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Bankruptcy Does Not Mean You Become Debt Free

Some people mistakenly believe that after they file for bankruptcy, their debts are wiped clean and they get a completely fresh start. Unfortunately, the federal bankruptcy code is not that kind.  If you file for Chapter 7 bankruptcy, the majority of your debt will be cleared away, but there are some debts that are “nondischargeable.” This means they stay with you even after your bankruptcy is filed and done.

Types of Nondischargeable Debt

The Bankruptcy Code lists 19 categories of nondischargeable debt. These types of debts do not require a court hearing to determine whether or not they will be dischargeable. The burden is on the debtor to show extraordinary circumstances in order to convince a court to discharge on the debts listed below. Here is a sample:

  • Student loans
  • Child support and alimony
  • Debts from a civil judgment related to drunk driving
  • Debts which are the result of fraud or criminal acts

No Right to a Debt Discharge

When you file for Chapter 7 bankruptcy, it is important to keep in mind that you do not have an absolute right to a discharge of any debt. In order to receive a discharge, you must follow the provisions set forth in the Bankruptcy Code.

Image Source (CC BY 2.0) by Jeremy Crawshaw via flickr

Image Source (CC BY 2.0) by Jeremy Crawshaw via flickr

For example, Section 727(a) of the Bankruptcy Code outlines a list of reasons why the court may deny a Chapter 7 discharge. Basically, this Section states that if you fail to follow the express rules and regulations, or do not provide the necessary information, then a creditor, bankruptcy trustee, or the U.S. trustee may object to your Chapter 7 discharge. If the court agrees, it can deny your debt discharge outright. This is a big reason why it is important for you to have an experienced Florida bankruptcy attorney by your side to help you navigate through the Chapter 7 bankruptcy process. Even an inadvertent mistake or a set of missing documents can torpedo a debt discharge.

Debts Are Not Dischargeable if a Creditor Successfully Objects

Along with near de facto nondischargeable debts like alimony and child support, there are other types of debts not automatically excepted from discharge that will need a court hearing to determine dischargeability. The burden is on a creditor to request a hearing so a judge can examine the debts and determine if they are dischargeable or not.

The types of debts subject to this type of hearing are usually those that were accrued shortly before you filed for bankruptcy. For example, if you purchased “luxury goods” via credit card totaling more than $650 within 90 days of filing for bankruptcy, the credit card company can challenge the dischargeability of this debt. The reason is that public policy wants to limit the risk that someone will go out and make lavish purchases just prior to filing for bankruptcy. The burden is on the creditor to present the facts to the court. If you prove that you intended to pay the charges back or that the goods are not “luxury” items, then the debt will likely be discharged.

The same discharge challenge can be made for cash advances totaling more than $925 within 70 days of filing for bankruptcy.

Speak to a Florida Bankruptcy Lawyer Today

As you can see, filing for bankruptcy is not a cakewalk to a fresh start with debts taken off your back. Once you file for bankruptcy, you have to navigate a complicated maze of regulations and laws embedded in the bankruptcy code. Speak to the experienced bankruptcy attorneys at Hoffman, Larin & Agnetti, PA. The firm offers free, confidential consultations so that you have nothing to lose.

Student Loans and Why They are Not Dischargeable in Bankruptcy

Imagine the following scenario: You have hit financial trouble and are contemplating bankruptcy to help get your financial house in order. You hope that bankruptcy will provide some respite from your financial follies and/or staggering debts. Unfortunately, this is not the case if you owe student loans.

Image Source (CC BY 2.0) by Lendingmemo via flickr

Image Source (CC BY 2.0) by Lendingmemo via flickr

If you are being crushed by massive student loan debt, you, unfortunately, have few options when it comes to debt forgiveness. Bankruptcy is certainly not the best strategy. Other debts, such as a mortgage and auto loans, are dischargeable through bankruptcy. For student loans, you carry the burden of establishing “undue hardship” and a court must agree with that determination for a student loan to be wiped out. It is within the court’s discretion to decide whether a borrower meets the undue hardship standard, and that standard varies depending on the court since the bankruptcy code does not provide an actual definition of the term.

Have Student Loans Always Enjoyed This Special Non-Discharge Protection?

No. Prior to 1976, student loans could be discharged in bankruptcy. However, Congress became concerned over high default rates on loans that were guaranteed, even partially, by the federal government. Therefore, Congress passed legislation intended to protect “federal investments.”

However, there have been different iterations of student loan protection. For example, initially, there was a ban on bankruptcy discharges only for the first five years after a federal student loan was originated. After five years of payments, you could discharge the remainder of the loan through bankruptcy.

In 1990, the five-year rule was extended to seven years. In 1998, the law was revised again to remove any timeframe for allowable discharges, leaving undue hardship as the only way out.

In fact, in 2005, the non-dischargeability of student loans was broadened to protect private student loan debt in addition to the previous protection granted only to student loans guaranteed by the federal government.

Why Were These Protections Put In Place?

