts. So consulting an experienced attorney is critical should you decide to proceed through the means test. If you "fail" the test, it means you are not entitled to proceed through Chapter 7, and either must file under Chapter 13 (and pay back a portion of your debts), or drop your case. You are not required to proceed in Chapter 13 if you don't want to. However, Chapter 13 has several distinct advantages over a Chaper 7 and should be considered in relation to your particular circumstances. Chapter 13 is 3 to 4 times more expensive in attorney's fees than a Chapter 7, however.
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