Frequently Asked Bankruptcy Questions
Do I qualify for bankruptcy?
There is no minimum amount of debt required before a person is eligible to file
bankruptcy. The more relevant question is whether it is prudent to file bankruptcy given the
amount and type of debt involved. Generally speaking, anyone is eligible to obtain relief under the
Bankruptcy Code so long as they have taken the required credit counseling course. Under the
Bankruptcy Reform Act of 2005, a debtor who previously received a Chapter 7 discharge is not
eligible to receive another Chapter 7 discharge until eight years have passed from the date of filing
the previous case.
What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?
Chapter 7 is what people typically imagine when they think of filing for bankruptcy. It is
designed for debtors who do not have the ability to pay their existing debts and want a fresh start
financially. A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in
chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and
uses the proceeds of such assets to pay creditors in accordance with the provisions of the
Bankruptcy Code. Your creditors will typically receive pennies on the dollar and the remaining
balance owed will be discharged. Under the Bankruptcy Code, the debtor is allowed to keep their
"exempt" assets. In most cases a chapter 7 is completed within 3 to 6 months from the date of
A chapter 13 bankruptcy is also called a wager earner's plan. It enables individuals with
regular income to develop a plan to repay all or part of their debt via installments over three to
five years. Chapter 13 offers individuals a number of advantages over liquidation under chapter 7.
Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from
foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may
cure delinquent mortgage payments over time. Nevertheless, they must still make all mortgage
payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is
that it allows individuals to reschedule secured debts (other than a mortgage for their primary
residence) and extend them over the life of the chapter 13 plan. Doing this may lower the
payments. Chapter 13 also has a special provision that protects third parties who are liable with
the debtor on "consumer debts." This provision may protect co-signers. Finally, chapter 13 acts
like a consolidation loan under which the individual makes the plan payments to a chapter 13
trustee who then distributes payments to creditors. Individuals will have no direct contact with
creditors while under chapter 13 protection.
What is a the role of a trustee in a chapter 7 or chapter 13 bankruptcy?
Under Chapter 7, an impartial trustee is appointed to review your bankruptcy petition and
administer the case by collecting and liquidating the Debtor's non-exempt assets in a manner that
maximizes the return to the Debtor's unsecured creditors. After the trustee's expenses have been
paid, any remaining funds are distributed to the creditors.
Under Chapter 13, an impartial trustee is also appointed to administer the case. The
primary roles of the chapter 13 trustee are to determine the feasibility of a Debtor's repayment
plan for the court and to serve as a disbursing agent, collecting payments from Debtors and
making distributions to creditors.
Which chapter bankruptcy is right for me?
The first question is whether you should file bankruptcy. After analyzing your financial
situation it may be possible to obtain relief from your debts without having to file bankruptcy. In
other cases, bankruptcy is the only viable option. Our experience is that most individuals do all
that they can to avoid bankruptcy and only consider bankruptcy when other alternatives have
Whether you file bankruptcy and under which chapter depends on your particular
circumstances. Chapter 7 is generally appropriate if you insufficient income to pay a portion of
his/her debts, and you do not intend to keep non-exempt property. If you have some sufficient
income or wishes to retain certain non-exempt property, a chapter 11, 12, or 13 may be
appropriate depending on whether the debtor is an individual, corporation, or family farmer. The
decision to file a bankruptcy case and under which chapter is an extremely important decision with
significant consequences that we recommend you only make after consulting with a bankruptcy
What is the "means test"?
The Bankruptcy Reform Act of 2005 established a "means test" for filing chapter 7 cases.
The means test is designed to determine whether you are eligible for chapter 7 bankruptcy or
whether you will be required to file a chapter 13 bankruptcy. If the means test indicates you will
have disposable income to pay your unsecured debts, you will be required to pay back your
unsecured debts in a repayment plan through chapter 13. The means test evalutes your current
monthly income against certain median income figures as determined by the U.S. Census. In our
experience counseling clients in the North Florida area, the "means test" affects very few
Do I have to have credit counseling before I file for bankruptcy?