According to a 2013 report titled “No Way Out: Student Loans, Financial Distress, and the Need for Policy Reform,” the special treatment and bankruptcy protections afforded to student loans is the result of panic and exaggerated stories about wealthy doctors and lawyers filing for bankruptcy to discharge student loans at a relatively young age and basically leaving the government or a bank holding the bag. However, the data has shown that these fears were completely unfounded. In fact, the General Accounting Office found, in 1977, that only 1 percent of all matured student loans had been discharged in bankruptcy prior to any protections being put in place, according to Consumerist.com. So, these protections were enacted based on a false premise leaving struggling students holding the bag.

Changes on the Horizon?

A group of 12 senators introduced legislation recently that would amend the current bankruptcy code to allow private student loans to be held in the same regard as other private unsecured debt and therefore be dischargeable in bankruptcy. Unfortunately, this is just a proposal, as of the date of this posting.

Speak to a Florida Bankruptcy Lawyer Today

Whether you have student loans or not, if you are struggling financially and are seriously considering filing bankruptcy, speak to the experienced bankruptcy law firm of Hoffman, Larin & Agnetti. We offer a free, no-obligation consultation, and if retained, we help guide you through the bankruptcy process from beginning to end. Of course, if relevant, we will explore whether you qualify for the undue hardship exemption mentioned above in addition to all other possible regulations that can help your case.

Understanding Frozen Assets in Bankruptcy

When someone files for bankruptcy, they may think they will literally lose everything to creditors. They have nightmares of wages garnished to the point where they will not be able to to put food on their plate. This is simply not accurate. In fact, in many cases, your personal bank accounts are free of the risk of garnishment if you file for Chapter 7 bankruptcy by virtue of the provision of automatic stay.

Image Source (CC BY 2.0) by mercedesfromtheeighties via flickr

Image Source (CC BY 2.0) by mercedesfromtheeighties via flickr

However, if your bank or credit union account balance is more than a permissible exemption limit (for example if your account holds $20,000 whereas the exemption limit is only up to $12,000) and the bank is owed money from you, the bank can “freeze” your assets in that account. The bank simply has to send a notice to you and the bankruptcy trustee stating that your account is in “bankruptcy status” and the money is frozen and payable only upon the express direction from the bankruptcy trustee. But, if your account has less than $12,000, then that amount is exempt (i.e. you keep it).

The freezing of a bank account was permitted by a court In re Young, 2010 WL 3965698 (Bankr. M.D. Fla. 2010) and is also allowed by the bankruptcy courts in the Orlando area (Middle District of Florida). As to the rest of the State of Florida, bankruptcy courts have so far not favourably viewed the freezing of bank account assets. After the freezing of accounts by the bank, funds can be unfrozen and discharged upon a written petition from you to your bankruptcy trustee, or by filing a motion with the bankruptcy court.

In spite of the fact that the trustee or judge will ultimately approve “unfreezing” of accounts if no money is owed and/or if the money is within the exemption limit, the time taken may be anywhere from a couple of days to a few months. It is very important that you consider this aspect before filing for bankruptcy.

In the event that you owe money to the bank that holds your deposit accounts, consider closing those accounts and opening new ones at another bank or credit union before you file for bankruptcy. Despite the fact that it might be a bother to move your money, it is much more troublesome to lose access to your money for an indefinite period of time while you deal with complications about whether you, the trustee, or the bank ought to have control of the account and the assets in that account.

And in spite of all these precautions if you still find that your account has been frozen by the bank, contact the bank as soon as possible. The bank will then let you know whether it froze your account to secure it as an advantage of the bankruptcy estate or to simply hold it as an offset against your existing debt to the bank.

Contact an Experienced Bankruptcy Attorney Today

As you can probably tell, the law surrounding bankruptcy and frozen assets can be extremely complex. This is why you need to hire an experienced Florida bankruptcy attorney like those at Hoffman, Larin & Agnetti, P.A. Our firm is comprised of experienced, aggressive, and talented attorneys well-versed with the bankruptcy code.  We even offer free, no-obligation consultations to potential clients, so call us or write to us today!

Exempt Assets and Bankruptcy in Florida

Many people mistakenly believe that once you declare bankruptcy, you are left with nothing. This is not true. In fact, Florida law categorically classifies a class of assets that are “exempt” from the effects of a Chapter 7 bankruptcy filing.

Homestead Exemptions

Image Source (CC BY 2.0) by lumaxart via flickr

Image Source (CC BY 2.0) by lumaxart via flickr

Pursuant to Article X, Section 4 of the Florida Constitution, your homestead is excluded property and not accessible if you or a loved one files for bankruptcy. This exemption is allowed for properties that have been owned for at least 1,215 days prior to the bankruptcy filing. It is applicable equally to all Florida residents, provided they have been domiciled in Florida for at least 730 days prior to filing of the bankruptcy petition.

Starting from April 2007, a limit of $125,000 has been increased to an exemption of $137,000 of equity if the home property was bought within the last 40 months. A few courts have also held that in case of a married couple, two homestead exemptions may be jointly claimed, amounting to an aggregate protection total of $274,000.  Property held under the applicable state tenancy laws may however be exempt against debts owed by a single spouse only. Death benefits payable to any beneficiary other than the deceased’s estate are also exempt under Florida homestead exemption.

