Filing Bankruptcy in Florida
In Florida, Chapter 7 Bankruptcy is the legal procedure where most forms of unsecured debt are forgiven and most of your non-exempt assets are liquidated. To file a Chapter 7 bankruptcy in Florida, you must first be a permanent resident of Florida or own property in the state. Florida has three bankruptcy districts (Southern District, Middle District, and Northern District), and each of Florida’s counties is assigned to one of the three bankruptcy districts. You must file bankruptcy in the district and division where you reside.
The Middle District has three separate divisions: Jacksonville, Orlando, and Tampa/Fort Meyers. To file in the Orlando Division, you must be a resident of Brevard, Lake, Orange, Osceola, Seminole, or Volusia County.
An important concept in both Chapter 7 and Chapter 13 bankruptcy is “exemptions” or “exempt property.” When you file a Chapter 7 bankruptcy in Florida, the Chapter 7 Trustee takes control of your “non-exempt” property and sells it for the benefit of your unsecured creditors. The Trustee cannot take your exempt property, and you may keep all of your exempt property regardless of its value and amount.
What property is “exempt” and what property is “non-exempt” depends on the exemption laws of the applicable state. Each state has its own exemptions for bankruptcy purposes. Florida has liberal bankruptcy exemptions for some assets, including an unlimited homestead exemption (in most cases) but has limited exemptions for other assets. Only Florida residents are eligible for Florida exemptions.
Florida Bankruptcy Exemptions
Florida bankruptcy exemptions are the categories of personal and real property that a bankruptcy debtor may keep through the bankruptcy process. In other words, the exempt property will be released to the debtor, while non-exempt property will be sold to pay off some or all of your creditors. The most common Florida bankruptcy exemptions include:
- Homestead. Up to 1/2 acre in a city and 160 contiguous acres in the unincorporated county.
- Personal property exemption. If you own a home, this exemption is limited to $1,000. Otherwise, it is limited to $4,000.
- Vehicle. Up to $1,000.
- Wages. The earnings of a person who is head of household are exempt.
- Retirement accounts. Your IRA, 401k, pension, and simlar retirement accounts are exempt under section 222.21(2)(a) of Florida law.
Just because you are a Florida resident when you file for Chapter 7 bankruptcy does not mean you are entitled to Florida exemptions in bankruptcy. Therefore, before you file bankruptcy you and your bankruptcy attorney must ascertain which state laws will determine your exempt assets. The state exemption law applicable to your bankruptcy is determined by the state in which you have been domiciled for the 730 days (two years) immediately preceding your filing date.
If you have not been a permanent resident of Florida for the two-year period immediately preceding your bankruptcy, then your bankruptcy exemptions will be those allowed by the state in which you were domiciled for 180 days immediately preceding the two year period, or the state in which you were domiciled for the longer portion of such 180-day period.
Otherwise stated, a person filing bankruptcy in Florida today is eligible for the property exemptions he could have claimed if he had filed two years ago. If this person was a Florida resident two years ago he claims Florida exemptions today; if two years ago he was a resident of a different state then he is entitled to the exemptions of the state of his prior residence (or federal exemptions if that state has residency requirements for use of its exemptions).
Florida Homestead Exemption in Bankruptcy
The Florida homestead exemption operates differently in a bankruptcy than a state court. Under bankruptcy law, the Florida homestead exemption is available in bankruptcy up to $146,450 unless the debtor occupied his current Florida homestead property and previous Florida homestead properties for a continuous 40-month period. Joint bankruptcy debtors can protect $292,900 of a jointly-owned homestead. These numbers increase from time to time so debtors must get the current limits from their bankruptcy attorney.
Also, a debtor’s transfer of cash into his homestead within 10 years of filing bankruptcy that is intended to defraud creditors may be challenged by the bankruptcy trustee if the transfer was intended to defraud creditors. Bankruptcy law has no effect upon Florida’s unlimited homestead exemption in state court proceedings.
Examples of Bankruptcy Exemptions
Consider a person who sells his residence in Georgia for $100,000 and moves to Florida in January. In March of that year he purchases a Florida homestead for $100,000. The person gets a Florida drivers license and registers to vote in Florida. In March of the following year, 14 months after becoming a Florida resident, the same person loses his job and files for Chapter 7 bankruptcy. Under the new bankruptcy law, Georgia’s relatively limited exemption laws would apply to this bankruptcy, and the debtor would not have the benefit of Florida’s homestead protection.
