FAQ's about CHAPTER 7 BANKRUPTCIES

Below are questions frequently asked by individuals considering filing for Chapter 7 bankruptcy. The responses are intended to provide you with a general understanding of various events occurring during the bankruptcy process. You should consult your attorney before taking any action regarding these matters.

1. What is a discharge? A Chapter 7 discharge is an order signed by the Bankruptcy Judge declaring all of your eligible debt to be discharged. The Order of Discharge creates a permanent injunction against a creditor whose debt is discharged from attempting to collect the debt from you. The Order of Discharge is normally entered about 110 days after the Chapter 7 case is filed. Your attorney should discuss with you what debts cannot be discharged.

2. What is a Chapter 7 Trustee? In the Jacksonville Division of the Middle District, there is a panel composed of eight different Chapter 7 Trustees. It is a blind draw as to which Trustee from the panel will be assigned to any given case. Each of eight Chapter 7 Trustees have significant experience in bankruptcy law. It is the Trustee's responsibility to examine the debtor under oath and to review the paperwork filed with the court. It is the Chapter 7 Trustee's responsibility to convert to money the non-exempt assets of the debtor. After administrative expenses are paid, the remaining money is distributed to the creditors according to the Bankruptcy Code. Your attorney will explain your exemptions to you.

3. What is the meeting of creditors and what happens? The meeting of creditors is a scheduled meeting conducted by the Chapter 7 Trustee where the debtor is examined under oath concerning his assets and debts. Creditors who choose to attend the meeting either in person or through their attorney can ask questions concerning anything relevant to the case. As a practical matter, creditors rarely attend the meeting of creditors. The average meeting of creditors lasts about 3 to 5 minutes and is held approximately 40 days after the Chapter 7 bankruptcy petition is filed. It is mandatory for all debtors to attend the meeting of creditors. Your attorney will accompany you to the meeting.

4. What is the “means test”? Under the new bankruptcy laws that went into effect in October 2005, all Chapter 13 debtors are required to file a Means Test Calculation along with their Bankruptcy Petition, Schedules and Statements, and other required documents. Generally, a means test is performed by looking at all of the debtor’s income for the 6 months preceding the date of filing, determining the average monthly income, and multiplying that figure by twelve. The resulting figure is then compared to the median income in the state of Florida for a household of similar size. If the debtor is over the median income, then further tests are conducted to determine how much, if any, disposable income the debtor has at the end of month. Often the disposable income must be dedicated over the life of the Bankruptcy plan to paying unsecured creditors. This analysis is completed by your attorney.

5. What is a reaffirmation? Because most debt is discharged in bankruptcy, mortgage companies and car, furniture and appliance financers typically want the debtor to sign a document known as a Reaffirmation Agreement. Signing this agreement results in the debtor waiving his Chapter 7 discharge and agreeing to continue to make payments as called for by the original loan documents. This allows the debtor to keep his home, car or furniture. The decision whether or not to reaffirm a debt is a serious one and needs to be discussed with your attorney so that all options are understood. If the debtor stops paying on the asset after a Reaffirmation Agreement is signed, then the asset can be foreclosed or repossessed and a deficiency judgment obtained for the difference. If a debtor changes his mind and wishes to terminate or rescind a Reaffirmation Agreement, then the debtor has 60 days to file a recission agreement after a Chapter 7 reaffirmation is fully executed and filed with the Bankruptcy Clerk's office. You should consult your attorney before making any decisions regarding reaffirmation.

6. What are exemptions? Certain assets owned by the debtor have what is known as an exempt status. This means the debtor can protect them from the reach of creditors and the Chapter 7 Trustee. The exemption will not apply to a mortgage or lien voluntarily placed on the asset by the debtor. The availability of exemptions and how to properly and effectively claim them is something to be discussed with your attorney.

7. What is a redemption? In Chapter 7, if an asset is exempt, it can be purchased or redeemed from the creditor by paying its present market value in a lump sum. The balance of the debt will be discharged. An example would be furniture that has a depreciated value at the time of bankruptcy of $700.00 and the balance of the debt on the furniture is $2,000.00. The furniture can be redeemed for $700.00 and the $1,300.00 difference is discharged. The process of redeeming assets should be discussed with your attorney.

8. Are certain debts non-dischargeable? Yes. The most common non-dischargeable debts are alimony, child support, certain property settlement agreements, certain income tax liabilities, Department of Revenue sales tax liability, Internal Revenue Service pay roll tax liability or trust fund liability, and many student loans. In addition, certain debt created by fraud, embezzlement or conversion can be found to be non-dischargeable.

9. Do I have to list all of my creditors? Yes. Bankruptcy law requires a full and complete disclosure to whom the debtor owes money. Bankruptcy schedules are signed under the penalty of perjury and the debtor will be asked under oath at the meeting of creditors if all debts were disclosed.

10. Can I transfer ownership of my home, car, boat, collectibles, tools, etc. to someone else to keep those items out of bankruptcy? No. Such transfers within one year (and in some cases four or even ten years) of filing Chapter 7 bankruptcy will almost invariably violate Florida's fraudulent transfer statute and 11 U.S.C. §548 of the federal Bankruptcy Code. A debtor who has been found guilty of such transfers may lose his entire discharge. In addition, the debtor may be subjected to criminal prosecution.