Statutory Exemptions

Chapter 222 of the Florida Statutes, titled “Method Of Setting Apart Homestead And Exemptions,” incorporates several other classifications of exempt property, including, but not limited to, pensions and retirement savings, 401K plans, tax deferred retirement plans, Social Security payments, life insurance policies, disability income, IRAs, health savings plans, college investment plans (529 plans included) and natural disaster savings accounts. Wages earned by the head of a family are fully exempt up to $750 per week, applicable to both paid and unpaid wages and wages deposited in a bank account during the last six months. Annuity contract proceeds are also exempt under this clause, except for lottery winnings.

Automobile Exemption

Florida law provides an exemption of $1,000 of equity in the form of an automobile exemption. Married couples who are joint owners of a motor vehicle may file for an exemption worth $2,000.

Miscellaneous Personal Property Exemption

A bankruptcy petitioner may claim exemptions up to $4,000 of personal property if they do not use the homestead exemption (commonly referred to as the Florida Wildcard Exemption under Florida Statute 222.25). For joint debtors this amount doubles up to $8,000. Each debtor is also permitted to file for an additional exemption of $1,000 ($2,000 for joint filings) of all other individual property including furniture, materials, tools, and evaluated cash at hand.

Contact an Experienced Bankruptcy Law Firm Today

Hoffman, Larin & Agnetti, P.A. offers free, confidential consultations for all Florida bankruptcy-related issues. Let our team of experienced Florida bankruptcy lawyers evaluate the specific facts of your case and make recommendations that address your individual issues. Convenient payment plans to meet your budget are available. We have offices conveniently located in Miami, Fort Lauderdale, Islamorada and Key West. You may contact us 24 hours a day, seven days a week. We look forward to helping you.

Understanding the Difference Between Chapter 7 and Chapter 13 Bankruptcy

Bankruptcy is the federal legal process by which consumers and business entities can effectively eliminate all or a part of their pending debts during personal or financial hardships. There are different ways a person or business files for bankruptcy under the U.S. Bankruptcy Code: liquidation (Chapter 7 bankruptcy) and reorganization (Chapter 13 bankruptcy).

Image Source (CC BY 2.0) by Chris Potter via flickr

Image Source (CC BY 2.0) by Chris Potter via flickr

Chapter 7

Chapter 7 is a liquidation bankruptcy intended to eliminate your general unsecured debts. For example, credit cards and hospital bills could be eliminated when you file for Chapter 7 bankruptcy. To fit the bill for Chapter 7 bankruptcy, you must have very limited disposable income (decided by the Florida Means test), or in other words practically zero extra cash. On the off chance that you do have extra money, you may be obligated to file for a Chapter 13 bankruptcy instead. Currently the maximum annual income allowed for the purpose of the Florida means test is $41,334 for a one-person household, $51,839 for two, $63,196 for four, and up to $111,796 for a family of ten.

After you petition for a Chapter 7 bankruptcy, a trustee is selected by the bankruptcy court to manage your case. Apart from assessing your bankruptcy papers and supporting records, his duty is to sell off your non-exempt property in order to pay back your creditors. Due to the fact that absence of non-exempt resources means non-repayment to creditors, Chapter 7 bankruptcy is ordinarily for low-income debtors with limited assets who just need to dispose of their unsecured debts. In case you wish to retain some secured debts like your car or house, you will need to reaffirm the debts by voluntarily signing a “Reaffirmation Agreement” and will have to continue to pay for it for the coming eight years, in the manner in which it was payable before filing for bankruptcy.

Nevertheless, it has to be kept in mind that although bankruptcy can remove a good many number of debts like credit card debts, hospital expenses, and unsecured loans, there are a few other types of debts, including child/spousal support obligations, student loans and tax debts, which cannot be eliminated in Chapter 7 bankruptcy.

Chapter 13

Chapter 13, on the other hand, is a reorganization bankruptcy intended for debtors with standard salary who can pay back a significant part of their debts through a repayment arrangement. If you happen to over-qualify for the annual income limit as given under the Florida Means Test guidelines, you shall be compelled to file for a Chapter 13 bankruptcy case instead of Chapter 7.

However, many debtors voluntarily choose to file for Chapter 13 bankruptcy in light of the fact that it offers numerous advantages that Chapter 7 bankruptcy does not. The basic idea behind a Chapter 13 bankruptcy is that you get the opportunity to keep certain property in exchange for a settlement to pay back your debts in a 3-5 year repayment plan depending upon your future income – which is why Chapter 13 is commonly referred to as a reorganization bankruptcy. Most insurances and retirement plans also remain protected under this type of bankruptcy filing.

Speak to Experienced Florida Bankruptcy Lawyers Today

Hoffman, Larin & Agnetti, P.A. is prepared to help you with any bankruptcy-related needs in Florida. For a free consultation with one of our bankruptcy professionals, reach out to us today. We are happy to help.