In reality, the laws about bankruptcy exemptions are much more complicated than the example above. For example, some debtors will not qualify for the exemptions of any state and must use federal bankruptcy exemptions. Before you file bankruptcy in Florida you and your bankruptcy attorney should discuss where you have resided during the past few years and whether Florida bankruptcy exemptions would apply in your case. In some cases, the state where you moved from will provide better bankruptcy exemptions than will Florida law.
Florida Bankruptcy Means Test
The Florida bankruptcy means test is a complex formula established by Congress to determine who may be eligible to file Florida Chapter 7 bankruptcy. Debtors under their state’s median income and debtors whose debts are primarily not consumer debts are exempt from means test qualification.
If your gross household income is above median income, you will need to complete and “pass” the means test in order to file Chapter 7 bankruptcy.
Chapter 7 Bankruptcy Process
There are several important steps to a Chapter 7 bankruptcy:
Suggestion of Bankruptcy. A suggestion of bankruptcy, also known as the automatic stay, commences immediately upon the filing of the bankruptcy petition. It acts like a shield between you and your creditors during the bankruptcy. The stay prohibits the commencement or continuation of creditors’ judicial proceedings against you as well as all collection efforts. It is important that your attorney is provided with a copy of any lawsuits you have received and the name and address of the creditor’s attorney as you or your bankruptcy attorney should file a Suggestion of Bankruptcy in any pending civil cases. With the advent of required electronic filing of pleadings in all Florida state court cases, your attorney may prepare the Suggestion of Bankruptcy for you to file with the state court. If you have not received the form from your attorney, you may want to check with your bankruptcy attorney’s office regarding preparation and filing of the Suggestion of Bankruptcy.
Relief from Stay. In Chapter 7 bankruptcy cases, mortgage creditors typically file a Motion for Relief from the Automatic Stay so that they are able to foreclose on your secured property in the event you do not pay your mortgage payments in a timely manner. The bankruptcy court will usually grant this motion, but that does not mean that the creditor can immediately take your property. The creditor can take your property only if you do not pay the loan in a timely manner under the terms of your mortgage or loan contract with the creditor, and only after the creditor forecloses its mortgage or lien in state court. If you are in default on an auto loan, the creditor can repossess the vehicle without filing to have the stay lifted if it has been more than 60 days since the originally scheduled creditors meeting and you have not formally reaffirmed the debt. When a secured creditor files a Motion for Relief From Stay the court will enter an Order granting the Motion once the objection period has passed. If an objection is filed, the Court will schedule a hearing. You should not file any pleadings directly with the bankruptcy court if represented by an attorney.
The Chapter 7 Trustee. A trustee is randomly appointed by the Court immediately upon the filing of a Chapter 7 petition. The Chapter 7 trustee is usually a private attorney or CPA and is compensated primarily by a percentage of the non-exempt assets collected from you. In Chapter 7 one job of the trustee is to gather all of your non-exempt assets, sell those assets (to either you or an outside party), and distribute the proceeds among your unsecured creditors.
Meeting Your Trustee. Your meeting with your Chapter 7 trustee (the “creditors meeting” or “341 meeting”) is held in a conference room, not a courtroom. The federal bankruptcy judge is prohibited by law from being there. Typically this meeting will last about ten to fifteen minutes. Your attorney can tell you what questions to anticipate. A representative of the U.S. Trustee’s office (a different trustee) sometimes attends these meetings. You and your bankruptcy attorney are required to attend the creditors meeting (if filing jointly, both spouses must attend). As a practical matter very few, if any, unsecured creditors attend. The Chapter 7 Trustee’s job is to represent all creditors whether or not a creditor attends the meeting of creditors.
At the 341 meeting, the Chapter 7 bankruptcy trustee will ask you questions, but he will not interrogate you, cross-examine you, or threaten you. The trustee may ask you why you filed bankruptcy and ask questions about your assets and your sources of income. The trustee often will inquire about information contained in your bankruptcy petition and schedules. As stated above, the U.S. Trustee may ask questions about your income and expenses to make sure you qualify for Chapter 7 bankruptcy and that your bankruptcy is not an abusive filing.