As part of the requirements of the Bankruptcy Reform Act of 2005, you must complete and
obtain a certificate from a approved non-profit budge and credit counseling agency during the
180-day period proceeding the date of filing. The course costs $50.00 and can usually be
completed online . If you file a bankruptcy
case without filing the certificate, your case will be dismissed.
I reside in Suwannee/Columbia County. Where will my bankruptcy case be heard?
If you are a resident of Suwannee or Columbia County, Live Oak or Lake City, Florida, your bankruptcy case will be filed
and heard in the United States Bankruptcy Court, Middle District of Florida, Jacksonville
What is exempt property?
The law provides that certain property is "exempt" and does not have to be turned over to
the bankruptcy trustee. This means the debtor can protect his/her exempt property from the reach
of creditors and the Chapter 7 trustee. The exemption will not apply to a mortgage or lien
voluntarily placed on the asset by the debtor. Florida is a "debtor-friendly" jurisdiction in that
state law provides Florida residents with many favorable exemptions other states do not have.
For example, Florida's homestead law protects the debtor's residence from the claims of most
creditors. Funds held in 401Ks, IRAs, annuities, and pension plans are also generally exempt
from the claims of creditors and the bankruptcy trustee. The availability of exemptions and how
to properly and effectively claim them should be discussed with your attorney.
What is a discharge?
A bankruptcy discharge releases the debtor from personal liability for certain specified
types of debts. In other words, the debtor is no longer legally required to pay any debts that
are discharged. The discharge is a permanent order prohibiting the creditors of the debtor
from taking any form of collection action on discharged debts, including legal action and
communications with the debtor, such as telephone calls, letters, and personal contacts.
Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon
specific property to secure payment of a debt) that has not been avoided (i.e., made
unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured
creditor may enforce the lien to recover the property secured by the lien.
A chapter 7 discharge is an order signed by the bankruptcy judge declaring all of your
eligible debt to be discharged. The Court will normally grant a debtor in a chapter 7 case a
discharge approximately 90 days after the chapter 7 case is filed.
In a chapter 13 case, the Court will normally grant the debtor a discharge after the debtor
has completed all of his/her payments required under the bankruptcy plan. Many chapter 13
bankruptcy plans call for monthly payments over five years.
Do I have to complete a course to obtain a discharge?
The Bankruptcy Reform Act of 2005 requires individuals filing Chapter 7 or 13
bankruptcy to complete an instructional course in personal financial management after they have
filed for bankruptcy before they can receive a discharge.
Are all debts dischargeable? Are there certain types of debt that are nondischargeable?
Not all debts are discharged. If a debt is non-dischargeable, the debtor must repay the debt
even after bankruptcy. The most common types of nondischargeable debts are certain types of
tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the
court, debts for spousal or child support or alimony, debts for willful and malicious injuries to
person or property, debts to governmental units for fines and penalties, debts for most
government funded or guaranteed educational loans or benefit overpayments, debts for personal
injury caused by the debtor's operation of a motor vehicle while intoxicated, and debts arising
from fraud, embezzlement, or theft.
What can a debtor do if a creditor attempts to collect a discharged debt after the
bankruptcy case has concluded?
If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion
with the court, reporting the action and asking that the case be reopened to address the matter.
The bankruptcy court will often do so to ensure that the discharge is not violated. The discharge
constitutes a permanent statutory injunction prohibiting creditors from taking any action,
including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be
sanctioned by the court for violating the discharge injunction. The normal sanction for violating
the discharge injunction is civil contempt, which is often punishable by a fine.
Can an employer terminate a debtor's employment because of the bankruptcy?
In our experience, employers have not discharged an employee for filing for bankruptcy
relief. In today's economy, if fact, many employers are seeking bankruptcy protection to save
their businesses. The law provides express prohibitions against discriminatory treatment of
debtors by both governmental units and private employers. A governmental unit or private
employer may not discriminate against a person solely because the person was a debtor, was
insolvent before or during the case, or has not paid a debt that was discharged in the case. The
law prohibits the following forms of governmental discrimination: terminating an employee;
discriminating with respect to hiring; or denying, revoking, suspending, or declining to renew a
license, franchise, or similar privilege. A private employer may not discriminate with respect to
employment if the discrimination is based solely upon the bankruptcy filing.
