People who reside, own property, or have a place of business in the United States may file for bankruptcy under Chapter 7. Chapter 7 is not available to people who have had a prior bankruptcy case dismissed within the prior 180 days of filing. Chapter 7 is not available to people who have had a prior Chapter 7 bankruptcy case discharged within 7 years. A Discharge in a Chapter 7 bankruptcy releases a debtor from personal liability for certain specified types of debts. As such, the debtor is no longer required by law to pay any debts that are discharged in bankruptcy. The discharge acts as a permanent order directed to creditors forcing them to refrain from taking collection actions on discharged debts.
- Child Support
- Spousal support
- Property taxes
- Student loans (unless there is an undue hardship)
- Income taxes less than 3 years old
- Fines and restitution
The Debtor is allowed to keep certain exempt property. However, a property that can be claimed as exempt varies upon the applicable state. Each state has its own exemption laws. Assets (property that is not exempt) are sold by the trustee to repay creditors. In a Chapter 7 bankruptcy, the debtor must list all debts and list all personal property that the debtor owns, including furniture, televisions, clothes, collectibles, and more. The Trustee will take all non-exempt property and sell the property for the benefit of unsecured creditors.
In Florida, a debtor’s homestead is exempt property under Article X, Section 4 of the Florida Constitution. However, under the new bankruptcy law, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a debtor has unlimited homestead equity as long as the debtor purchased the residence 40 months or more prior to filing bankruptcy. If the debtor purchased the home within 40 months, only $137,000 per person is exempt.
Additional exempt property includes: 401K plans, IRAs, pensions, Social Security income and disability, tax-deferred retirement plans, annuities, college investment plans, hurricane savings accounts, health savings accounts, and cash value of life insurance.
Each debtor is also allowed to exempt $1,000 for miscellaneous personal property ($2,000 for spouses filing jointly) including clothes, cash, furniture, etc. However, if the debtor does not have a homestead or is surrendering their home in the bankruptcy, the debtor can exempt $4,000 ($8,000 for spouses filing jointly) of personal property known as the “wildcard”. A debtor is also allowed to exempt $1,000 of equity in an automobile ($2,000 for spouses who file jointly).
The Trustee may take and sell all non-exempt property for the benefit of unsecured creditors. However, if a debtor wants to keep the non-exempt property, the debtor may enter into a buy-back agreement with the Trustee wherein the debtor pays either a lump sum payment or makes monthly installments to the Trustee for the amount of the property. For example, if a debtor has $5,000 of equity in a car after all allowable exemptions and the debtor wants to keep the car, the debtor can enter into a buy-back agreement with the Trustee to pay back the $5,000. The price of the car is based upon the NADA trade-in value. Though, some Trustee’s will take into consideration a written offer from Car Max.