Bankruptcy in Orlando is a legal tool provided by Federal law that allows you to discharge your debt under Chapter 7 of the Bankruptcy Code or set up a payment plan under Chapter 13. We are bankruptcy attorneys that help explain what your options are in filing bankruptcy. We file in the middle District of Florida for residents of Brevard, Lake, Orange, Osceola, Seminole, or Volusia county.
How to File Bankruptcy in Orlando
The process to file bankruptcy in Orlando includes the following steps:
- Prepare the bankruptcy petition. The petition includes all information about your debts, your income, and your assets.
- Automatic Stay. Also called a “suggestion of bankruptcy,” the automatic stay stops all collection efforts against you during the bankruptcy process.
- Relief from Stay. Mortgage creditors and other unsecured creditor can seek relief from the stay to foreclose on their secured property.
- Assignment to a Chapter 7 Trustee. The bankruptcy case is assigned to an Orlando bankruptcy trustee. A meeting is held in conference room with you, your bankruptcy attorney, and the trustee. The trustee will ask general questions about all of the information in your bankruptcy petition.
- Objection to Exemptions. The bankruptcy trustee can asset objections to any exemptions claimed in the bankruptcy petition.
- Adversary Claims. A trustee or a creditors can file adversary claim if a credit does not think a debt should be discharged or if a creditor thinks you abused the bankruptcy process. This does not happen often.
- Bankruptcy discharge. Any non-exempt assets will be sold by the bankruptcy trustee in a Chapter 7 case. Your dischargeable debts will be discharged by the bankruptcy court. This means you would no longer owe the debt.
Filing bankruptcy is not as easy as simply filling out bankruptcy forms. There are some areas of bankruptcy law that are most frequently the subject of debtor questions. These areas include the means test, discharge of income tax liability through bankruptcy, attorney fees, how to avoid common bankruptcy mistakes, and other frequently asked questions.
Credit Card Debts
In most cases, bankruptcy is the last option. Your asset exemptions in bankruptcy are significantly worse than your asset exemptions outside of bankruptcy in state court collections. For instance, bankruptcy has significant limits on protection of your homestead; whereas outside bankruptcy, your homestead protection is almost unlimited and unconditional. Be wary of people who advise you to file bankruptcy without exploring your options to protect assets outside of bankruptcy court.
Credit Counseling Course
Bankruptcy law requires all debtors to fulfill two education requirements: a credit counseling course prior to filing and a financial management course after the filing date. Your Orlando bankruptcy attorney cannot file your case until you complete the pre‑bankruptcy course and you will not receive a discharge of your debts unless you complete the personal financial management course and file the required certificates with the Court.
The Chapter 13 Trustee offers a free personal financial management course to Chapter 13 debtors, but Chapter 7 debtors are required to take the personal financial management course on their own. All bankruptcy education courses are available in person, by phone, or online with agencies that are approved by the district in which you are filing. Most courses take less than one hour to complete and cost less than $50. Your attorney will provide you with a list of approved agencies.
Does Bankruptcy Clear Tax Debt?
It is a common misunderstanding that bankruptcy cannot eliminate any tax liability. Although treatment of tax liability is one of the most complicated aspects of consumer bankruptcy law, the Bankruptcy Code does offer many debtors substantial income tax relief. Whether or not your bankruptcy filing relieves your tax debt depends on several factors including the nature of tax liability and the type of bankruptcy proceeding.
Income Tax: Federal income taxes are eligible for discharge if they meet the discharge rules explained below
Trust Fund Taxes: Trust fund taxes refer to those taxes withheld from employee pay checks for social security and Medicare (“employment tax”). The amount withheld includes the employer’s share and the employee’s share of employment tax. A business owner is personally liable for Trust Fund taxes if he supervises the collection or accounting of the tax. The employee portion of Trust Fund taxes are not eligible for discharge in bankruptcy. Sales tax collections are deemed to be held in trust and cannot be discharged. The employer’s portion of Trust Fund taxes are eligible for bankruptcy discharge if they meet the discharge rules explained below.
