Bankruptcy: Chapter 7 and Chapter 13

Filing for Bankruptcy in Central FloridaChapter 7 Bankruptcy

In Chapter 7 Bankruptcy, all of the debtor’s non-exempt assets are turned over to a bankruptcy trustee for sale. Sale proceeds, if any, are distributed among the unsecured creditors. Because Florida’s bankruptcy exemption laws are relatively liberal, most of the property owned by Chapter 7 debtors can be exempt from the bankruptcy sale.

Chapter 13 Bankruptcy

This type of bankruptcy is known as a “reorganization.” Chapter 13 bankruptcy results in a plan to repay all or part of the debtor’s pre-petition debt, but it is NOT designed to immediately discharge or eliminate most debts. Chapter 13 bankruptcy is used most often to save a house from a foreclosure sale. Chapter 13 can also be used to “strip” a second mortgage under certain circumstances. In a typical Chapter 13 case, the debtor submits for approval of a plan to pay creditors his or her disposable income, usually for a period of three to five years. In exchange for the debtor’s commitment to contribute all or most of his or her disposable income to the plan, the debtor receives a discharge of his or her remaining dischargeable debts if he or she successfully complies with the terms of the Chapter 13 plan.

Chapter 7 vs. Chapter 13

Chapter 7 - Chapter 7 is the most common type of bankruptcy and is often referred to as a “liquidation bankruptcy.” Chapter 7 bankruptcy is used to eliminate, discharge, or “wipe clean” primarily unsecured debts such as credit cards, personal loans, or medical bills. Although Chapter 7 can be used to strip certain secured debts, such as a mortgage or a car loan, it does not eliminate the lien or encumbrance on those debts. As a result, the secured creditors may still foreclose on the debtor’s home or repossess the debtor’s car once the bankruptcy proceeding is concluded, assuming the debt is not reaffirmed or redeemed upon agreement of the debtor and creditor. A secured creditor may NOT, however, initiate or continue any repossession or foreclosure actions against a secured debtor while the bankruptcy proceeding is under way. This temporary protection from creditors’ actions is called an “automatic stay” and prevents creditors from pursuing repossession of secured debts while the debtor is tied up in bankruptcy court.

A Discharge is a court order, issued at the conclusion of a Chapter 7 Bankruptcy Case, which legally relieves the debtor of personal liability for debts that can be discharged. In a Chapter 7 Bankruptcy case, all debts that were incurred before the date of the order for relief that are dischargeable will be discharged if all requirements are met. There are two types of debts – dischargeable and non-dischargeable. Non-dischargeable debts come in two forms. The first type of non-dischargeable debt is debt that the bankruptcy court itself determines not to be dischargeable.

The second is provided by statute, some of the more common forms of non-dischargeable debt are:

  • Taxes that are entitled to priority
  • Luxury Goods of $500 or more incurred by debtor within 90 days before the order for relief
  • Cash Advances of $750 or more within 70 days before the order of relief
  • Domestic Support Obligations
  • Debt arising from the debtor’s willful injury to a person or property of another
  • Student Loans
  • Debt owed from a previous bankruptcy proceeding
  • Fraud action involving a bank

Contact Our Chapter 7 and Chapter 13 Bankruptcy Attorneys

If you require professional legal services regarding bankruptcy, contact NeJame Law by calling 407-500-0000 or emailing to schedule a confidential legal consultation. Our chapter 13 and chapter 7 bankruptcy attorneys in Orlando, FL will be happy to help you! You can also fill out our online form and someone from our office will call you. Help is Here! Call us today!