Some Information about Bankruptcy
People who are having trouble paying their debts sometimes consider bankruptcy as a remedy for this situation.
An individual, called a debtor, usually files bankruptcy to obtain a discharge, which will wipe out his or her debts so that they will not have to be paid. Once the bankruptcy begins, creditors cannot try to collect discharged debts from the bankruptcy debtor or sue the debtor to obtain a judgment. With a few exceptions, the creditors have no claim on the debtor's future income or future assets.
Alternatives to Bankruptcy
Bankruptcy is not the only method of dealing with too much debt. In some situations another way might be more advantageous to the debtor than filing bankruptcy. Such alternatives may include an out-of-court settlement with creditors, reduction of payments to creditors, attaining help from a consumer credit counseling service, or payment of debts by sale of assets or borrowing on assets. However, these methods require some cooperation from creditors, and the chances of success are greater if the debtor attempts these alternatives soon after financial difficulties begin.
Types of Bankruptcy
There are three main types of bankruptcy cases. These are referred to by their chapter number in the Bankruptcy Code.
Chapter 7: This is a liquidating bankruptcy, the most common bankruptcy case. In return for having debts discharged, the debtor must turn over to the bankruptcy trustee all property except for certain assets which Florida law allows the debtor to keep as exempt. The trustee sells the property and distributes the proceeds to the creditors according to priorities established by law. Very often there is not enough money to pay for anything more than the costs of administration, and the creditors will receive nothing. The principal advantage of Chapter 7 is that the debtor emerges from bankruptcy without any future obligations on his or her discharged debts.
Chapter 11: Another type of case in bankruptcy is a Chapter 11 reorganization. It is generally used by businesses, or by individual debtors who do not qualify for Chapter 13 because of their substantial debts, and/or have assets that would be lost in Chapter 7. In a Chapter 11 case, the creditors are temporarily stopped from taking any action against the debtor while the debtor tries to work out a plan of reorganization. Such a plan may involve a method of paying all or part of the debts or claims. The debtor may also deal with taxes through a plan. The creditors vote on the plan, and it must also be approved by the court. The Debtors typically use Chapter 11 to preserve an ongoing business or source of income that might otherwise be lost in a liquidation. Chapter 11 can be complicated and costly.
Chapter 13: This case often used by individuals who want to catch up past due mortgage or car loan payments and keep their assets. In Chapter 13, the debtor must propose in good faith to pay all or part of the debts from future income over a period of time ranging from three to five years. If the court approves the plan of payment, the debts may be settled in this manner, even if the creditors are not willing to go along with the plan. If the debtor makes the payments as required, he or she will not have to surrender property to the trustee.
Chapter 13 can be more advantageous than a liquidating bankruptcy. Some of the debts not discharged in a Chapter 7 will be discharged once the debtor completes a Chapter 13 plan. Also, the debtor can pay most non-dischargeable federal taxes over the term of the Chapter 13 plan without interest. However, Chapter 13 can only be used by an individual debtor, not by a corporation, and only if the total debts owed are less than certain limits for secured and unsecured debts. An individual engaged in business not as a corporation might use Chapter 13 to pay debts or settle them over a period of time while he or she continues to own and operate the business.
Bankruptcy does not wipe out most mortgages or liens; however, judgment liens and some liens on personal property, called "non-purchase money security interests," may be voided if they are liens on exempt property. If a debtor wants to keep his or her house, generally the debtor must continue the payments on the mortgage. If the debtor wants to keep a car which is liened, he or she must likewise continue the payments. A debtor facing foreclosure on his or her home may use Chapter 13 to repay past due payments and other costs, while also making the regular mortgage payments, and keep the home. Chapter 13 may also be used to get back a car that has been repossessed by a creditor. In a Chapter 7 liquidating bankruptcy, certain property can be "redeemed" from a lien by an appropriate proceeding in the bankruptcy, which would require paying to the lien holder the market value of the property.
If a creditor or the trustee objects, a debtor may be denied a discharge and continue to owe the debts as if the bankruptcy had never been filed. Some of the reasons for being denied a discharge are fraudulent transfer of an asset to keep it away from creditors or the bankruptcy trustee, concealment of assets, or disobeying or making a false statement to the court. Such acts may also constitute federal crimes for which the debtor can be fined or imprisoned.
Certain types of debts, such as child support, alimony, some federal income taxes, and all employer withholding taxes cannot be discharged in bankruptcy. Generally, student loans cannot be discharged. The debtor's wrongful conduct may make some debts non-dischargeable in a liquidation bankruptcy, such as incurring credit card charges when the debtor had no intent or ability to repay, or obtaining loans using false financial information.
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Foreclosure in Florida is a legal process reserved by a bank, mortgage company or lender to terminate and end your legal or other interest in your home or other property after you have fallen behind on your mortgage payments. When the legal process is completed, your bank, mortgage company or lender may sell your home or property on the courthouse steps at a foreclosure sale to satisfy the mortgage and their other legal costs. You may then be forced to move from your home or property shortly thereafter.
A mortgage company or bank cannot just come and change the locks on your home if you are late with your mortgage payments. Lenders must file a lawsuit in the courts. You may have legal options to stop the foreclosure and save your Florida home or property but they must be exercised before the foreclosure sale. You have 20 days after you have been served with foreclosure papers to file a response.
If you are subject to a foreclosure under the Florida foreclosure laws and want to save your home or property, we can help. We have an attorney available at all times to discuss how you can save your Florida home or property.
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