Should I File A Chapter 7 or 13 Bankruptcy in Florida? A Comprehensive Guide
If used correctly, bankruptcy is an important and life-changing event that may greatly aid your financial situation. Therefore, we’ve created this article to delve into the specifics of bankruptcy (Chapter 7 vs. Chapter 13) and lay out the specifics of filing in Florida. Hopefully, after reading this and comparing it to your situation, you’ll be better prepared to make an informed decision.
If you’ve never considered bankruptcy but hope to get out of debt as soon as possible, it’s probably quite confusing to hear about the different types of bankruptcy while not understanding what they entail. To make things more precise, we’d first start by defining bankruptcy and explaining the difference between the various types.
Understanding Chapter 7 Bankruptcy
We’ll introduce Chapter 7 bankruptcy, otherwise known as a liquidation bankruptcy. In this specific type of bankruptcy, you’ll be able to get rid of most, if not all, of your unsecured debts. Unsecured debts are debts that are not tied to any collateral. Examples include student loans, credit card debt, and medical bills. This bankruptcy is also very speedy. You can have your debts forgiven in anywhere from 3-6 months.
Qualifying for Chapter 7 Bankruptcy: To qualify for Chapter 7 bankruptcy, you must pass a requirement known as the Chapter 7 Means Test. This test will compare your household’s pre-tax income to your state’s median income. Therefore, if you’re filing in Florida, you may have to compare your income to the thresholds of that specific state. If your income is lower than the median, this means you qualify. However, if it is not lower, you might be required to factor in further deductions to determine eligibility.
Liquidation of Assets: One drawback of Chapter 7 bankruptcy is that it might open the door to liquidating your assets. The court will assess whether or not you have any assets that can be put toward bankruptcy. Therefore, it’s crucial to review Florida’s bankruptcy exceptions. These rules will help you determine which assets are exempt from liquidation and which might be at risk.
Debt Discharge: The great thing about Chapter 7 bankruptcy is that after filing, your debt will be discharged, and you will no longer be obligated to pay it back. However, some debts do not count under Chapter 7 bankruptcy. These include child support, alimony, and most tax debts.
Understanding Chapter 13 Bankruptcy
In contrast to Chapter 7 bankruptcy, Chapter 13 Bankruptcy is known as a reorganization bankruptcy. Therefore, instead of having your debts discharged, a payment plan will be created where you’ll be able to pay back your debts in approximately 3-5 years. This payment plan will be created based on your income and expenses. Payments will be made to the trustee, who will then distribute the money amongst your creditors.
Asset Protection: One benefit of filing for Chapter 13 bankruptcy is that you can keep your assets. The payment plan will factor in any arrears you own on your home or vehicle and allow you the necessary time to pay back these debts. Therefore, this type of bankruptcy can be especially beneficial when facing home foreclosure or repossessing your vehicle.
Debt Discharge: After completing your Chapter 13 bankruptcy repayment plan, the court will discharge any other outstanding debts. However, it’s also essential to remember that not all debts can be discharged now. Tax debts and domestic support obligations must still be paid in full.
Choosing Between Chapter 7 and Chapter 13 Bankruptcy
Now that you have a strong understanding of Chapter 7 and Chapter 13 bankruptcy, we’ll delve into a comparison to help you decide which one might be the most beneficial for you. Here are some factors to consider:
Income and Expenses: If your income is relatively low compared to the median household in Florida, you will most likely be eligible for a Chapter 7 bankruptcy. However, if you have a higher or more stable income, this might disqualify you. If your income is too high, it is often recommended that you consider a Chapter 13 bankruptcy instead.
Assets: As previously mentioned, excess assets might be liquidated in a Chapter 7 bankruptcy. Therefore, if you have significant assets you want to protect in the case of bankruptcy, chapter 13 might be more appropriate. Nonetheless, it’s essential to read the bankruptcy exemptions for the state of Florida and understand what you stand to lose.
Debt Types: Chapter 7 bankruptcy focuses on eliminating unsecured debts such as credit card debt. Chapter 13, however, focuses more on helping you catch up on secured debts, such as a mortgage payment. Understanding what type of debt you have can also help you decide which kind of bankruptcy is best.
Credit Impact: Both types of bankruptcy will negatively impact your credit score. It is important to note that Chapter 7 bankruptcy stays on your credit report for ten years while Chapter 13 only stays on for seven years.
Conclusion
If you’re facing a precarious financial situation, understanding which type of bankruptcy to choose is essential. Therefore, we recommend you reach out to a legal professional, such as a bankruptcy attorney, to help guide you in making the right choice. Continuing to research on your own can also help broaden your perspective and understanding, which may also be helpful. With that being said, we hope this article has helped inform you more about the nuances of filing for bankruptcy.
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