Chapter 7

The trade

In Chapter 7 you make a trade with the court. You get something and you give up something. What you get is debt forgiveness. What you give up is any excess property that you might own.

Debt Forgiveness

In a Chapter 7, the bankruptcy court will forgive many common debts like credit cards, signature loans, hospital bills, repossession balances, broken leases, business loans, and other common “unsecured” (no collateral) debts. Additionally, you also get relief from collection efforts. Creditors and their collections agents must stop calling you and mailing you bills. Their lawyers must stop suing you and stop garnishing your wages.

If you have a home with a mortgage, you can usually choose between (A) keeping your home and keeping your mortgage payments current or, (B) getting rid of the house and getting rid of the mortgage debt. These same two choices often apply to your vehicles, but there is a limit on how much “vehicle” you can keep. There are some debts you can’t escape in a Chapter 7, like student loans, child support, alimony, recent taxes, and some others.

Surrender of excess property or buy-back

What you give up in Chapter 7 is any excess property (things of value) you might own. Before explaining what this means, keep in mind that the majority of people who file Chapter seven in Florida don’t have any excess property and as a result don’t have to give up anything. But if you do have excess property it is then sold and the proceeds split among your creditors. So, what does this mean, excess property? The way the law is written there is a list of things you can keep, and these things are called “exempt property.” If you own something and it is on this list, you get to keep it in a Chapter seven bankruptcy because it is “exempt” from the claims of creditors. If you own something that is not on this list it is “non-exempt” you give it up (or enter into a buy-back agreement) in return for your forgiveness of debt described above. You should also know that the list of Chapter 7 exempt property varies from state to state. Also, your history of residency can affect whether the list of exempt property applicable to your case is the list of Florida or some other state, or even the Federal List of exemptions.

You can read more about the actual process of a Chapter 7 case, step by step, from the initial consultation all the way through the discharge.

Why do some people file Chapter 13 instead of Chapter 7?

People file Chapter 13 usually for one of three reasons: (1) because they want to save a home that is in foreclosure, (2) because they have so much income that they can’t qualify for Chapter 7, or (3) because they want to keep some valuable non-exempt asset they would have to give up in a Chapter 7.

The trade.

In a way similar to Chapter 7, you make a trade with the Court in a Chapter 13. You give up something and you get something. But instead of giving up excess property (as in a Chapter 7), in a Chapter 13 you give up “excess income” for a period of time — but you keep your property.

Chapter 13 plan payments.

What do we mean by excess income? It’s monthly income you receive that is over and above your monthly budget needs. So, with some guidance from the bankruptcy law, you make up a monthly budget with no luxuries. This is your Chapter Thirteen Plan. You can put in your budget your mortgage payment, your insurance premiums, and money for food, electricity, medical needs, Internet access, phone, taxes, car payments and so forth. That budget represents your basic monthly necessities. Any monthly income you receive that is over this budget you give up to the court (because you don’t “need” it) and that money is divided among your creditors each month. This arrangement is called your Chapter 13 Plan and represents your best effort at repayment. And that is what the Court requires of you in a Chapter 13 –  your best effort at repayment for a set period of time, usually 5 years. But what do you get in return?

Chapter 13 debt relief.

Your best efforts may not be enough to pay your creditors in full, even after 5 years of payments. What happens is that at the end of your Plan, when you have made all your payments, the Court forgives any remaining (unpaid) balances on debts like credit cards and all the other kinds of debts that are forgiven in a Chapter 7. And just like in a Chapter 7, you will still owe any remaining student loans, child support, etc. Importantly, Chapter 13 (and not Chapter 7) can help you get current on a mortgage that has fallen behind (even if a foreclosure suit has been filed) and so stop a foreclosure from going to public auction. Also, some people file Chapter 13 without any desire for debt forgiveness; they just want more time to pay their debts in full, and Chapter 13 allows them to stretch out repayment to a pace they can manage.

Summary of your choices between Chapter 7 and Chapter 13.

To sum up, if you can’t afford to pay your creditors anything, you get forgiveness of your debts in a Chapter seven with the only requirement that you give up any non-exempt property. On the other hand if you can afford to pay something to your creditors, you pay what you can afford for a limited period of time in a Chapter thirteen and then get forgiveness of what you were unable to pay. In both kinds of bankruptcy the amount of debt forgiveness can be huge and put you into a much better financial situation.

A final note: Chapter 13 debt limits.

Unlike Chapter 7, Chapter 13 has limits on how much debt you can have. To qualify for Chapter 13, an individual’s unsecured debts must be (as of April 1, 2013) less than $383,175 and secured debts must be less than $1,149,525. If you don’t qualify for a Chapter 7 because you have too much income, and you don’t qualify for Chapter 13 because you have too much debt, then your only remaining choice is Chapter 11.

 

Chapter 7 Compared to Chapter 13

What’s the difference?

Most individuals file either a Chapter 7 (also called “fresh start” or “liquidation”) or a Chapter 13 (also called “personal reorganization”). Below is a basic chart for Chapter 7 or 13 and a few “pros and cons” are:

The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship. We are a federally designated debt relief agency.

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We can represent residential or commercial landlords throughout the entire range of issues that arise under landlord and tenant law, from drafting and reviewing leases and land contracts to litigation or mediation of landlord tenant disputes. If you are a landlord and feel you need to start the eviction process or take collection action on unpaid rent or the cost of repairing damage to the property, you should consult with an attorney who will explain how to avoid headaches by taking these actions in full compliance with the law. Once you contact our offices, we will immediately begin the eviction process. We will file the eviction paperwork the same day we receive the notice.

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Probate administration: Pigott, Pigott & Kearce, P.A. provides this service to our clients, including:

• Proving in court that a deceased person’s will is valid
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• Property appraisal
• Paying debts and taxes
• Distributing property as directed by a will
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The personal representative, executor or executrix must follow Florida law to conclude the decedent’s affairs, including:

• Giving the proper notices to proper parties
• Collecting the decedent’s property
• Paying valid claims and disputing others
• Distributing estate property according to the will or state law
• Selling estate property to cover debts or allow for proper distribution,  if necessary