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BANKRUPTCY COURT
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United States Bankruptcy Court
Middle District of Florida
135 West Central Blvd.
Orlando, FL 32801-2443
Website
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Bankruptcy - Information
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Two Paths to a Fresh Start: Chapter 7 and Chapter 13
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Bankruptcy law is about getting a fresh financial start. It is not about "failure" or "fault.” Bankruptcy law IS
about protecting the rights of consumers and giving them a chance to start over again with a clean slate. There
are many reasons perfectly responsible people are forced into bankruptcy. Lay offs, catastrophic medical bills,
foreclosure, lawsuits, garnishments, and unconscionable credit card interest rates can push anyone past his or her
ability to repay. The attorneys at the Law Offices of Roy A. Praver always treat our clients with respect and
compassion, and we defend debtors’ rights.
The Bankruptcy Code provides for several types of bankruptcy. Named for the chapter of the Bankruptcy Code in which
they are defined, the Chapters available under bankruptcy include Chapter 7, Chapter 11, Chapter 12, and Chapter 13.
For the vast majority of consumer debtor clients, only Chapter 7 and Chapter 13 are options. Each of these chapters
creates a different path to a fresh start because they are intended for people in different financial situations.
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| Chapter 7 Bankruptcy |
The powerful benefit of Chapter 7 is that it relieves the debtor of ever having to pay most types of debt. This
permanent forgiveness of debt under Chapter 7 Bankruptcy is called a discharge. Chapter 7 is intended for debtors
who do not have any income available after necessary expenses to make payment on their debts, and they also do not
have any assets or property available to repay their debts. To qualify for a Chapter 7 discharge, the debtor must
be able to show that his allowed monthly expenses exceed his income. Additionally, if a Chapter 7 debtor has any
real estate or personal property of any value, the value must not exceed available "exemption" amounts, or such
assets may be taken from the debtor by the Bankruptcy Trustee, sold, with the proceeds distributed to the creditors.
For example, a typical middle-aged married couple in Orlando who intends to file a Chapter 7 bankruptcy would face
the possibility of having the Bankruptcy Trustee take their home and liquidate it if the current fair market value
of the residence showed equity of more than their allotted Florida homestead exemption of $75,000. If, for example,
they had $150,000 in equity, the Trustee could require that the house be sold, and would then return to the couple
their homestead exemption amount from the proceeds of the sale, while distributing the remaining proceeds to the
couples’ creditors. That is the basic bargain struck by the law in Chapter 7: In exchange for whatever non-exempt
property the debtor has, he or she can have his or her debts forgiven by the Bankruptcy Court.
Put another way, Chapter 7 bankruptcy provides the debtor with an unconditional discharge of his or her debt in
exchange for a "liquidation" of his or her non-exempt assets. Except for the debtor's "exempt" assets, all of the
debtor’s remaining property becomes the property of the bankruptcy estate and administered by the Chapter 7 Trustee.
The Trustee in turn may use the debtor’s assets to pay his or her creditors. In reality, a large majority of debtors
who qualify for Chapter 7 do not possess any assets that are not exempt from taking by the Trustee. Such a debtor’s
case is a “no asset case.”
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| Chapter 13 Bankruptcy |
The protections available under Chapter 13 bankruptcy also provide powerful relief, but unlike Chapter 7, Chapter
13 is intended for the debtor who has sufficient income to pay some, but not all of his or her debts. If the debtor
has steady income, and after all necessary monthly expenses, has at least some disposable income left to pay something
toward all of his or her debts, then this amount is applied to a payment plan proposed by the Chapter 13 debtor and his
or her attorney. Chapter 13 bankruptcy differs from Chapter 7 in several respects. Unlike in Chapter 7, the debtor
filing bankruptcy under Chapter 13 keeps all property and assets owned outright. There is no danger in Chapter 13 of
the bankruptcy trustee taking any property from the debtor. The only instance under Chapter 13 in which the debtor
gives up any valuable asset occurs when the debtor decides voluntarily to surrender secured property, such as a home
or a car, because he or she cannot afford to continue making payments for that property. The Chapter 13 debtor never
has to give up anything that is already paid for.
