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What Is Chapter 7 Bankruptcy Discharge

Filing Chapter 7 Bankruptcy In Florida

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Chapter 7 Bankruptcy is the legal procedure where the debtors unsecured debt is discharged after the debtors non-exempt assets have been liquidated. To file a Chapter 7 bankruptcy in Florida, a person must be a permanent Florida resident or own property in the state. Florida has three bankruptcy districts , and each of Floridas counties is assigned to one of the three bankruptcy districts. People must file bankruptcy in the district and local division where they reside.

What Happens After A Bankruptcy Discharge

Once a final order of discharge is issued in a bankruptcy case, the court clerk will send official copies of the discharge notice to all the creditors involved. This notice is also sent to the trustee and the trustee’s lawyer in addition to the debtor and their lawyer.

The discharge notice is meant to let creditors know that they can no longer contact you asking for payment on your debt. If creditors continue to contact you after a discharge notice has been issued, you can file a motion in court and the creditor may be sanctioned as a result.

However, creditors who provided you with a loan secured by a lienon property such as a car or homecan attempt to repossess that property after a discharge is issued. If this happens to you, speak with a bankruptcy attorney to learn more about whether you can defend against the action.

Which Debts Are Dischargeable

Below is a list of commonly discharged debts.

  • collection agency accounts
  • money owed under lease agreements
  • civil court judgments
  • tax penalties and unpaid taxes past a certain number of years
  • attorney fees
  • revolving charge accounts
  • social security overpayments, and
  • veterans assistance loans and overpayments.

Note about fraud and utility deposits. Any debt-related misconduct or fraud can render an otherwise dischargeable obligation nondischargeable. Also, a utility provider cannot refuse to provide service because of a bankruptcy filing; however, the provider can charge a reasonable deposit to ensure future payment. Find out about utility shut-offs and Chapter 7 bankruptcy.

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Does The Debtor Have The Right To A Discharge Or Can Creditors Object To The Discharge

In chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection to the debtor’s discharge may be filed by a creditor, by the trustee in the case, or by the U.S. trustee. Creditors receive a notice shortly after the case is filed that sets forth much important information, including the deadline for objecting to the discharge. To object to the debtor’s discharge, a creditor must file a complaint in the bankruptcy court before the deadline set out in the notice. Filing a complaint starts a lawsuit referred to in bankruptcy as an “adversary proceeding.”

The court may deny a chapter 7 discharge for any of the reasons described in section 727 of the Bankruptcy Code, including failure to provide requested tax documents; failure to complete a course on personal financial management; transfer or concealment of property with intent to hinder, delay, or defraud creditors; destruction or concealment of books or records; perjury and other fraudulent acts; failure to account for the loss of assets; violation of a court order or an earlier discharge in an earlier case commenced within certain time frames before the date the petition was filed. If the issue of the debtor’s right to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection.

Nondischargeable V Dischargeable Debts In Chapter 13


The list of nondischargeable debts in Chapter 13 is similar, but shorter than, the list of nondischargeable debts in Chapter 7. Here are some examples:

A. Nondischargeable Debts

Student loan debt is nondischargeable. Therefore, if the student loan debt was not paid in full through the plan, the debtor is liable for the unpaid portion after receiving the discharge.

Most tax debt is nondischargeable, and must be paid in full over the life of the plan, unless the taxing authority consents to different treatment.

Obligations to pay child support or alimony generically referred to as domestic support are nondischargeable.

B. Dischargeable Unless The Creditor Successfully Challenges Dischargeability

Three types of debt that are dischargeable unless the creditor successfully challenges their discharge are: debts incurred through fraud, debts that are the result of a breach of a fiduciary, including embezzlement and larceny, and debts that are the result of doing willful and malicious harm to a person. The process for challenging the discharge of such a debt involves a full-blown lawsuit called an adversary proceeding, so the dollar amount must be large enough to make the challenge worthwhile to the creditor.

C. Dischargeable In Chapter 13, But Not In Chapter 7

A debt that is the result of doing will and malicious harm to property is dischargeable in Chapter 13, but not in Chapter 7.

A debt that is incurred to pay a tax is dischargeable in Chapter 13, but not in Chapter 7.

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Can My Chapter 7 Bankruptcy Be Denied

Not really. At least not in the sense people think of. It would not be your bankruptcy that is being denied. However, a Chapter 7 discharge may be denied in a few situations.

First, if your income is too high, the bankruptcy court can deny you a discharge in Chapter 7. This would mean you would need to convert to a Chapter 13 in order for your debts to be forgiven. This isnt always bad though. Many of my clients actually pay less in a Chapter 13 than in a Chapter 7. How? A Chapter 13 is more powerful. You can do things in a Chapter 13 that you cant do in a Chapter 7. For example, you may be able to strip a second mortgage in a Chapter 13 so that you dont have to pay it.

Second, you may also be denied a discharge if you filed the bankruptcy in bad faith.

Third, certain types of debts may also be deemed non-dischargeable. That means those specific debts are not discharged and must be repaid.