How long does bankruptcy remain on my credit bureau report and can I obtain
credit before that time period runs?
If you are contemplating bankruptcy, it is likely that your credit score has already been
negatively impacted. A bankruptcy can be kept in the public records section of your credit bureau
report for 10 years. Many people incorrectly assume that they will be unable to get credit after
they have filed for bankruptcy. While it can take many years to fully rebuild your credit following
bankruptcy, many individuals receive credit offers immediately after their discharge. Ironically,
once you have received a discharge, many creditors will view you as a better credit risk because
you (i) have less debt and (ii) cannot receive a discharge for another 8 years.
Who will know that I filed for bankruptcy?
Creditors, co-debtors, and the credit bureaus will be notified of your bankruptcy filing.
Bankruptcy filings are public records and bankruptcy hearings and meetings of creditors are open
to the public. Most people, however, do not have access to the information unless they actually
go to the bankruptcy court and look at your file. In today's economic climate, more of your
neighbors, friends, and co-workers are filing bankruptcy than you might think. In most cases, your
friends and family will not find out about your bankruptcy unless you tell them.
What is a 341 meeting?
This meeting is referred to as the "meeting of creditors." All creditors are notified so that
they may attend, but their attendance is not required and s a practical matter creditors rarely
attend. An attorney from our firm will attend the meeting of creditors with you and guide you
through the process. A meeting of creditors is typically brief – lasting no longer than three to five
minutes. Debtors have a duty to appear and testify under oath and answer questions by creditors.
This meeting is presided over by the trustee assigned to the case and is held approximately 40
days after the petition is filed. Debtors are required to provide photo identification and proof of
social security number to the assigned trustee. A Debtor's failure to appear may result in dismissal
of the case.
If someone else cosigned one of my debts, how will the bankruptcy affect the cosigner?
This will depend on which chapter bankruptcy you have filed. In chapter 7, the debtor
receives a discharge and is protected from creditors after the bankruptcy filing. Cosigners,
however, have little recourse as they are not protected by the debtor's bankruptcy. Your cosigner
is still responsible for making payment and creditors can look to your cosigner to satisfy a debt.
In a chapter 13 bankruptcy filing, debtors arrange for a reorganization of debt under a
structured repayment plan. In chapter 13, cosigners are protected as long as the Chapter 13 filing
is active. If for example, the debtor defaults on these agreed repayment plans, the cosigner will
again be held responsible for the remaining debts. If your chapter 13 plan provides for the debt to
be paid in full during the plan, then the cosigner will not be liable for the debt once the discharged
is entered. However, if the debt is not paid for in full, then the creditor can still attempt to collect
the debt from your cosigner if the remaining balance on the debt is not paid following the Chapter
13 discharge. The creditor may also proceed against the cosigner if your Chapter 13 case is
dismissed or converted to Chapter 7.
I have some creditors that are friends of mine. Do I have to list all of my creditors?
Yes. The United States Bankruptcy Law requires a full and complete disclosure of all
debts owed. Bankruptcy schedules are signed under the penalty of perjury and you will be asked
under oath at the meeting of creditors if all debts were disclosed.
I have assets that I want to save from my creditors. Can I transfer ownership of my
home, car, boat, collectibles, tools, etc. to someone else to keep those items out of bankruptcy?
No. Such transfers will almost certainly violate Florida's fraudulent transfer statute
and 11 U.S.C. §548 of the federal Bankruptcy Code. A Chapter 7 debtor who has
been found guilty of such transfers may lose his entire discharge. In addition, you
may be subjected to criminal prosecution. A trustee has the power to set these
transfers aside. The trustee can also ask for the case to be dismissed for a bad faith
Can a Christian file a bankruptcy and not violate scriptural principles?
