What Really Happens When You File for Bankruptcy

by Aaron Delgado
04/18/19 (Updated: 08/22/19)

What Happens When You File for Bankruptcy

While you may have determined that bankruptcy is your best option under your current circumstances, you may not be entirely sure about what happens when you file for bankruptcy. This introduction to Florida bankruptcy laws should answer many of your questions. For additional information about filing bankruptcy in Florida, contact a Florida bankruptcy attorney today.

Types of Bankruptcies in Florida

There are four types of bankruptcies in Florida:

Personal bankruptcy filings are generally Chapter 7 or Chapter 13. Chapter 11 bankruptcy involves corporate reorganizations, while Chapter 12 bankruptcy is for farmers and fishermen.

Do You Get Out of All Debts If You Declare Bankruptcy?

Whether you can get out of all of your debts after declaring bankruptcy depends on the type of bankruptcy you’re filing.

what really happens when you file for bankruptcy

A Chapter 7 bankruptcy cancels many – and possibly all – debts, including credit cards and medical bills. The court-appointed trustee can sell certain assets to repay creditors. However, not everyone is eligible for file Chapter 7 bankruptcy. If you previously filed for bankruptcy within the past six to eight years, you cannot file Chapter 7 bankruptcy.

Chapter 7 bankruptcy is also means-tested. If your current monthly income is less than the Florida median for a household of your size, you probably do not have to fill out the means test. However, if your income is above the median, you will have to comply with the means test. People qualifying for Chapter 7 bankruptcy in Florida have little or no disposable income. Exemptions are available for disabled veterans whose debt was primarily incurred while on active duty.

Chapter 13 bankruptcy does not eliminate your debts. Instead, this court-supervised plan allows you to pay off your creditors – both secured and unsecured – on a monthly basis based on both your income and your “reasonable” expenses. Any disposable income goes into the Chapter 13 repayment plan for at least five years, unless you are able to pay your creditors in full before that time.

Chapter 13 is the form of bankruptcy used by those who earn too much money to qualify for the Chapter 7 form. This type of bankruptcy is considered reorganization, while Chapter 7 is deemed liquidation. The good news is that those filing Chapter 13 may keep all of their property, both exempt and non-exempt, if they keep up with their repayment plan.

Exempt Property in Chapter 7 Bankruptcy

If you are a Florida homeowner, you are probably aware of the state’s homestead exemption. As long as you have some equity in your declared homestead, the property is exempt under Florida bankruptcy laws, and you can keep it. However, if you live in a town, your property is eligible only if it sits on a half-acre or less. If you live in a rural area, a qualifying property cannot exceed 160 acres. You must have owned the homestead for at least 1,215 days, or three years and three months, to receive the exemption. Vacation homes or rental properties do not fall under the exempt property statutes. You are also ineligible if your homestead is not titled under your name per se, but in the name of an LLC, corporation, or similar entity.

Other exempt property for Chapter 7 bankruptcy includes personal property with a value of up to $1,000. That means much of your furniture and electronics likely fall within the exemption, but it is possible jewelry and other high-priced items do not and will require selling by the trustee.

If you have less than $1,000 equity in your automobile, it does not require selling to pay off creditors. If you don’t own a home and qualify for the homestead exemption, you can have an additional $4,000 of equity in your vehicle. If you and your spouse are filing joint bankruptcy, you can have $2,000 of equity in your car. While you can only protect equity in one vehicle, Florida bankruptcy laws are liberal in the type of vehicle you may exempt. Besides automobiles, you can protect the equity in a truck, trailer, motor home, or RV.

Your pension and similar retirement accounts are also exempt in Chapter 7 bankruptcy. That includes employer-sponsored retirement plans such as:

  • 401(k)s
  • SEP and SIMPLE IRAs
  • Traditional and Roth IRAs up to $1,171,650

Filing Bankruptcy in Florida

Eligibility for using Florida property and other exemptions in your bankruptcy filing requires a minimum of two years of immediate state residency. If you lived in another state for any of the previous two years, you may have to use that state’s exemption laws rather than Florida’s.

When filing bankruptcy in Florida, you must file in a federal bankruptcy court located in Florida. Federal bankruptcy courts in Florida are divided into the Northern, Middle, and Southern districts. The Northern district accepts bankruptcy filings at locations in Gainesville, Panama City, Pensacola, and Tallahassee; the Middle district accepts filings in Jacksonville, Orlando, and Tampa; and the Southern district accepts filings in Miami, Fort Lauderdale, and West Palm Beach.

When filing Chapter 7 bankruptcy, you must file an official bankruptcy petition, along with a submitted list of all of your assets and debts on the appropriate schedules. Even if an asset is exempt, such as your homestead or retirement account, it must be listed in the filing.

Those filing Chapter 13 bankruptcy must also file a petition with asset and debt schedules. Within 14 days of filing, your bankruptcy attorney must file a plan outlining your monthly repayment to creditors.

Contact a Bankruptcy Attorney

If your debts are overwhelming and you find yourself wondering how you’ll ever be able to get out of them, you need the services of an experienced Florida bankruptcy attorney. Call us today or contact us online for a free consultation to discuss your options and see whether you qualify for bankruptcy. We will discuss means testing, answer any questions you have, and represent you throughout your entire bankruptcy proceeding.

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