Other Tax: Excise taxes such as estate and gift tax, sales tax, or fuel taxes are not eligible for bankruptcy discharge.
Secured Tax Debts: In the course of its collection efforts the IRS has to power to file a tax lien to perfect its tax claim against individuals. A federal tax lien applies to all of the taxpayer’s personal property wherever it is located even if the personal property is outside Florida. The tax lien encumbers the debtor’s real property only in the county or counties where the IRS files its tax lien. Florida’s homestead exemption does not apply to tax liens.
A federal tax lien once filed makes the IRS debt a secured claim in bankruptcy and ineligible for discharge. Tax debt which is not secured by a tax lien on property is treated as a “priority debt” which means that like other priority debts it is paid in full before money is available to pay general unsecured bankruptcy creditors.
Bankruptcy Discharge Rules
Bankruptcy discharge rules are best understood as “negative rules”, that is to say, all tax debts eligible for discharge as described above (e.g., income tax etc.) may be discharged EXCEPT the following:
- Taxes for which a tax return was due to be filed within three years (plus extensions) prior to the date of filing bankruptcy. For example, the tax return for 2011 income taxes was due to be filed on April 15, 2012, (plus any extensions) , and therefore, these income taxes cannot not be discharged by filing bankruptcy filed on or before April 15, 2015 (plus the time of extensions); OR
- Taxes assessed by the IRS within 240 days before the filing of bankruptcy. Assessment date is the date that tax liability is entered on IRS records; OR
- Taxes not yet assess but still assessable; OR
- Taxes for which a tax return was filed late and filed within two years prior to filing bankruptcy ( however, some courts have held that a late filed return prevents discharge of income tax);
- Taxes of a debtor who committed fraud related to a tax return or willfully attempted to evade or defeat taxes sought to be discharged.
- Substitute tax returns cannot be discharged- those returns the IRS files on behalf of the taxpayer
The dischargeability test is somewhat different in Chapter 13 bankruptcy. A Chapter 13 bankruptcy a debtor can discharge:
- Taxes for which tax returns were filed late but within the two years preceding the bankruptcy, provided tax assessments have either not been made or have been made more than 240 days prior to the bankruptcy filing; AND
- Taxes related to fraudulent returns or taxes the debtor willfully attempted to evade or defeat.
Discharge of Interest and Penalties: If your income taxes meet the requirements to be discharged then any interest that has accumulated will also be subject to discharge in Chapter 13 bankruptcy. The general rule is that if the event that gave rise to the penalty occurred more than 3 years before the bankruptcy then the penalty can be discharged in bankruptcy.
Chapter 7 Bankruptcy Tax Relief
Chapter 7 Bankruptcy will eliminate all dischargeable income tax debt. Chapter 7 does not avoid recorded tax liens. Chapter 13 bankruptcy involves a payment plan approved by the bankruptcy court under which a debtor pays some of his debts and discharges other debts.
There are two basic tax discharge rules in a Chapter 13 bankruptcy:
- Taxes not dischargeable in Chapter 13 are considered “priority debts” and they must be paid in full during the Chapter 13 plan. The amount of the priority tax debt includes interest and penalties assessed up to the bankruptcy filing date, but the assessment of interest and penalties stops once the bankruptcy petition is filed.
- Dischargeable tax debts will be paid in part during the bankruptcy plan, and the unpaid balance is wiped out upon successful completion of the plan.
Chapter 13 bankruptcy is better than Chapter 7 for some debtors. Chapter 13 bankruptcy enables homeowners to stop foreclosure and catch up past-due mortgage payments over the period of the Chapter 13 plan. Chapter 13 helps taxpayers who have assessed civil tax penalties. Tax penalties may not be discharged in Chapter 7 bankruptcy, and in Chapter 13 the penalties accrued to filing date must be paid in full during the Chapter 13 plan. However, filing Chapter 13 stops additional IRS interest and penalties which enables the debtor to payoff his IRS debts much faster than if he were unprotected by the Chapter 13 bankruptcy.
