Bankruptcy is a legal procedure that helps an insolvent person or business eliminate debt and repay creditors. Filing bankruptcy will immediately stop creditors from pursuing debt collection. This protection will continue at least until your debts are sorted out according to the law.
Since the right to file bankruptcy is provided by federal law, all bankruptcy cases are handled in federal court. As such, you have the right to retain legal representation when filing for bankruptcy. Our Central Florida bankruptcy lawyers can help you decide which options are best for your individual situation.
Types of Bankruptcy
Three common types of bankruptcy are Chapter 7, Chapter 11, and Chapter 13. Usually, the fastest and simplest method is Chapter 7 bankruptcy, which involves liquidating assets to pay off debts.
Chapter 11 is filed typically in scenarios concerning a more complicated reorganization of a company or an individual’s financial affairs. In commercial cases, a company may be able to operate while it restructures debt over a period of time.
In situations where an individual is earning regular income that exceeds the eligibility requirements of Chapter 7, they can file for Chapter 13 bankruptcy and make monthly payments to creditors while retaining their assets.
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Chapter 13 Bankruptcy
Chapter 13 bankruptcy is an individual reorganization that allows a debtor to retain their assets while making monthly payments for the benefit of creditors for three to five years.
Chapter 13 is available to people whose regular income exceeds the income eligibility requirements of Chapter 7 bankruptcy.
A debtor may desire to file a bankruptcy Chapter 13 when they wish to retain their home but need a period of time to pay any arrearages on the mortgage. This option may also work for someone who has assets they wish to keep and not be the subject of a Chapter 7 liquidation or owes income taxes but needs a period of time to pay.
The Process of Filing Chapter 13
After filing a petition seeking relief under Chapter 13, debtors must promptly file a plan which sets forth the proposed payments to maintain certain debts like a home mortgage and car loan, cure any arrears on these debts, and make provisions to pay a portion of, if not all, unsecured debts such as credit cards and medical bills.
The court must approve the plan, and once approved, creditors are required to accept the terms of the payment. If the court rejects the initial plan, the debtor is given the opportunity to amend the plan to meet the objections and concerns of creditors and the court.
Payments are made to the Chapter 13 trustee, not directly to creditors. The trustee then pays the creditors.
How filing Chapter 13 Bankruptcy Can Help
In a Chapter 13 bankruptcy, a debtor may be able to eliminate or reduce a second mortgage or other mortgages or liens on a principal residence that were recorded after a first mortgage, depending on the valuation of the home, the amount owed, and other factors, such as whether the creditor has a security interest in assets other than the residence.
Secured claims on motor vehicles may be reduced to the value of the vehicle, depending on whether the loan for the vehicle was incurred in excess of 910 days preceding the filing of the petition.
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Chapter 7 Bankruptcy
Chapter 7 bankruptcy allows for the “discharge” or elimination of certain types of unsecured debts, such as credit cards and medical bills. Debtors are allowed to retain certain assets: those that are exempt from liquidation and those assets that are secured as collateral for loans such as a home or automobile, provided the debtor is current on those loans.
Exemptions include retirement funds such as a pension, IRA, and 401(k) and similar funds that are restricted access for retirement; prepaid college tuition accounts; cash value of life insurance; $1,000.00 for each debtor for personal property, including bank accounts; $1,000.00 per debtor towards the value of an automobile (to the extent it is not secured), and homestead real property.
Of course, the debtor must remain timely on any liens or mortgages for an automobile or homestead real property to keep those assets.
The Process of Filing Chapter 7
One must qualify for a Chapter 7 bankruptcy by having debts in excess of exempt property values and satisfying the income eligibility requirements known as the “means test.” This test is complicated since it takes into account all household income, including non-filing spouses, the total number of dependents, and the geographical location of the debtor’s residence.
The means test provides certain allowances for housing, transportation, food, insurance, and other items. The ultimate question determined by the test is whether the debtor has the means to pay a portion of their unsecured debts over time after all factors are applied to the debtor’s finances.
If one has the means to pay, then the debtor is required to file under a different chapter, typically Chapter 13, which will require payments over time to the court for the benefit of creditors.
How Filing Chapter 7 Bankruptcy Can Help
The liquidation occurs by the court-appointed trustee. Those assets that are not secured by a lien or mortgage and are not exempt from liquidation are sold to raise money for creditors.
Creditors who file valid proof of claims receive a pro-rata distribution of the liquidation proceeds. In many instances, the trustee will allow the debtor to retain possession of these assets, provided the debtor pays the value to the trustee in a short timeframe.
Chapter 7 bankruptcy is thought of as providing rapid relief to a debtor since an automatic stay occurs on filing, which prohibits creditors from initiating or continuing any legal actions against the filing debtor. All debts incurred and assets acquired after the filing, subject to very few limitations, are not subject to bankruptcy.
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Chapter 11 Bankruptcy
Chapter 11 bankruptcy usually involves large corporations, so it can quickly become a complex legal matter. It could take a substantial amount of time for the court to determine an appropriate plan to reorganize the company’s affairs.
Chapter 11 bankruptcy may interrupt a business’s plan for expansion or terminate its rental agreements.
The Process of Filing Chapter 11
During a Chapter 11 bankruptcy, the organization or business usually has a chance to plan its own reorganization. It may downsize, liquidate, or renegotiate debts. Ultimately, it is up to the courts to decide whether its reorganization plan is acceptable.
The organization or company will also have to abide by the reorganization plan to maintain the agreed-upon terms set by the court.
How Filing Chapter 11 Bankruptcy Can Help
A Chapter 11 bankruptcy definitely has its benefits, especially for large corporations. It allows them to address their debt while maintaining operations. By filing Chapter 11, a company may be able to survive while it pays its debt, instead of having to close down.
Downsizing and liquidating can be tough, but this type of bankruptcy may offer the only option for a business to stay afloat during tough times.
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Collections and Judgment Enforcement
Bogin, Munns & Munns has over 30 years of experience in commercial litigation collections, helping businesses in Central Florida collect their receivable outstanding accounts and delinquent debt.
Our attorneys can help collect aged accounts, debts owed for goods and services sold, lines of credit, promissory notes, and other related debts. We can also assist in defending unwarranted debt collection actions.
We handle both simple and complex debt collection matters. Our debt collection clients include both large and small corporations, banks, finance companies, accountants, landlords, condominiums, and homeowners associations.
We Offer Free Consultations
When you are considering filing for bankruptcy, you are already stressed out about money. Seeking legal representation should not add to your burden. If you want to discuss your finances and discover how filing bankruptcy can help, you can do so during a free consultation with us.
We can help you discover which type of bankruptcy you qualify to file and which path presents the best possible solution. You have nothing to lose by taking advantage of our complimentary, no-obligation consultation.
Work with Bogin, Munns & Munns
Don’t let debt control your life. Our bankruptcy attorneys can handle your bankruptcy matter with the care you should expect from a firm that has been around for over 40 years. If you are considering bankruptcy, please fill out our online Bankruptcy Questionnaire or call us to discuss your case during a consultation.
We have 13 locations throughout Central Florida and North Central Florida, including Orlando, Clermont, Cocoa, Daytona, Gainesville, Kissimmee, Leesburg, Melbourne, Ocala, Orange City, St. Cloud, Titusville, and The Villages. We are happy to meet you in the location that is most convenient for you.