A. INTRODUCTION

What does filing for bankruptcy mean? What does filing for bankruptcy in Florida entail? What is the difference between a Chapter 7, Chapter 11, and Chapter 13? Because these are some of the most common questions Debtors have when they contemplate filing for Bankruptcy, we have provided the following summary of information to give Debtors a general idea of what Bankruptcy means and what the process generally entails.

A bankruptcy is a legal proceeding which allows you to get out of debt and obtain a fresh start. The different types of bankruptcies include Chapter 7 (liquidation), Chapter 11 (reorganization), and Chapter 13 (repayment plan). The bankruptcy process is governed by an act of Congress known as the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and local rules of bankruptcy. The bankruptcy process also utilizes state laws to determine exemptions which vary from state to state and rights of parties within the proceeding. Bankruptcy does not discharge most mortgages or liens. If the Debtor decides to keep his/her house or automobile, then payments must continue to be made. If the Debtor is facing a foreclosure or is about to have an automobile repossessed, then the Debtor may use a Chapter 13 to make payments over time to cure the past due payments and bring the loan current.

B. BASIC PROCEDURE

The individual(s) or business filing for bankruptcy is referred to as the “Debtor”. Once the Debtor files a “petition”, the bankruptcy court clerk mails out notices to all creditors advising of the bankruptcy case and the date for the “meeting of creditors”, which the Debtor is required to attend. The meeting of creditors is conducted by an individual known as the “Trustee”, who is assigned to oversee and review the petition, ask questions of the Debtor, and conduct a due diligence investigation of the cases assigned. At this meeting, the Trustee will ask questions of the Debtor(s) under oath in which the Debtor is required to respond. If the Trustee finds that the Debtor have no assets, then the Debtor should receive a “discharge” of debts approximately 60 days after the meeting of creditors, if no creditors object during that period of time.

C. DEFINITIONS

One of the more difficult parts of filing for bankruptcy for the Debtor is the unfamiliarity with the terminology involved. For this reason, we have compiled the following list of terms and definitions that are used in a Bankruptcy proceedings.

• Automatic Stay - provides for a period of time in which all judgments, collection activities, foreclosures, lawsuits, garnishments, and repossessions of property are suspended, as of the date of filing, and cannot be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition, unless and until special permission is received from the bankruptcy court by way of a motion.
  
• Confirmation hearing - Chapter 13 Debtors must attend this hearing before the Judge wherein all oral and/or written objections to the plan are addressed and the bankruptcy judge either approves or denies the debtor’s plan of reorganization or repayment.
  
• Credit Counseling - All Debtors are required to attend a pre-filing credit counseling session to be allowed to file bankruptcy session and a post-filing credit counseling session to obtain a discharge.
  
• Creditor - the individual or business entity whom the Debtor owes money at the time of filing or prior to filing for bankruptcy relief.
  
• Debtor - the individual or business entity filing the petition and requesting the relief under the Bankruptcy Code.
  
• Discharge - An order of the court releasing the Debtor from personal liability for certain dischargeable debts and prevents creditors who are owed those debts from taking any action against the debtor or his/her unsecured and/or non-exempt property to collect the debt. The Trustee or a creditor may object to the discharge within 60 days following the first Meeting of Creditors. Under normal circumstances, if no objections are filed the court will grant a discharge approximately 60 days from the first Meeting of Creditors. If a Debtor is denied a discharge, then the Debtor will continue to owe the debts as if the bankruptcy had not been filed. Examples of reasons for a denial of discharge and/or discharge ability of a debt are as follows: fraud, concealment of assets, false information and/or statements, refusal to obey court orders, drunk driving conviction, intentional injury or damage to others, embezzlement, larceny, theft, government and criminal fines, alimony, child support, student loans, debts not listed in the bankruptcy petition, etc. A discharge will eliminate the debtor’s personal liability for a debt incurred; however, a co-debtor who does not file bankruptcy will remain fully liable for the debt. Furthermore, mortgages, car liens, and certain other liens pass through bankruptcy and remain valid and enforceable post-bankruptcy.
  
• Exemption - A law that allows a Debtor to keep an asset through and after a bankruptcy proceeding.
  
• Joint Petition - A petition filed by both husband and wife. Unmarried individuals may not file a joint bankruptcy.
• Meeting of Creditors (also known as a “341 Meeting”) - The Debtor(s) must attend this meeting wherein a Trustee and creditors ask questions of the Debtor(s) under oath regarding the debtor’s finances. The Debtor must respond in good faith. This meeting generally occurs one month after the initial filing of a Chapter 7, Chapter 11, or Chapter 13 bankruptcy petition. In a Chapter 13, the Trustee will determine if a confirmation hearing is necessary at this meeting.
  