Filing Bankruptcy in Orlando
Any person residing, domiciled, or having property or a place of business in the United States may file Chapter 7. A business may also file a Chapter 7. Bankruptcy law includes a “means test” (which is a complicated formula of income vs. expense) in order to qualify for a Chapter 7 bankruptcy. If the means test indicates you have enough disposable income to pay more than 25 percent of your unsecured debts, you may have to file under Chapter 13 (provided you meet Chapter 13 debt ceilings). There are currently no minimum or maximum income limits or other income requirements or limitations for people whose unsecured debts are primarily non‑consumer debts such as investment liability, business losses, taxes, or student loans.
To file bankruptcy in Orlando, you must live in a county in the Middle District of Florida. These counties include Brevard, Lake, Orange, Osceola, Seminole, and Volusia.
Chapter 7 bankruptcy is the most common type of bankruptcy and is often referred to as a “liquidation bankruptcy.”
Chapter 7 bankruptcy is used to eliminate, or discharge, primarily unsecured debts such as credit cards or medical bills. Chapter 7 does not eliminate secured debts, such as mortgages and vehicle payments (unless the secured item is surrendered). Chapter 7 will not save a house from foreclosure nor a car from repossession if you are delinquent in payments. In Chapter 7, all of the debtor’s non‑exempt assets are turned over to a bankruptcy trustee for sale. Sale proceeds, if any, are distributed among the unsecured creditors.
Chapter 13 bankruptcy is a way to repay all or part of your debt, but it is not designed to discharge or eliminate most debts. Chapter 13 is used most often to save a house from a foreclosure sale. You can use Chapter 13 to “strip” a second mortgage under certain circumstances. You may also be able to obtain a mortgage modification through mediation in Chapter 13. Chapter 13 is also useful to eliminate some IRS debt and to establish an affordable plan to pay IRS debt that cannot be eliminated. Chapter 13 bankruptcy is available to individual or joint debtors with regular income. In addition, there are upper limits on the amount of the individual’s secured and unsecured debts in Chapter 13 cases.
Most people who file bankruptcy are honest people who feel badly about not paying their debts. Many believe that bankruptcy is immoral or that they are doing something wrong. I understand how most of my clients feel about bankruptcy, but I believe they are being too hard on themselves.
Here are a few reasons why I believe bankruptcy should not be a moral issue:
- People promise to pay their bills, and people also promise to take care of themselves, their spouse, and their children. Sometimes things happen in life which make it impossible to keep both promises at the same time. If your family is more important to you than your creditors, then bankruptcy may be the right thing to do. You can always repay your discharged debts when you are able to do so.
- Deuteronomy 15:1-11 enacted what is essentially the first bankruptcy law: At the end of every seven years, you must cancel debts. This is how it is to be done: Every creditor shall cancel the loan he has made to his fellow Israelite. He shall not require payment from his fellow Israelite or brother, because the Lord’s time for canceling debts has been proclaimed” (NIV). In 1800, Congress used this law as the basis for the first bankruptcy statutes when it said that a person can file bankruptcy every seven years.
- Walt Disney declared bankruptcy before he created Disney World in Orlando, Florida. If not for the bankruptcy laws, this entertainment giant would not have been able to achieve his dreams.
- Congress enacted bankruptcy laws to help you. The law recognizes that when you are swamped with debt, you are unable to provide for your family or to be productive in our economy. It is in your best interest, and in the best interest of the people who depend on you, to clean the slate and give yourself a fresh start in life.
- You have probably already paid back your credit card debt through payments which the credit card companies chose to label as “interest” and “penalties.” The credit card companies are equally responsible for your bankruptcy. When you first encountered financial trouble, these creditors probably did not lower your interest rate or allow you to defer payments. The credit card companies are usually not understanding or sympathetic. These companies don’t care if you file bankruptcy because they have already recouped any losses through their 18 percent to 26 percent interest rates.