Creditors meetings are scheduled by the court based on the trustee’s schedule. Your bankruptcy attorney is not able to request a particular meeting date or time. If you are unable to attend the 341 Meeting you should notify your bankruptcy attorney at least one week in advance so your attorney can contact the trustee for a continuance. The trustee will usually schedule a “make-up” meeting approximately two weeks after the first date. If you do not attend the second meeting, the trustee may move to have your case dismissed.
Trustee’s Objection to Exemptions. The Chapter 7 bankruptcy trustee has 30 days after the conclusion of the creditors meeting to object to any exemption of property claimed on your bankruptcy petition. Absent trustee objection, all property listed as exempt, including your homestead, is exempted in bankruptcy and is not part of your bankruptcy estate. If the trustee objects to a claimed exemption, the court will set a hearing at which time you will have the opportunity to provide evidence supporting the exemption. If there is no objection to your exemptions within 30 days after the conclusion your creditors meeting, you probably can do what you want with assets claimed as exempt on your petition. However, prior to disposing of or transferring any property (including exempt property), you should consult your bankruptcy attorney.
Transferring Property After Filing. Immediately upon the filing of a bankruptcy petition, a legal “estate” is created by law which consists of everything you own at the time you filed bankruptcy. This is called the “bankruptcy estate.” You should never sell, give away, or transfer any of your real or personal property which is part of your bankruptcy estate either immediately before or after the filing of your petition without checking with your bankruptcy attorney. You may transfer or sell property you claimed as exempt property on your bankruptcy petition if there is no objection made to the exemption within 30 days after your creditors meeting.
Creditor Adversary Claim. The majority of Chapter 7 cases do not involve adversary matters; however, if a creditor believes its claim should not be discharged, it may file, or threaten to file, an adversary case against you during the bankruptcy proceeding. The most common grounds for the filing an adversary case is “fraud.” Fraud in this context is not criminal, but it means that you allegedly have abused the bankruptcy process. For example, if you used credit to buy property or take cash advances prior to filing bankruptcy when you were insolvent and did not anticipate repaying the debt, or after you planned to file bankruptcy, this could be grounds to set aside a discharge of that debt for fraud, and the creditor may have a basis to file an adversary case.
Trustee Adversary Claim. The Chapter 7 trustee may also file an adversary case to recover non-exempt property. A trustee may file a motion to value property which she believes you have undervalued in order to be under the $1,000 personal property exemption. If the trustee convinces the court to increase the property value, she can then recover any of your property in excess of your exemption limit.
Secured and Unsecured Debts.
The bankruptcy petition asks you to list secured debts separately from unsecured debts. Unsecured debts include personal loans and credit cards issued by banks, such as Visa, MasterCard, American Express, or Discover, and other credit cards used to purchase consumable items. Vehicle leases, medical bills, and personal loans are also unsecured debts. Secured debts include those debts where the creditor has a security interest in your property to guarantee payment.
Examples of secured debts include mortgages, car loans, loans from finance companies (usually secured by household items), furniture, computers or electronics. If you purchased store goods using a store credit card, such as a card from Rooms to Go, Best Buy, etc., the store probably has a security interest in certain items purchased, which makes the store a secured creditor.
After filing a Chapter 7 bankruptcy in Florida, you will have to choose to either reaffirm or redeem the secured debt or surrender the secured property to the creditors. You are entitled to keep any secured property as long as you continue to pay the loan for that property in a timely manner. If, however, you elect to surrender secured property, the secured creditor may not thereafter recover any money from you personally on that debt.
Some mortgage companies recently have required borrowers to sign cross-collateralization agreements by which the mortgage borrowers pledge bank accounts and other financial instruments to secure their mortgage. A cross-collateralization clause allows the mortgage lender to take money in your financial accounts to pay delinquent mortgage payments.
If you are unsure whether you pledged financial accounts to your mortgage lender, you should review the papers you signed when you got your mortgage and/or when you opened your account. You may want to move your money to a new bank before defaulting on a mortgage loan.
Your Chapter 7 bankruptcy estate refers to your non-exempt assets that are subject to administration by the bankruptcy trustee. Exempt assets, such as your homestead and IRA, are not part of your bankruptcy estate.