Rather than a total liquidation of the debtor’s assets and prompt discharge, a Chapter 13 bankruptcy is a repayment
plan wherein the Bankruptcy Court “confirms” or approves a reasonable repayment plan which may last up to five years
during which time the debtor must make regular installment payments to pay down his or her debt. This means that a
debtor with substantial equity in his or her home (that is, equity greater than the homestead exemption amount provided
under the debtor’s state exemptions) may keep his or her property and avoid foreclosure while catching up on mortgage
payments under the repayment plan. Additionally, Chapter 13 offers an additional protection to homeowners unavailable
under Chapter 7. In a Chapter 13 bankruptcy, if the homeowner has more than one mortgage, and the first mortgage is
“undersecured,” meaning that the current fair market value of the home has depreciated to an amount less than the
principle owed on the first mortgage, then the Chapter 13 debtor can have the second mortgage (together with any other
“junior” liens against the property) “stripped” from the property. This means that the second mortgage and any other
junior liens become unsecured debt, just like credit card debt. The second mortgage holder can no longer foreclose on
the property. Such a stripped mortgage gets added to all other unsecured debt, and is paid only to the extent that the
Chapter 13 plan provides for some payment of unsecured debt, which may, depending on the amount of the payments called
for under the Chapter 13 plan, be only pennies on the dollar.
We carefully evaluate whether Chapter 7 or Chapter 13 is more appropriate for each client seeking bankruptcy
protection. In order to make this determination, we ask our clients to provide us with detailed financial
information concerning their assets, their income, their expenses, and their debts. Based on this information, we
counsel our clients which type of bankruptcy is best for them and whether it is in the client’s best interest to
file bankruptcy at all.
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| What is the Automatic Stay? |
The Automatic Stay is one of the fundamental debtor protections provided by the Bankruptcy Laws. Under the
Bankruptcy Code (11 U.S.C. 362), the filing of a bankruptcy under any chapter of the Bankruptcy Code automatically
triggers an injunction that prohibits most creditors from the commencement or continuation of any judicial,
administrative, or other action or proceeding against the debtor that actually was commenced or could have been commenced.
What does the Automatic Stay do for me?
Simply put, the Automatic Stay is a tremendous tool for debtors in that it serves to prohibit most contact from
creditors regarding debts that are owed. It prohibits:
Please note that under a Chapter 7 Bankruptcy, the Automatic Stay only applies with respect to the debtor. Thus,
if you have co-debtors on certain debts, they are not afforded the same protections under the Automatic Stay that
you are. However, if you are filing for a Chapter 13 Bankruptcy, a creditor may not pursue a debt against a co-debtor
or guarantor, if the debt is a “consumer debt,” which is defined as a debt incurred by a person primarily for personal,
family, or household purposes.
How long does the Automatic Stay last?
The Automatic Stay is neither absolute nor permanent. For most chapter 7 and 13 cases however, it stays in effect
until the debtor gets a discharge from his or her debt, the property in question is no longer a part of the estate,
or a judge lifts the stay at the request of a creditor, who must file a Motion for Relief from the Automatic Stay.
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| Protecting Your Bankruptcy Discharge |
Watch Out for Unscrupulous Creditors Trying to Illegally Collect Pre-Bankruptcy Debt! A discharge of debt received
from a U.S. Bankruptcy Court is intended to permanently relieve the debtor of ever having to pay that debt. The
court's discharge of the debtor is in effect a permanent injunction against anyone ever attempting to collect that
debt. Like any court injunction, however, the discharge injunction must be protected and enforced.
Yet, astonishingly, many creditors fail to ever report a discharged debt to the three Credit Reporting Agencies
(Equifax, Transunion, and Experian) as discharged, and instead continue to report that debt as delinquent.