- This latest recession showed us that the best-intentioned and smartest business people in the world can make financial mistakes or can suffer financially without fault because of the world-wide financial system. Many very conservative businesses have recently failed ranging from small family operations to our largest financial and manufacturing corporations. Don’t blame yourself if you succumb to the same pressures that put our best and brightest businesses into bankruptcy.
Filing in Florida
Any Florida resident can file bankruptcy in Florida with a bankruptcy attorney. If you file bankruptcy in Florida, however, you can only claim Florida’s exemptions if you have resided in Florida for the previous two (2) years. Otherwise, you must use the exemptions of the state where you lived the previous two years or, in some cases, the default set of federal bankruptcy exemptions.
Married debtors can file a joint bankruptcy petition for a single filing fee. Most attorneys charge the same legal fee for joint cases as they do for individual cases. Married couples who are jointly liable on most debts should file a joint bankruptcy.
If only one spouse is liable on most of the debts, the indebted spouse may file an individual bankruptcy. In most cases, the individual debtor’s bankruptcy will have no adverse effect on the non‑filing spouse.
Is an attorney necessary? No. Bankruptcy law does not require that you hire an Orlando bankruptcy attorney to prepare a bankruptcy petition or to represent you in your bankruptcy case in Central Florida. If you enjoy doing things yourself, or if you really cannot afford an attorney, you can find forms on the internet to file your own petition and schedules.
However, bankruptcy is a complicated area of the law, and the bankruptcy law gives no special treatment to debtors who file their own petition. The 2005 Bankruptcy Reform Act made filing bankruptcy substantially more complicated and the practice of bankruptcy law is therefore more specialized.
Student Loan Debt
Bankruptcy does not wipe out student loans except in situations of significant financial hardship.
Many student loan debtors can be relieved financially if they could modify their student loans to reduce monthly payments to amounts they could better afford given their current income.
The Middle District of Florida is making it easier to modify student loan terms and payments in a bankruptcy proceeding. The program, referred to as the student loan modification program or “SLM Program” is not unlike the bankruptcy court’s mortgage modification program implemented during the real estate recession. An Orlando bankruptcy attorney can help guide you through the program.
The SLM program provides a procedure for student loan debtors and their creditors to participate in a court-sanctioned mediation that benefits both parties. Debtors may be able to reduce monthly payments commensurate with their actual income and expenses, and creditors receive more money than they otherwise would if the debtor defaulted on all payments.
The bankruptcy court’s SLM program imposes duties on both the bankruptcy debtor and the student loan creditor. The debtor is required to provide financial documents related to his financial ability to make loan payments including additional information reasonably requested by
the creditor. The creditor is required to promptly determine the debtor’s eligibility for repayment modification.
In Chapter 13 bankruptcy, a new loan payment amount is incorporated in to the Chapter 13 plan.
One of the biggest issues in the bankruptcy court’s mortgage modification mediation was efficient exchange of information and documents. To facilitate document exchange and communication between the bankruptcy debtor and the creditor the new SLM program uses an online portal that includes a standard loan modification application.
The program uses a Document Preparation Software to ensure that the debtor’s initial submission is accurate and complete. The creditor may request additional supporting documents and financial information. An online portal avoids creditors losing or misfiling documents submitted by mail which had been an issue with mortgage modification meditations.
The student loan modification program is available to debtors in both Chapter 7 and Chapter 13 bankruptcy. The program begins August 1, 2019, but it is the open to any debtor with an open case pending in the Middle District of Florida bankruptcy courts.
The program established the amount of $1,500 as a typically reasonable bankruptcy attorney fee payable to the debtor’s bankruptcy attorney for assisting an application for loan modification. Orlando bankruptcy attorneys typically charge this amount.
Bankruptcy Attorney Fees
In the past, most consumer bankruptcies were relatively simple and legal fees were low. The 2005 Bankruptcy Reform Act increased the amount and complexity of legal work required to prepare a bankruptcy petition and successfully complete a filing, and as a result, legal fees are higher. Also, the amount of work and fees will vary according to the debtor’s income level.