11. Are NSF checks dischargeable in bankruptcy? Often, the answer is yes because creditors usually elect not to go through the expense of challenging it under federal law. However, bankruptcy does not prevent the creditor from trying to get the State Attorney's Office to threaten prosecution to force restitution on the NSF checks.

13. Can the Trustee or a creditor object to my Chapter 7 discharge? Yes. Objection to discharge is controlled by federal law. If an objection is made and the court sustains the objection, all of the debts owed by the debtor can never be discharged in bankruptcy. This is to be distinguished from Question 12 which only involves particular debts owed to a creditor who asks the court to hold that particular debt non-dischargeable. This issue generally comes into play where the debtor has transferred an asset within two years (and in some cases four or ten years) of filing bankruptcy with the intent to hinder, delay or defraud creditors or the Chapter 7 Trustee. This can also happen if the debtor is unable to give a reasonable explanation for the reduction in assets occurring shortly prior to bankruptcy. Not having sufficient records to satisfactorily explain the debtor's financial position or change in position can also serve as a basis to object to discharge.

14. What is involved in a buy-back from the Chapter 7 Trustee? In some of the cases involving assets, the Trustee will hire an appraiser to appraise the debtor's assets. A copy of the appraisal will be provided to the debtor and the debtor's counsel and negotiations will follow concerning whether or not the value of the assets have exceeded the exemptions allowed by state and federal law. Depending on which Trustee is assigned to your case, the approach on the buy-back may differ somewhat. Differences may involve the length of time for the buy-back to be paid and how the buy-back amount is calculated. Your attorney will negotiate the buy-back for you.

15. How long does bankruptcy remain on my credit bureau report and can I obtain credit before that time period runs? A Chapter 7 bankruptcy can be kept in the public records section of your credit bureau report for 10 years. Once your Chapter 7 discharge is entered, if certain income and employment conditions are met, new automobile financing is immediately available at most car dealerships in Jacksonville. If certain conditions are met, new mortgage financing is usually available after discharge with 15% down payment available. VA and FHA financing becomes available two years after discharge. Credit card solicitations will begin almost immediately after discharge.

16. Can one spouse file for Chapter 7 bankruptcy without the other spouse filing? Yes. For example, our firm makes it a practice to pull three-way merged credit bureau reports on both husband and wife in order to advise our clients as to who should or should not file in the bankruptcy court. Your attorney will explain your options.

17. Will my credit union or bank close my bank accounts if I file bankruptcy? It depends. If a credit union is going to sustain a loss, most credit unions will ask the customer to leave the credit union. However, if the debtor reaffirms the debt to the credit union, the credit union usually will not ask the debtor to leave the credit union. Most banks will not take such action. This situation should be discussed with your attorney.

18. Will my bankruptcy affect a co-signor on the debt? Yes. The bankruptcy will not protect the non-filing co-signor. The creditor may continue to try to collect against the co-signor. Creditors have this right even if the bankruptcy is never filed. Additionally, the co-signor's credit bureau report will almost always show the joint debt was included in bankruptcy. These situations should be discussed with your attorney.

19. Can my employer fire me for filing bankruptcy? No. Federal law 11 U.S.C. §525 is the anti-discrimination section of the Bankruptcy Code that precludes a public or private employer from discriminating against any employee solely because he or she filed for bankruptcy. Employers almost always honor this section and there are remedies if they try to violate it.

20. What happens if I inherit something after filing for a Chapter 7 bankruptcy? If there is a death within 180 days of you filing a Chapter 7 bankruptcy, any inheritance or life insurance that you receive will come under the control of the Chapter 7 Trustee and will be used to pay your creditors. If you anticipate a death within this period, you should discuss the situation with your attorney.

21. Is there life after bankruptcy? Absolutely. Credit can be re-established and should be used discretely and only as reasonably necessary. Our firm conducts a "Life After Bankruptcy" workshop free of charge to the firm's clients. Please see our "Life After Bankruptcy" page for additional information.

22. What if I filed a Chapter 7 in the past – how long do I have to wait to be eligible to file another Chapter 7? Under the law that went into effect in October 2005, a debtor who previously received a Chapter 7 discharge is not eligible to receive another Chapter 7 discharge until 8 years have passed from the date of filing the previous case.

23. What is credit counseling and must I take it? In order to be eligible to file a personal bankruptcy, all debtors must undergo credit counseling from an approved credit counseling agency. The course usually lasts about one hour and costs about $50.00. Upon completion of the course, the debtor will be issued a credit counseling certificate. This course is required to be taken in order to be able to file bankruptcy. If a debtor files bankruptcy without taking the course, the case will be automatically dismissed.

24. What is financial education and must I take it? In order to be eligible for a bankruptcy discharge debtor must take a financial education course from an approved provider. The course usually lasts two hours and costs about $50.00. The course cannot be taken until after your bankruptcy has been filed and you have been assigned a case number. Upon completion of the course a certificate will be issued to you. The certificate must be filed with the bankruptcy court before your projected discharge date. If you become eligible for discharge and have not completed the course and filed the certificate with the court, your case may be closed without a discharge being issued. You must then pay to have your case re-opened for the sole purpose of filing your certificate of financial education completion.

Some advantages to the debtor by choosing to file under Chapter 13 rather than Chapter 7.