Of course, we are to do everything in our power to meet our obligations and fulfill our
promises to pay, so bankruptcy should never be the first option. However, if you have struggled
with burdensome debt and despite your best efforts need help to save your home or get a fresh
start, you should know that the policy of debt forgiveness is scripturally based both in the Lord's
Prayer and in the Old Testament laws the Lord gave his servant, Moses. Consider the wisdom of Deuteronomy 15:1 and
What is a Reaffirmation Agreement?
To avoid debt discharge in a bankruptcy action, mortgage companies and car, furniture,
and appliance financers typically want the debtor to sign a document known as a Reaffirmation
Agreement. Signing this agreement results in the debtor waiving his Chapter 7 discharge and
agreeing to continue to make payments as called for by the original loan documents.
This allows the debtor to keep his home, car or furniture. The decision whether or not to
reaffirm a debt is a serious one and needs to be considered on a case-by-case basis so that all
options are understood. If the debtor stops paying on the asset after a Reaffirmation Agreement is
signed, then the asset can be foreclosed or repossessed and a deficiency judgment obtained for the
difference. If a debtor changes his mind and wishes to terminate or rescind a Reaffirmation
Agreement, then the debtor has 60 days to file a rescission agreement after a Chapter 7
reaffirmation is fully executed and filed with the bankruptcy clerk's office.
What is a redemption?
In Chapter 7, if an asset is exempt, it can be purchased or redeemed from the creditor by
paying its present market value in a lump sum. The balance of the debt will be discharged. An
example would be furniture that has a depreciated value at the time of bankruptcy of $700 and the
balance of the debt on the furniture is $2,000. The furniture can be redeemed for $700 and the
$1,300 difference is discharged. The process of redeeming assets should be discussed with your
Can creditors ask to have their debt held non-dischargeable?
Yes. Creditors have approximately 100 days after the filing of the Chapter 7 bankruptcy
case to file a lawsuit asking that the debt be held non-dischargeable. Certain debt has no such time
Can the trustee or a creditor object to my Chapter 7 discharge?
Yes. Objection to discharge is controlled by federal law. If an objection is made and the
court sustains the objection, all of the debts owed by the debtor can never be discharged in
bankruptcy. This issue generally comes into play where the debtor has transferred an asset within
two years (and in some cases four or ten years) of filing bankruptcy with the intent to hinder,
delay or defraud creditors or the Chapter 7 trustee. This can also happen if the debtor is unable to
give a reasonable explanation for the reduction in assets occurring shortly prior to bankruptcy.
Not having sufficient records to satisfactorily explain the debtor's financial position or change in
position can also serve as a basis to object to discharge.
What is involved in a buy-back from the Chapter 7 trustee?
In about 10% of the cases involving available assets for liquidation, the trustee will hire an
appraiser to appraise the debtor's assets. A copy of the appraisal will be provided to the debtor
and the debtor's counsel. Negotiations will follow concerning whether the value of the assets have
exceeded the exemptions allowed by state and federal law. Depending on which trustee is
assigned to your case, the approach on the buy-back may differ somewhat. Other differences may
involve the length of time for the buy-back to be paid and how the buy-back amount is calculated.
What happens if I inherit something after filing for a Chapter 7 bankruptcy?
If there is a death within 180 days of you filing a Chapter 7 bankruptcy, any inheritance or
life insurance that you receive will come under the control of the Chapter 7 trustee and will be
used to pay your creditors. If you anticipate a death in within this period, you should discuss the
situation with your attorney.
What role does the Chapter 13 trustee play in the case?
The Chapter 13 trustee performs many roles. The trustee serves as a disbursing agent for
payments under the plan. The trustee examines the debtor at the meeting of creditors. The trustee
can also object to confirmation of the plan and makes a determination in each case whether the
debtor has satisfied the disposable income test, the means test, and the best interest of creditors
test. If one or more of these tests are not satisfactory, it is the trustee's duty to object to
confirmation. The trustee can also file a motion to dismiss the Chapter 13 case for a bad faith
filing or for failure to make payments called for by the plan.