As a general guideline, a debtor below median income should not have to pay more than $1,500 to an Orlando bankruptcy attorney in legal fees for a simple Chapter 7 bankruptcy. The court charges a $335 filing fee. An individual debtor with income above Florida’s median income will usually have to pay $200 to $500 more as additional paperwork is required.
Chapter 13 Fees
Chapter 13 cases are more complicated and legal fees are higher. The Orlando Division judges expect and approve legal fees for an Orlando bankruptcy attorney of approximately $4,500 (in addition to the filing fee of $310) to file an complete a standard Chapter 13 case.
If your Chapter 13 case involves complicated legal issues, multiple properties, lien stripping, and/or mortgage modification, legal fees will be higher. The good news is that most attorneys require a down payment of approximately $2,500 to $3,000 (plus the filing fee) to prepare and file a Chapter 13 case. The balance is paid through the Chapter 13 plan over a period of several months.
1. Waiting Too Long. No one wants to file bankruptcy, and it is human nature to put off unpleasant events like bankruptcy. Most people feel terrible about filing bankruptcy so they postpone bankruptcy as long as possible. Waiting too long to file gives your creditors the opportunity to seize your assets by garnishment and levy. Also, people who postpone bankruptcy often deplete protected assets such as their retirement funds and are left with no savings after filing. Wage garnishment, foreclosure, and repossession can all be stopped by filing bankruptcy before creditors begin these collection actions. The purpose of bankruptcy is to help you recover from financial difficulty, and waiting too long to file makes recovery more difficult.
2. Getting a Second Mortgage Instead of Filing Bankruptcy. Many clients try to put off inevitable bankruptcy by obtaining a second mortgage to pay off their unsecured debts. If you cannot make your first and second mortgage payments, you can lose your home. It is not wise to risk your home for the benefit of unsecured creditors.
3. Depleting IRA and 401k Plans to Pay Creditors. Your IRA and 401K plans, as well as other tax qualified plans, are exempt assets. You can file bankruptcy and still keep all of your qualified retirement savings to help reestablish your normal lifestyle after bankruptcy and to provide a safety net for your retirement. Do not sacrifice your retirement security to pay your unsecured creditors. Eventually, you may still have to file bankruptcy, and in that case, there is no benefit to having depleted retirement funds in an effort to postpone filing.
4. When You Have a Substantial Tax Refund Pending. The exemption for income tax refunds is limited, and an ill-timed bankruptcy filing may jeopardize your tax refund. You should discuss any expected refunds with your attorney before filing.
6. Failing to List All Creditors. A creditor you forgot to list on your bankruptcy petition may not be discharged. You should list all creditors, even potential creditors and those you intend to repay. You must also include debts owed to family members and insiders.
7. Large Credit Usage Shortly Before Filing Bankruptcy. You must tell your attorney if you have taken significant cash advances, made balance transfers, or made other large purchases within the previous three months. Do not use a credit card after you first consult with a bankruptcy attorney or have made the decision to file bankruptcy.
8. Paying Back Loans to Family Members Before Filing Bankruptcy. People generally do not want to file bankruptcy against their family members or business partners so they sometimes repay these loans before contacting a bankruptcy attorney. Repayment of family loans are called “preferences” because you are giving your family members preference over your non‑family creditors. The bankruptcy Code does not allow preference payments. The Trustee can sue your family members to recover sums paid to them within the past year.
9. Transferring Non-Exempt Assets to Others. Assets transferred in anticipation of filing bankruptcy may be recovered by the trustee as a fraudulent conveyance. Giving away money or other assets to your children, parents, or siblings will not protect the assets from the bankruptcy trustee, and such transfers may jeopardize your bankruptcy discharge. In addition, the trustee may sue your family members to reverse such transfers.
10. Ignoring Letters from the Court and Your Attorney. Any notice or letter you receive either from the bankruptcy court or your attorney is important. Failure to respond to a communication may have adverse consequences. There is probably a good reason why your attorney is trying to contact you or is asking for information and documents.
What to Do Next
We help clients in central Florida with filing Chapter 7 bankruptcy. We can take of your entire case from start to finish. Give us a call today for a free consultation.