Not All Debts Are Dischargeable

A common misconception is that all debts can be forgiven during Chapter 7 discharge. Unfortunately, this is not the case. People who plan to or have recently filed Chapter 7 should be aware of the debts that may not be dismissed so they can avoid any unpleasant surprises in the future. These debts include:

  • Child support, alimony or other domestic obligation debts listed in a marriage settlement
  • Recent federal, state and local taxes, usually within the last three years
  • Government-imposed restitution and fines
  • Court fees
  • DUI debts

Its also worth mentioning that during the bankruptcy case, creditors can object to the discharge of certain debts. The objection can be granted if the creditor proves the debt falls into the category of fraud, a willful and malicious act, embezzlement, larceny, breach of fiduciary duty or debts from a divorce settlement.

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Requirement & Conditions To Discharge Income Tax Debt In Chapter 7 Bankruptcy

Clear the misunderstanding that you cannot get rid of tax debts in Chapter 7 bankruptcy. You can discharge income tax debts in a Chapter 7 bankruptcy and this is true. You SHOULD NOT need to pay taxes on discharged debt in a Chapter 7 bankruptcy if you meet the following requirements to get rid of your tax debts in Chapter 7 bankruptcy:

What Happens On The Day The Case Is Filed

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The day you submit your bankruptcy forms to the court, sometimes called the filing date or the petition date, sets a few things in motion. For one, the automatic stay is triggered. This stops creditors from trying to collect a debt from you and even stops a garnishment. First, the clerkâs office assigns a case number, a judge, and a bankruptcy trustee to the case. Then it schedules the 341 meeting of creditors. The date of the 341 meeting determines a number of important deadlines for the bankruptcy case.

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Should I File For Chapter 13 After Filing For Chapter 7

If you file Chapter 13 at least four years after filing Chapter 7, you can have a very low monthly Chapter 13 payment plan and receive a full discharge of all remaining balances after you complete the three- to five-year plan. For example, you could pay as little as $100 a month for three years inside of Chapter 13, paying very little to your creditors and yet still discharging the remaining balances owed.

This may be a good option for people who have student loan debt, certain types of income tax debt and child support payments to make, says Sean Fox, president of Freedom Debt Relief. These things cannot get discharged in a Chapter 7 bankruptcy.

Which Debts Qualify For Bankruptcy

Essentially, almost any legal debts are debts that qualify for you to declare bankruptcy as long as you can prove your overall financial situation makes it impossible for you to repay them.

Financial profiles can include any combination of consumer and non-consumer debts. Bankruptcy can be a result of anything from unsuccessful investments or business decisions to poor money management, illness, loss of employment, natural disasters, or an economic downturn.

Whatever the reason, its your overall financial status that will determine if you qualify, not the particular debts themselves. Nevertheless, there are several different categories of debts, and which type you have can affect your eligibility for debt relief.

Additionally, certain debts cant be discharged under Chapter 7, though they can be for Chapter 13. Understanding the debt vocabulary and the different categories of debts surrounding bankruptcy will help you understand the process better. It will allow you to make a smart and informed decision about your financial future.

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May The Debtor Pay A Discharged Debt After The Bankruptcy Case Has Been Concluded

A debtor who has received a discharge may voluntarily repay any discharged debt. A debtor may repay a discharged debt even though it can no longer be legally enforced. Sometimes a debtor agrees to repay a debt because it is owed to a family member or because it represents an obligation to an individual for whom the debtor’s reputation is important, such as a family doctor.

Use Reaffirmation To Stop Creditors Taking Your Property

Miami Bankruptcy Attorney Blog : June 2015

Some creditors can keep their rights over your property even following a discharge. One way this can happen is through what is called a “lien.” A creditor can use a lien to enforce payment or take back the property.

For example, let’s say you keep certain secured property, such as your car. Your creditor may seek to reaffirm the debt with a lien. This âreaffirmation” takes place if you and the creditor agree:

  • You will remain liable for this debt
  • You will pay back some or all of a debt
  • You pay even though the debt would be discharged in bankruptcy
  • The creditor will not repossess the property as long as you continue to pay the debt

Reaffirmation must occur before the order of discharged debt is entered. If you want to keep a car or other property, you need to discuss this with the creditor early on. Your attorney can handle this for you and try to negotiate a fair payment schedule.

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Florida Bankruptcy Means Test

The Florida bankruptcy;means test;is a complex formula to determine eligibility to file Chapter 7 bankruptcy. Debtors whose household income is under their states median income, and debtors whose debts are primarily business-related debts, are exempt from means test qualification. Bankruptcy debtors whose gross household income is above median income must;pass the means test;to file Chapter 7 bankruptcy.

Executory Contracts During Chapter 7

An executory contract is a legal term referring to a contractual agreement in which both parties are obligated to perform in consideration for a benefit . Executory contracts do not include at will contracts such as an employment agreement or a personal service contract.