What is the disposable income test in Chapter 13?
In some cases the debtor must commit all of his net take-home pay to the plan for the life
of the plan. In practice, this means that the plan payment plus reasonable and necessary living
expenses must account for all the net take-home pay. If there is any net take-home pay leftover
the extra income is dedicated to the unsecured creditors. We will assist in calculating your
disposable income prior to filing your plan.
What is the best interest of creditors test in Chapter 13?
This test requires the debtor to make sure that under the Chapter 13 plan, the unsecured
creditors receive at least as much under Chapter 13 as they would receive if the case were handled
under Chapter 7. This involves completing a liquidation analysis on paper in order to determine
what the unsecured creditors would receive under Chapter 7. The Chapter 13 Plan must provide
at least that much to the unsecured creditors. We will assist in you in performing this analysis.
When is the first plan payment due, who gets paid, and how are the payments
The first payment is due 30 days after the plan is filed. The payment is made by cashiers
check or money order payable to the Chapter 13 trustee. The debtor's name and case number
must appear on the face of the check or money order. The payments are sent to a lock box in
Memphis, TN as instructed in a letter sent to the debtor by the Chapter 13 trustee at the beginning
of the case. The trustee will send a coupon book to be used with each payment.
Can I obtain credit while I am making payments on my Chapter 13 plan?
You must obtain permission from the Chapter 13 trustee or the court to incur new debt
while you are in a Chapter 13 bankruptcy. It is difficult to get the trustee or the court to approve
new credit until the plan is confirmed, which normally occurs two to three months after the case is
filed. Even after confirmation, the procedure requesting the trustee or court approval is quite
cumbersome: the trustee has a form that must be filled out and a current income and living
expense analysis must be provided along with a copy of the financing arrangement for which
approval is being sought. This also assumes that a lender has been found who is willing to loan
money to an individual in a Chapter 13 bankruptcy.
Can the trustee or a creditor object to confirmation of a Chapter 13 Plan?
Yes. It is the trustee's responsibility to object to Chapter 13 plans that are deficient. A
creditor may also object, but generally most objections will come from the Chapter 13 trustee.
Most objections are worked out or resolved prior to the confirmation hearing but occasionally the
court has to take evidence and rule.
Can only one spouse file a Chapter 13 and stop foreclosure on a house owned by
Yes. This occurs quite frequently. If one spouse does not need to be in bankruptcy other
than for the foreclosure, then that particular spouse can be left out of the bankruptcy. Sometimes,
we file Chapter 7 for one spouse and Chapter 13 for the other spouse. This permits the Chapter 7
spouse to get an automobile financed sooner. An attorney should be consulted concerning this
type of situation.
What happens if I inherit something during the three to five years that I am paying
creditors under my Chapter 13 plan?
The inheritance must be turned over to the Chapter 13 trustee to be distributed to the
unsecured creditors up to the extent of the allowed unsecured claims. If the potential exists for
this to occur, you need to discuss the matter with an attorney to look at some options.
If my Chapter 13 does not work, can I convert the case to Chapter 7?
Yes. If the Chapter 13 plan cannot be amended to handle changes in your financial affairs,
you may find it advisable to convert to Chapter 7. You should consult your attorney before taking
any such action.
What if I previously filed a Chapter 13 but my case was dismissed – can I file
another Chapter 13?
Under the new Bankruptcy laws that went into effect in October 2005, if you have had a
case pending within the 12 months of filing a new case, the automatic stay, which stops your
creditors from taking actions to collect on your debts (i.e. foreclosure, repossession), is only in
effect for 30 days. Within 30 days you must attend a hearing in front of a bankruptcy judge to
explain why your previous case was dismissed and why your new case will be successfully
completed. The court will determine whether or not to extend the automatic stay. However, if
there are special circumstances which the court should be made aware of, we may be able to file
an adversary proceeding in which we will be given the opportunity to explain your circumstances
to the court and the court will decide whether or not to impose the stay.