In fact, several new outlets reported in late 2007 that not only are major credit card companies stubbornly
refusing to report discharged debts to the Credit Reporting Agencies as discharged, but a new "cottage industry"
has developed among unscrupulous bill collectors who buy and sell discharged debts in the hope that they may still
be able to collect the debt from vulnerable debtors who may not know their rights (see, among others, BusinessWeek.com,
"Prisoners of Debt", Nov. 1, 2007, and National Public Radio, Morning Edition, "Discharged Debt Becomes Cottage
Industry," Nov. 2, 2007).
If this happens to you, our bankruptcy lawyers can help. If anyone attempts to collect a debt that was finally
discharged through a bankruptcy proceeding, the debtor has some very powerful legal tools at her disposal. When a
debt collector tries to collect a discharged debt, this activity is clearly a violation of the Bankruptcy Court's
discharge order, and any violation of that order is Contempt of Court, and Bankruptcy Law provides for contempt
remedies in the form of sanctions against the collector. For one, the discharged debtor does NOT have to pay a
Court filing fee to sue the collector. And because the Court is being asked to enforce its own order, U.S. Bankruptcy
judges are disposed to grant money sanctions as punishment against bill collectors who violate the Court's discharge
injunction.
Unfortunately, you may not even know that your discharged debts are still being reported to the Credit Reporting
Agencies as delinquent. Worse, you may be unaware that those very debts are being bought and sold by sleazy collection
companies looking to profit from your being unaware of your legal rights.
If you suspect that debt you have had discharged in a bankruptcy is still being reported as delinquent by your former
creditors, call us to schedule a free consultation with a bankruptcy lawyer. We can review with you your credit report
to verify that your discharged debt correctly shows as having been discharged through bankruptcy. If it is, we can help
you force the creditors to tell the truth.
If you are being harassed by unscrupulous bill collectors to pay debt that was discharged in bankruptcy, you have
powerful legal rights at your disposal. We can generally sue those collectors without any cost to you, stop the
collectors, and in many cases obtain for you money sanctions against the collectors for their contempt of court.
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| Important Requirements for Filing Chapter 7 Bankruptcy |
Credit Counseling and Financial Management Course Requirements
Among the changes to bankruptcy law contained in the 2005 Bankruptcy Law changes (BAPCPA), were new requirements
that debtors filing for either Chapter 7 or Chapter 13 bankruptcy protection participate in pre-approved credit
counseling and debtor education courses. These courses are administered only by private agencies who are approved
by the U.S. Trustee program. A list of the pre-approved credit counseling and debtor education providers is published
on the US Trustee’s website. The bankruptcy attorneys at the Praver Law will assist you in locating
an approved local credit counselor or online. Many approved credit counseling and debtor education providers
provide the required courses either online, over the phone, or by a combination of these. Many also offer counseling in
languages other than in English.
The initial credit counseling course must be completed by the debtor within six months prior to filing a bankruptcy
petition. Many of the government approved credit counseling and debtor education programs are available online, and
the typical debtor can complete each of the respective courses in two hours or less. Once the debtor has satisfactorily
completed the first of these programs, the credit counseling provider will issue a Credit Counseling Certificate which
must be filed along with the bankruptcy petition. If the certificate is not filed with the petition, the US Trustee
will file a motion with the bankruptcy court to have the debtor’s case dismissed.
After the initial credit counseling certificate is issued, and the bankruptcy petition is filed, the bankruptcy petitioner
will be given a date for his or her Meeting of Creditors (also known as a 341 Meeting for the section of the Bankruptcy
Code which requires the meeting), which is generally scheduled for about a month after the bankruptcy petition is filed.
Praver Law will always appear at your Meeting of Creditors with you. After the creditors meeting, the debtor has 45 days
to complete the second of the new debtor education requirements by passing an approved financial management course.
