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Bankruptcy
Chapter 7 Bankruptcy is called a "Liquidation" and is the most common type of bankruptcy filed. In general, most people in Chapter 7 keep most of their property and erase most of their debt within a short period of time. There lots of exceptions here, so talk to the attorney to fully understand if you qualify for Chapter 7. Chapter 13 Bankruptcy is called a "Reorganization" or a "Wage Earner" Bankruptcy. In this type of bankruptcy you consolidate all of your bills into one monthly payment. You pay for 3 to 5 years. Generally, you do not have to pay back all of your debts–only what you can afford to pay back. Chapter 13 is often used by people who are behind in their mortgage or car payments, who have tax obligations, who own a lot of property which they would otherwise lose in a Chapter 7, who have the ability to repay some, but not all of their debt, or who just have a strong desire to repay what they can. Chapter 11 Bankruptcy is a reorganization for companies trying to stay in business. Some individuals who do not qualify for Chapter 13 must file Chapter 11. However, it is a very complex and expensive type of bankruptcy, so most individuals try not to fall into this category. Chapter 12 Bankruptcy is for Family Farmers. We have almost no farmers in Central Florida, so it is not a type of bankruptcy we usually see in Orlando. There were no Chapter 12 cases filed in 2004 in the 5 county area of Central Florida that makes up our Orlando Division of the Bankruptcy Court. Bankruptcy: Is it for you??? Although the economy seems to be doing well with unemployment down, you may find yourself in a difficult financial position. Perhaps you have a steady job, but you are living paycheck to paycheck. Often two paychecks are needed to pay for the house, two cars, monthly living expenses, and of course, to support the minimum payments due to the many credit cards. Then, the unexpected happens. Job loss, illness, or an extended illness that causes you to lose your job. You may be recently divorced, or have had a business failure. Any of these setbacks can interrupt cash flow. Many people are just a paycheck away from Bankruptcy! Before you know it, you are late on your car or house notes, and the pressure from creditors becomes unbearable. The fear of losing your car or house can be overwhelming. People who never, ever thought they would be in this position, are often embarrassed and disappointed in themselves. Bankruptcy is one way to relieve yourself of the burden of over extension of credit and harassment from creditors and collection agencies. Bankruptcy can help you repay your debts over time, or wipe out most of the debt completely, as the case may be. However, bankruptcy is not necessary or advisable for everyone. Sometimes credit counseling through a reputable, non-profit agency or negotiating with creditors works. Unfortunately, more often than not, it is so difficult to have all of your creditors agree on lower payments, lower interest rates, or a settlement. As crazy as it sounds, some creditors would rather be paid nothing than accept a partial payment. Sometimes a collector receives full credit from his company on an account when the customer files bankruptcy and the account is written off. When creditors won’t work with you, or you are too far gone financially, bankruptcy may be the best option available. Bankruptcy Options With all the talk about Bankruptcy, you may be wondering what options are available. There are four types of bankruptcy cases-Chapters 7, 11, 12, and 12. Chapter 12 is one that is seldom used in Orlando. However, this Chapter is very often utilized in the Mid-West. Chapter 12 is reserved for Family Farmers, and we don’t have too many farmers in Orlando! Chapter 11 is another option. This complex Chapter in Bankruptcy is for Corporations or individual people who have huge amounts of debt. If a small business owned by a husband and wife is not actually incorporated through the Secretary of State, the business entity is usually a sole proprietorship and does not qualify for Chapter 11 status. This is a good thing, because Chapter 11's are very, very time consuming, complicated and expensive. Few individual people fall under Chapter 11–people like Burt Reynolds or brain surgeons. Most Ordinary people, whether it’s one spouse filing bankruptcy alone or a husband and wife filing jointly, fall into either Chapter 7 or Chapter 13. Chapter 7 is probably the most common chapter in Bankruptcy, although legislators like Bill McCollum are working hard to change this. Chapter 7 is known as a “Liquidation.” Most all of the debts are simply ‘wiped out’ in a Chapter 7. In exchange for the “fresh start” with a clean financial plate, some debtors (people filing Bankruptcy) must give up some assets. Some assets could be auctioned with the proceeds going to pay down some of the debt. This is how the chapter received its name of “Liquidation.” Most people who file Chapter 7, however, do not have their property taken away. In fact, in a Chapter 7 most people keep all of their assets owned free and clear. A Chapter 13 is known as a “Reorganization” for individuals. It helps consolidate their debts into one monthly payment. Creditors (people to whom money is owed) are paid either in full or partially over a three to five year period. At the end of the repayment period, most debts not paid off in full, are discharged anyway. A Discharge relieves you of the legal obligation to pay a debt. The debtor files a plan to pay all of the debt or part of the debt from current income. Most people file Chapter 13 if they are behind on thier mortgage or car notes or if they have a lot of property over their limits allowed by law (“exemptions”) and they do not want to give up the property in a Liquidation (Chapter 7). It is important to provide your attorney with complete information about the property you own, the debts you owe, and your income and expenses. That way, the attorney can properly analyze your individual situation and make a recommendation as to which bankruptcy option is best for you.
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The following is a general description of the four types of bankruptcy: