Bankruptcy: Frequently Asked Questions

What is bankruptcy?

Bankruptcy is a legal procedure for dealing with the debt problems of individuals and businesses. This procedure is covered under Title 11 of the United States Code (the Bankruptcy Code). The majority of cases are filed under the 3 main chapters of the Bankruptcy Code, which are Chapter 7, Chapter 11, and Chapter 13. Through bankruptcy, most of your debts are eliminated, providing you with a fresh start.

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Should I file for bankruptcy?

Bankruptcy is not for everyone.  If you are able to manage your debt without substantial hardship, or the nature of your debt is such that it cannot be discharged under the rules of bankruptcy, then bankruptcy is not for you.  However, if you have substantial debt and any of the following factors apply to you, then bankruptcy might be a suitable solution to your situation:
– continuing inability to pay more than minimum payments on credit cards
– looming threat of foreclosure on your home
– attempts to negotiate with creditors have failed
– your financial situation is affecting your mental health
– the amount your debt substantially exceeds the worth of your assets

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What are the differences between the chapters?

Chapter 7: The primary function is to liquidate nonexempt assets and distribute the proceeds to creditors. Chapter 11 & Chapter 13:  The primary function is to reorganize financial affairs through a court-approved plan. Although each chapter differs from the others in significant ways, there are important elements that are common to all bankruptcy cases: automatic stays , dischargeable debts, and discharges.

The law now uses a standard mathematical formula to determine whether you can file for Chapter 7 – or, to put it in legal terms, whether filing for Chapter 7 would be an 'abuse' of the bankruptcy system. (Those who fail the means test, are left with a Chapter 13 repayment plan as their only bankruptcy option.)The means test is actually a two-part test and you only need to pass one of them to qualify for Chapter 7.

Test 1. Median Income: This is a very simple test that compares your average household income for the past six calendar months to the median income for your state, If your income is below the median, you qualify for Chapter 7. If it is above the median, you must pass Test 2.

Test 2. Disposable Income: This test deducts expenses from your income to determine how much you can pay your unsecured creditors over the next five years:
– If you can pay at least $11,725 ($195.42 per month), you can't file for Chapter 7.
– If you can pay at least $7,025 ( about $117 per month) and that is at least 25% of what you currently owe your unsecured creditors, you can't file for Chapter 7.
– If your disposable income is less than $117 per month, you can file for Chapter 7.

Certain deductions are standard allowances based on the number of vehicles you operate, the number of people in your household, and the cost of living in Alachua County. In addition, to these standard deductions, you can also deduct the full amount of certain actual expenses such as mortgage and vehicle loan payments.

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How do I know which chapter to file?

The filing of a bankruptcy petition automatically stays (holds off or stops) most actions against you or your property. Creditors normally receive notice of the filing of the petition from the clerk. As long as the stay is in effect, creditors generally cannot initiate or continue any lawsuits, garnish wages, or make telephone calls demanding payments. All judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition. The stay provides you with a breathing spell, during which negotiations can take place to try to resolve the difficulties in your financial situation.

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Will all of my debts be discharged?

Some debts are not dischargeable, which means that you will still be responsible for them after the discharge.  Examples are student loans, taxes, and child support or alimony. It is very important that you include all debts in your petition, because if you fail to include a creditor, you will still be responsible for that debt once your petition has been discharged.

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What is a Section 341 meeting?

Under Section 341 of the Bankruptcy Code, a meeting of creditors must be held in most cases. This meeting usually occurs 20 to 40 days after a petition is filed. You must attend this meeting, at which creditors may appear and ask you questions regarding your financial affairs and property. Either a U.S. Trustee, bankruptcy administrator, or a designee presides at the meeting. It is important for you to cooperate with the trustee and  provide any financial records or documents requested of you. The bankruptcy judge does not attend.  In most cases, creditors choose not to attend, but are given the opportunity to do so.

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How long will it take for my debt to be discharged?

Each case is different, but the average time, from filing to discharge, of a simple chapter 7 bankruptcy case is 6 - 8 weeks.

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