A Chapter 7 bankruptcy is basically a consumer or business liquidation. A Chapter 13 bankruptcy is a consumer reorganization of debts. There are certain requirements and restrictions on both types of bankruptcy.

BASIC CHAPTER 7

In order to file a Chapter 7, the consumer must meet a “means test” which sets the total amount of income you can make to qualify. The amount varies by the number of people in your household and the entire household income is included in the calculations regardless of whether only one member files bankruptcy. For instance, as of November 1, 2011, the basic qualifying gross income (before taxes and withholding) in Florida is:

If the household income is below these amounts you should qualify for Chapter 7 liquidation. If it is more than those amounts, there are other factors that would need to be reviewed to determine if you qualified.

If your income level allows you to qualify for Chapter 7, we next examine the current market value of your non-exempt assets, and discuss with you how you would like to handle those assets. Although many assets are exempt, the Chapter 7 trustee collects from you an amount equal to the current market value (if sold at a liquidation sale) from you. You have the option to turn the asset over the Trustee or pay its value to the trustee for distribution to your creditors.

Once you have completed the bankruptcy (about 5 – 6 months), you are forever discharged from the unsecured debt you owed at the time of filing.

Secured debt (such as mortgages) remain a lien on the property, but the creditor cannot attempt to collect any deficiency from you unless you reaffirm the debt.) You also have the option of retaining the secured property and continuing to make the payments, or paying the current market value, or surrendering the property to the creditor.

All of these options should to be fully explored with a qualified bankruptcy attorney. While you may see offers for cut rate bankruptcy filing by non-lawyers, remember the old adage about getting what you pay for. Filing an inaccurate bankruptcy petition can subject you to serious penalties.

BASIC CHAPTER 13

A Chapter 13 bankruptcy is a “wage earners” plan. If you make too much to qualify you for a Chapter 7, you may want to file a Chapter 13. One of the advantages to a Chapter 13 is that it may be possible to save your home from foreclosure. You may also be relieved from having to pay back more than the current market value on certain property like automobiles and electronic equipment when you owe more on the property than it is worth.

There are restrictions on the total amount of consumer debt you can have to qualify for a Chapter 13, so it is not for everyone.

Once again, consult with a qualified bankruptcy attorney to help you understand your specific options and responsibilities.

Even if you are considering bankruptcy, you owe it to yourself and your family to fully explore whether bankruptcy is right for you or if there are other options available to you. At the Law Offices of W. Trent Steele, we offer a one-half hour free consultation to discuss all of your options with you.