Upon satisfactory completion of this course, the provider will again issue a certificate of completion to the debtor which
must then be filed with the Bankruptcy Court before the debtor may be granted a Chapter 7 discharge.
Debtor Means Testing
Put simply, to be eligible for a Chapter 7 bankruptcy, a debtor’s household income must be insufficient to pay his or her
debts. In order to determine whether a debtor can afford to pay any of his or her debts, Chapter 7 Bankruptcy law compares
the debtor’s annual income to the annual median income based on family size of the state where the debtor lives. Provided
that the debtor’s income is lower than his or her state’s median annual income for the same family size, and provided that
the debtor’s actual monthly living expenses leave no disposable income with which to pay toward unsecured debts such as
credit cards, medical bills, and judgments, then the debtor will generally qualify for a Chapter 7 bankruptcy discharge.
Current state annual median income by family size information is regularly published by the U.S. Census Bureau.
If the debtor’s annual income is greater than his or her state’s median income for the same size family, then the
debtor must pass a “means test” in order to qualify for a Chapter 7 bankruptcy discharge. The means test portion
of a Chapter 7 Bankruptcy petition is contained in official form B22A. The means test takes into account the current
monthly income of the debtor together with the state median income for the debtor’s state. The means test also compares
the debtor’s income with IRS published “standards” for allowable living expenses on both a national and a local basis.
The local living expense standards take into account such items as metropolitan housing costs and transportation
expenses. Note that here in the Orlando Area generally, living expenses are calculated to reflect the higher
cost of living relative to other areas. The means test is aimed at determining whether, based on the debtor’s income
and the IRS determined “allowable living expenses”, the debtor can afford to pay his or her unsecured debts. If the
debtor has no more than $100 of “disposable income” after allowed expenses, then he or she will pass the means test
and the debtor can still qualify for a Chapter 7 bankruptcy even if his or her annual income is above the median income
of similar family sizes for his or her state. If the debtor’s monthly disposable income falls above the $166 monthly
mark, the debtor cannot qualify for a Chapter 7 bankruptcy. If on the other hand, the debtor’s monthly disposable income
falls between $100 and $166 per month, then his or her eligibility for Chapter 7 is then determined by whether the debtor
could pay at least 25% of his or her unsecured debt (at $166 per month over five years or $6,000 in the aggregate) in
five years.
Presumption of Abuse
Among the most fundamental changes in the 2005 Bankruptcy Law changes (BAPCPA is that it shifts the legal presumption
favoring the debtor’s discharge to a presumption of abuse by the debtor which would in turn lead to a dismissal of the
debtor’s petition. Note, however, that this “presumption of abuse” does not arise if the debtor’s monthly net income
after allowed necessary expenses does not exceed $100.
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| Additional Information |
Look through the links below to additional information about your rights on filing Bankruptcy. Once you have through the
information then call the Law Offices of Roy A. Praver to setup your
free bankruptcy consultation to determine if filing Bankruptcy is the correct
step for you.
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| Contact Us |
If you are considering filing for bankruptcy, you do not have to make this decision alone.
The Law Offices of Roy A. Praver can provide you with the help
and support you need to handle your financial situation. Contact the
Law Offices of Roy A. Praver today at
321-383-3445 to schedule a FREE
initial consultation. We have two convenient locations to serve you:
Titusville, FL Office
Melbourne, FL Office
O: 321-383-3445
O: 321-255-5453
F: 321-268-9564
Prior to your appointment, we ask that you go to our online
Bankruptcy Evaluation Form, fill it out to the
best of your ability, and bring any of the following information with you to your meeting.
- Any creditors (including collections agencies) from corresponding with you at all, including phone calls, letters, etc.
- Collection efforts from most entities you owe money too.
- Any creditor from starting or continuing a law suit against you.
- Repossessions.
- Foreclosure proceedings and Trustee Sales.
- Wage Garnishments or levies, even if garnishment orders are already in effect.
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