• Petition - A sworn list of real property, personal property, creditors, assets, liabilities, income, expenditures, a listing of exempt property, a statement of your financial affairs and a statement of intent as to debts secured by property of the estate at the time of filing. A joint petition is a petition filed by both Husband and Wife.
  
• Plan (Individual Adjustment of Debts in Chapter 13 or Plan of Reorganization in Chapter 11) - a listing of the debtor’s proposed restructuring of payments for monies owed including attorney’s fees and arrearages. The plan must be completed no later than sixty (60) months after the filing of the petition in a Chapter 13 case. Payment under the plan provides for secured creditors first, followed by priority and unsecured creditors
  
• Secured claim - a claim in which the creditor has a lien or mortgage on collateral of the Debtor(s) to secure all or part of the claim.
  
• Trustee - a representative appointed by the court to examine the assets of the Debtor for the benefit of payment to Creditors.
  
• Unsecured claim - a claim in which the creditor has no collateral to secure its claim.
  

D. TYPES OF BANKRUPTCY

There are different types of bankruptcy, but the three most common types are as follows:

Chapter 7 (also known as a "Liquidation", this procedure may be utilized by individuals or business entities) - In a Chapter 7 proceeding, the Debtor can discharge his/her unsecured debts (with certain exceptions), while the secured debt remains unchanged. A Trustee is appointed to collect non-exempt or unprotected assets of the debtor's estate, reduce them to cash, and distribute the net proceeds to creditors, subject to the Debtor's right to retain certain "exempt" property and the rights of secured creditors to keep their liens. An objection to discharge may be filed by the Trustee or a creditor within 60 days following the first Meeting of Creditors. If no objections are filed, then the Debtor will normally receive a "discharge" upon the expiration of the 60 day period. Upon the filing of the bankruptcy petition, the Debtor is protected from lawsuits, garnishments, and other creditor actions through an "automatic stay". A business entity is not granted a discharge, but is expected to dissolve by operation of law and be relieved of its debts once the bankruptcy case closes.

Chapter 11 (also known as "Reorganization" is designed for business entities, but may be utilized by individuals) - In a Chapter 11 proceeding, the Debtor's assets are not liquidated. The Debtor reorganizes his/her/its debts and pays off the debts in whole or in part, through a statutory plan of reorganization. This Chapter is most commonly used by a company or corporation that desires to continue operating its business by repaying creditors through a court approved reorganization plan. Creditors are able to vote on the plan. The Debtor goes to a "confirmation hearing", where the court either approves or disapproves the plan. The Debtor (also known as the Debtor in Possession) has control over the assets and operation of the business while in Chapter 11, unless a Trustee is appointed. The automatic stay goes into effect upon the filing of the bankruptcy case and stops all litigation and collection activity.

Chapter 13 (also known as "Adjustment of Debts of an Individual with Regular Income" or “Repayment Plan Bankruptcy”) - This procedure is only available to individuals and not corporations. Debtors are only eligible if they fall below certain statutory limitations in the amounts of secured and unsecured non-contingent, liquidated debt. In a Chapter 13 proceeding, the Debtor's assets are not liquidated and the Debtor can restructure his/her secured debts and pay less than 100% of any unsecured debts in whole or part, through a statutory plan over a period of usually 3 to 5 years. The Creditors do not vote on the plan; however, the Debtor(s) work closely with the creditors and the Trustee in designing the Repayment Plan. The Debtor goes to a "confirmation hearing", where the court either approves or disapproves the plan. Even though the Debtor has control over his/her assets, a Trustee is appointed who oversees the repayment process by making the payments to the creditors pursuant to the confirmed plan. The Debtor is required to complete the payments under the plan prior to receiving a "discharge". The Debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect in order to give the Debtor(s) the opportunity to resolve the financial difficulties facing the Debtor(s). Chapter 13 bankruptcy procedures are commonly used to stop repossession, foreclosures and bring home loans current, and/or to repay IRS or real estate taxes over time at interest rates usually less than those charged by the taxing authorities.