You must file a reaffirmation agreement for all secured vehicles you want to retain within 60 days of the first scheduled meeting of creditors (or 341 meeting). If you do not sign the reaffirmation agreement or redeem the property within 60 days, the automatic stay is lifted as to that property and the creditor is permitted to take all legal action allowable under the law to repossess the property, even if your payments are current. Signing a reaffirmation agreement means that you will be personally liable to pay the debts after your bankruptcy is over.
Your attorney will usually sign your reaffirmation agreement if you have sufficient disposable income at the time of the filing of your bankruptcy case to pay the secured debt. The attorney may choose not to sign your reaffirmation agreement if you have negative disposable income at the time your case is filed or if he believes there is a presumption of undue hardship.
If your attorney does not “approve” reaffirmation, the Florida bankruptcy judge will review the reaffirmation agreement and either deny or approve the agreement or schedule a hearing on reaffirmation of the agreement. The bankruptcy judge will deny reaffirmation if she believes that reaffirmation is not in your best interest for a “fresh start.”
If the reaffirmation is denied you may be able to keep your property if payments are current. Even if the court refuses to approve your reaffirmation many creditors will let you keep your property if you maintain current payments. (A creditor usually will not provide a reaffirmation agreement if you are delinquent in your payments.)
The automatic stay is imposed immediately upon the filing of your Chapter 7 bankruptcy and acts like a shield between you and your creditors. The stay prohibits creditors from starting or continuing legal action against you and stops all collection efforts.
An executory contract is a technical legal term referring to a contractual agreement in which both parties are obligated to do something in consideration for a benefit (such as a car lease or a residential lease). Executory contracts do not include “at will” contracts such as an employment agreement or a personal service contracts.
Chapter 7 bankruptcy permits the debtor, or the trustee, to assume or reject an executory contract. A debtor has to decide what to do about an executory contract before the court issues a bankruptcy discharge which usually happens about 90 days after filing.
Executory contract law is complicated. Here are some of the basic things a debtor should understand about executory contracts, using a car lease as an example. If the debtor rejects the car lease, he surrenders the car to the leasing company and has no further liability. If the debtor wants to assume the lease, the debtor must make current payments at least until he exercises the assumption option. The debtor and creditor must sign the lease assumption, but the assumption does not require court action. After assumption the debtor can keep the property as long as he makes lease payments.
If the debtor subsequently defaults in lease payments, the leasing company can take back the car. Assumption of executory contract is not a reaffirmation of the lease, so the leasing company may not sue the debtor for the balance of payments due under the lease following default.
Bankruptcy also gives you the option to “redeem” secured personal property such as furniture, computers, automobiles, or other property purchased on credit and subject to a lien in favor of the lender. Redemption means purchasing the property from the secured lender at its current fair market value considering its age and condition. When the fair market value is less than the amount due under the loan, redemption can be financially beneficial.
Student loans are not dischargeable unless you can show that your loan payments impose “undue hardship.” In order to eliminate your student loans under the “undue hardship exception” you must file a separate motion with the bankruptcy court, and you must appear before the bankruptcy judge with proof of your hardship. As a practical matter, it is very difficult to demonstrate undue hardship unless you are physically unable to work. Most bankruptcy courts use the Brunner test in determining hardship.
In order to prove “undue hardship” under Brunner, you must demonstrate that “(1) the debtor cannot maintain, based on current income and expenses, a ‘minimal’ standard of living if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.”
Contingent and Disputed Liabilities
Make certain you provide your attorney information about all liabilities, no matter how remote. List any claim that anyone might have against you even if the claim has not yet matured. If you are a co-debtor on a note, have personally guaranteed corporate or other debt, or are secondarily liable on a mortgage that has been assumed by a purchaser, the debt should be listed along with a brief explanation of the liability. Disputed debts and liabilities should also be listed.
If you have ever had a home mortgage that was insured by a governmental agency (such as the VA), be sure to list that agency as a contingent creditor. This should be done even when someone purchased the property and assumed the mortgage since they might default and the VA could decide to pursue a claim.
The bankruptcy discharge is the legal process that wipes out your legal liability to your creditors. Creditors who have been discharged in bankruptcy can never again try to collect debts that you incurred prior to filing bankruptcy.
What to Do Next
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