Bankruptcy. The Chapter 7 bankruptcy is a financial reboot in many ways. Located in Title 11 of the United States Code, it’s one of the six ways under the Bankruptcy Code to file for protection from creditors. While the other 5 ways are more specific and rehabilitation oriented, the Chapter 7 bankruptcy is a liquidation; which is the easiest and most common in most individual cases.
Fresh start with Chapter 7 Bankruptcy
The Chapter 7 bankruptcy wipes out debts to give individuals a fresh start. Upon its declaration, the court forgives the debtor his/her debts and liquidates, or takes, any assets he or she has that are not exempt. By “exempt”, the law means property which cannot be liquidated and taken from the debtor.
The trustee then sells the assets owned by the debtor and remunerates any amount that is exempted. The investors are paid using the liquidated amount in an ascending order of risk taken by the creditor. For e.g. secured creditors have less risk since their loans are often backed bysome form of collateral such as a mortgage or business assets. They know they will get paid first if the individual declares bankruptcy. The proceeds of the liquidation are then distributed to the creditors after deducting a commission for the trustee’s services of overseeing the distribution.
For businesses, the bankruptcy does not necessarily mean that employees working under the liquidized company will lose their jobs. When large companies go bankrupt, entire divisions of the company may be sold to other companies during liquidation. Unlike individuals, business corporations and partnerships do not receive a bankruptcy discharge. Even after completion of the case and asset distribution the debts of the business continue to exist theoretically until the applicable statute of limitations expires.
Some Debts Remain After a Florida Chapter 7 Bankruptcy
A Chapter 7 discharge, however, does not discharge all liens. Certain debts such as alimony, child support, real estate mortgages, fraudulent debts, fines and restitution imposed by a court for any crimes, student loans (etc.) survive (see Florida Non-Dischargeable Debts).
Even during declaration of bankruptcy and liquidation of assets, individuals may keep certain debts by signing a voluntary “Reaffirmation Agreement”. It allows debtors to keep their assets such as houses, furniture and vehicles while promising to pay back their debts and not declaring bankruptcy for a period of eight years. The debts will still be owed and the debtors must continue to pay it just as they were obligated to pay it before filing bankruptcy. In order to qualify for reaffirmation, the individual must pay the back payments which are due and bring it in current. Reaffirmation allows debtors to selectively reaffirm debts. One could choose to keep specific assets such as a car or furniture while allowing other assets to be liquidated.
Once the debts are forgiven and bankruptcy is completed, individuals could apply for credit. However, it would be advisable to use the help of secured credit cards issued by banks to gradually build their credit score and prudently go forward with sound financial plans.
If you have any questions about Florida chapter 7 bankruptcy or would like to speak to us about your options, please contact us at (813) 518-7411. We represent clients during stressful and difficult times in their lives. We are empathetic, responsive, and push for a quick resolution. We look forward to helping you resolve your issue quickly, fairly, and in a way that will help you to return to the stable, predictable life that you deserve.