NOTE: There is a two part test that must be conducted to determine eligibility for a Chapter 7 versus a Chapter 13 case. The first part of the analysis is called the “Current Monthly Income Test”. If the Debtor passes this test, then the second part of the test is not necessary. If the Debtor fails part one, then a “Means” Test must be performed. If the Debtor passes the Means Test, then a Chapter 7 may be filed, with no presumption of abuse. If the Debtor fails the Means Test, then a Chapter 13 is recommended, but not absolutely necessary if the presumption of abuse can be overcome. Both of these tests require complicated mathematical computations and/or comparisons to national and local statistics and should be conducted by a skilled and experienced bankruptcy attorney.

E. Exemptions and Exempt Property - This is a Debtor’s claim to remove certain property from the bankruptcy estate. If property is determined to be exempt, then the Debtor(s) is/are allowed to keep the exempt property.

The following is a non-exhaustive listing of most of the Florida Exemptions in which each adult Debtor can use to exempt property, in whole or in part, when filing for Bankruptcy in Florida:

• Real Estate/Real Property - real property including mobile home to unlimited value, provided that the property does not exceed applicable acreage restrictions of 1/2 acre in the city limits and 160 acres outside the city limits. In bankruptcy, this exemption is further limited such that if the real property is owned for less than 40 months, then the exemption for the equity is limited to $125,000. Beyond the 40 month period, the exemption is unlimited.
  
• Personal Property/Household Goods/Cash in the bank - to $1,000 per person maximum.
  
• Automobile - up to $1,000 per person per vehicle.
  
• Insurance/Annuities (unlimited value) - annuity contract proceeds, death benefits payable to a specific beneficiary (not the deceased's estate), disability or illness benefits, fraternal society benefits, cash surrender value of life insurance if the foregoing are on the life of a resident of the State of Florida.
  
• Pensions/Retirement Plans - county officers, county employees, ERISA qualified, police officers and firefighters, state officers, state employees, teachers, IRA, 401(K), Keogh accounts
  
• Public Benefits/Entitlements - veterans' benefits, workers' compensation, crime victims' compensation, public assistance, social security, unemployment compensation.
  
• Wages - Head of Household earnings with certain restrictions.
  
• Tax Refunds - earned income credits for child dependents as part of tax refunds.
  

Examples of Non-Exempt debts:

• Personal property in excess of $1,000 per person.
  
• Value of vehicles in excess of $1,000 per person.
  
• Stocks, bonds, mutual funds, certificates of deposits.
  
• Business assets, tools of trade, shares of a corporation, subject to certain factual circumstances.
  

NOTE: Failure to properly claim exemptions in a bankruptcy petition could lead to loss of property that could otherwise be kept by the Debtor. Plus, if the Debtor has lived in Florida for less than two years, then the case may still be filed in Florida, but the exemptions from the Debtor’s prior state of residence must be analyzed and used in the Florida bankruptcy. An experienced bankruptcy attorney should be consulted to avoid loss of exempt assets and property.

F. CREDITOR CLAIMS & REPRESENTATION

There are certain remedies available to individuals and businesses that become unwilling participants, known as “creditors”, in bankruptcy procedures filed by others. For example, secured creditors have the right to seek relief from the automatic stay to pursue actions such as repossession and/or foreclosure outside bankruptcy if the Debtor is delinquent at the time of filing for bankruptcy. Additionally, there are various objections available in Chapter 11 and 13 cases where the Debtor’s plan improperly treats the claim of the creditor. If the Debtor has engaged in any type of fraudulent, criminal, or intentionally malicious activity, then the creditor may have the right to seek to have the creditor’s claim determined to be non-dischargeable, or survive the bankruptcy proceeding. These issues are complex in nature and require assessment and review by an experienced bankruptcy attorney on a case by case basis.

G. CONCLUSION

The above is designed to give you a brief summary of information and detail involved in filing for bankruptcy in Florida. Our job is to give you the best representation possible. For Debtors, we help individuals obtain a discharge of most or all their debt and help them keep as many assets as possible under the law. For creditors, we help them obtain stay relief, object to bankruptcy cases, as appropriate, and pursue non-dischargeability of certain debts if the circumstances exist.

At Kelley & Fulton, P.A., we make your problems our job! Please contact us at your earliest convenience for a free personal consultation to find out the best remedy for your situation, and to discuss your available options. Our firm prides itself in finding creative solutions to difficult problems. We care about our clients and enjoy making their lives better.

The information contained herein is intentionally general in nature to avoid the contents of this website from becoming overwhelming and to pertain to the majority of situations. Your particular matter may involve facts or circumstances that will require more detailed analysis and specific legal advice. All of the information contained herein is for general informational purposes only and should not be construed to constitute the rendering of any legal advice.

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