How you file bankruptcy is determined by which chapter of the Bankruptcy Code you file under, and your individual circumstances determine what that means. Chapter 7 bankruptcy, otherwise known as liquidation bankruptcy, involves the surrendering of non-exempt assets to pay off debts, and some debts cannot be discharged in this way (although they can be reorganized in other ways). In this article, learn everything you need to know about filing chapter 7 bankruptcy—whether it’s right for you or not. The bills are flooding in, and the credit cards are mounting but the disposable income is not. You can't catch up and you see no way out. You may even feel frozen! You have the option to file for bankruptcy to make a fresh start. But where do you begin?
What are the different types of debts? You can have credit card debt, medical debt, tax debts, student loan debt, personal loan debt, and secured debts like car loans and real estate loans. The thing to consider is not all of these are dischargeable. These can result in the most common form of bankruptcy in the United States is Chapter 7. It is designed for individuals who need help getting out from under their unsecured debts. Chapter 7 may be a good option if you have assets that can be sold to pay off some or all of your unsecured debts. However, it won't help if you are in significant debt because of secured property (such as a car). If this is the case, then Chapter 13 would be more beneficial to you. Chapter 7 will not give you any relief from mortgage payments or child support obligations. These must be addressed during filing with other chapters. Chapter 7 can discharge certain types of government-issued debts such as student loans and unpaid taxes but there are exceptions and exclusions so it's important to consult an attorney about what will apply to your situation.
Everyone has a unique situation and financial problems are going to look a little different. There are different types of debts and the bankruptcy process can be in depth. Filing for Chapter 7 bankruptcy can help you get a fresh financial start by wiping away most of your debts. You might have personal property or secured property, but the state puts exemptions in place to protect you. The process starts with the filing of a petition and ends with a discharge that could take place as soon as three months later.
A bankruptcy trustee will be appointed to liquidate any nonexempt assets and distribute the proceeds among your creditors. If there are not enough assets, then some or all of your unsecured debts will be discharged. This means that those debts are no longer owed and cannot be collected from you.
If you have secured loans like home mortgages, then the lender would need to agree in writing before any debt is discharged for those loans. Unsecured debts such as credit cards and medical bills can usually be discharged even if the debtor does not qualify for an exception.
In general, chapter 7 bankruptcy will wipe out about 60-70% of your total unsecured debt. Secured debts such as car payments might only drop by 30-50%. Discharging these types of loans also depends on whether you live in certain states where exemptions apply to property values up to certain amounts; this is called homesteading.
Passing the Means Test
Here is Florida's median income based on household size. Only consumer debts will qualify, not business debts. You can use the forms on the US Bankruptcy Court website to try the means test for yourself.
Passing the means test does not automatically qualify you to file chapter 7. The courts will also look into your taxes and review your Schedule I: Your Income and Schedule J: Your Expenses. They want to be sure there is no additional disposable income that could be used to pay your creditors.
If you have passed the means test, the decision to file should be carefully reviewed. Talk to an attorney and review your specific case carefully. Most attorneys offer a free case evaluation. This is a great opportunity to determine if your case fits with the need to file bankruptcy. You can also read What is a Chapter 13 Bankruptcy?
Florida Median Income Levels
Florida Median Income Standards for Means Test for 2021
Household Size Median Income