Chapter 7 bankruptcy permits the debtor, or the trustee, to assume or reject an executory contract. A debtor must decide if they want to remain bound by their executory contracts prior to the courts issuance of a bankruptcy discharge which usually happens about 90 days after filing.

A car lease is an example of an executory contract. If the debtor rejects a car lease, they surrender the car to the leasing company and have no further personal liability. If the debtor wants to assume the lease, the debtor can keep the property if they make the lease payments. If the debtor subsequently defaults in lease payments, the leasing company can take back the car.

Assumption of an executory contract is not the same as a reaffirmation of the lease, so the leasing company may not sue the debtor for the balance of payments due under the lease following default.

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Types Of Bankruptcy Filings

Chapter 7: Liquidation

Chapter 7 is designed for individuals and businesses experiencing financial difficulty that do not have the ability to pay their existing debts. Under Chapter 7 a trustee takes possession of all of your property. You may claim certain property as exempt under governing law. A bankruptcy trustee then liquidates all non-exempt property and uses the proceeds to pay your creditors according to a distribution scheme required by the Bankruptcy Code.

The main purpose of filing a Chapter 7 case is to obtain a discharge of your existing debts. A bankruptcy discharge is a court order releasing you from liability for many types of debts. If, however, you are found to have committed certain kinds of improper conduct described in the Bankruptcy Code, your discharge may be denied by the court and the purpose for which you filed the bankruptcy petition will be defeated.

Even if you receive a discharge, there are some debts which are not discharged under the law. These include certain types of taxes, student loans, alimony and child support payments, debts fraudulently incurred, debts for willful and malicious injury to a person or property, and debts arising from a drunk driving charge. Generally speaking, a bankruptcy discharge does not remove liens from your property.

Chapter 11: Reorganization

Chapter 11 is designed for the reorganization of a business. It is also available to individual debtors who exceed the thresholds for Chapter 13 bankruptcies.

What Is Chapter 7 Discharge In Bankruptcy

Discharged debt in bankruptcy

At the end of a Chapter 7 bankruptcy an individual can receive his or her discharge. A Chapter 7 bankruptcy completes in about 3-4 months. The discharge means that all debts that are considered dischargeable are eliminated or forgiven as of the date of the bankruptcy filing. A discharge injunction comes into effect which means that a creditor cannot collect or take any action on discharged debts. While the case was pending there was stay in effect. The discharge makes that stay permanent. Note that a pre-petition lien can survive the discharge. Liens include mortgages, home equity lines, and judgment liens. In certain instances, judgment liens can be avoided as part of the Chapter 7 filing. A motion has to be filed and a court order avoiding the lien has to be obtained. Failure to do so can result in the case having to be reopened months or years later.

A successful Chapter 7 bankruptcy will result in the elimination of most common consumer debts such as medical bills, payday loans, and credit cards. Some types of debts are not discharged including student loans, recent tax debts, debts incurred by fraud, family support claims, and any other obligations owed as part of a divorce. For fraud debts, the creditor has to timely file a complaint for dischargeability and get a court order otherwise those debts are also discharged.


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What Do You Lose And What Can You Keep In Chapter 7 Bankruptcy

If you file for Chapter 7 bankruptcy, you may lose your nonexempt belongings, property that has a lien on it and property you offered as collateral for a loan.

Examples of exempt property based on current federal limits for an individual include:

  • A homestead exemption of $25,150
  • Up to $4,000 on a vehicle
  • Up to $1,700 in jewelry
  • Up to $13,400 in personal property, such as books, household items, and clothes
  • Funds in tax-exempt retirement accounts, such as a 401 or 403 accounts, and up to $1,362,800 in combined savings in IRAs and Roth IRAs
  • Public benefits, such as Social Security, veterans benefits and unemployment
  • Up to $2,525 in books and tools of trade
  • Alimony and child support
  • Certain insurance benefits
  • An additional $1,325 in property of your choice, plus up to $12,575 of unused funds from your homestead exemption

Double these amounts if you’re married and file a joint tax return. Keep in mind that states may have different exemptions and limits that you can use when filing bankruptcy. For example, the homestead exemption for a single homeowner living in California starts at $75,000, but is unlimited in some other states.

A trustee can’t take property when its value is less than the exempt amount, which means you may be able to keep your home and vehicle.

A similar scenario could play out with other forms of secured debts, such as an auto loan. However, just because the trustee can’t take and sell these assets doesn’t mean you’ll get to keep them in the long run.

Limitations Of Chapter 13 Discharges

Some debts can’t be discharged under Chapter 13 bankruptcy, including:

  • Child support and alimony
  • Certain fines, penalties, and restitution resulting from criminal activities
  • Certain taxes, including fraudulent income taxes, property taxes that became due within the previous three years, and business taxes
  • Debts you didnt list on your bankruptcy petition
  • Debts incurred due to personal injury or death caused by drunk driving
  • Debts arising from fraud or recent luxury purchases

It’s extremely difficultif not impossibleto discharge student loans in either chapter of bankruptcy.

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