Helping You Understand The ‘Legalese’ Of Bankruptcy

The bankruptcy laws were created to give honest debtors a one-time chance to escape from crushing debts and get a fresh start. But the U.S. Bankruptcy Code is complex and technical. There are several steps to the process and many requirements.

After you read up on these bankruptcy terms, Jeffrey Badgley and our team at Badgley Law Group are here to answer all your questions and guide you through the process. Arrange a free consultation at 407-686-1819. We represent regular people in the Orlando area who need financial rescue because of medical debts, unemployment or credit cards that got out of hand.

Good Faith

Knowing that the process can be abused, bankruptcy courts are keen on ensuring that all filings are done in good faith. Certain actions in the days or weeks before filing (such as racking up credit card debt or the concealment of assets) will be viewed unfavorably by the judge. Such debts may be excluded from the discharge or force you to delay your filing.

Bankruptcy fraud is actually a criminal act and could even result in imprisonment. By engaging an affordable Florida bankruptcy lawyer early in the process, you can avoid seemingly innocent pre-filing actions that may be interpreted as dishonest by the court.

Credit Counseling

For any consumer bankruptcy, within 180 days before filing, debtors must sign up for credit counseling and submit a certificate of completion. Only certificates from organizations authorized by the U.S. Trustee Program to provide credit counseling will be accepted.

Pre-filing counseling will usually include an assessment of your finances, a discussion on bankruptcy alternatives and the preparation of a personal budget. The counseling usually lasts between 60 and 90 minutes. It can be conducted in person, online or over the phone.

The Chapter 7 Means Test

Everyone who files for Chapter 7 discharge of debts will be required to take a “means test.” The goal of the test is to ensure that persons with considerable income are not allowed to file for Chapter 7 bankruptcy. It’s a means of protecting creditors from individuals who would want to get off easy despite having the means to pay at least part of what they owe.

If a debtor’s average monthly income over the preceding six months is below Florida’s median income for a similarly sized household, they automatically qualify to file for Chapter 7 bankruptcy. No further evaluation is required. Others who may be exempt from the means test include disabled veterans who incurred their debt while on active duty, debtors whose debts are mainly non-consumer (business) debts and military reservists or members of the National Guard called to active duty prior to filing.

If the debtor’s income is above the state median, the testing becomes more complex. It requires a comparison of their basic monthly expenses (such as food, other household necessities, transportation and housing) to their average monthly income to determine the disposable income.

Income would not only cover the debtor’s salary (if employed) but any other sources, including rental income, business income, dividends, interest earnings, pensions, unemployment income and any payment by someone else for their household expenses. If their disposable income is substantial relative to their debt repayments, thus allowing repayment of at least a portion of the debts, they can only qualify for Chapter 13 bankruptcy.

Contrary to widespread belief, simply having a high income does not mean an individual will be automatically barred from Chapter 7 bankruptcy. The size of their financial obligations matters, too.

The 341 Meeting Of Creditors

The 341 meeting follows shortly after the bankruptcy filing. It is the initial meeting of creditors and is named after Section 341 of the bankruptcy law section that describes when and how this meeting should be conducted.

Creditors rarely attend, and it is often just the debtor and the bankruptcy trustee. Regardless of their absence, the trustee proceeds to interrogate the debtor under oath about their liabilities and assets. The 341 meeting is very brief and hardly lasts more than 10 minutes. It is usually the only court appearance that a debtor will make during the entire process.

Creditors and the trustee have 60 days after the 341 meeting to file an adversary proceeding disputing the debtor’s right to discharge specific debt(s). Adversary proceedings are rare in consumer bankruptcies and will usually happen when the debtor is suspected of fraud or bad faith.

Asset Exemptions

The overarching goal of bankruptcy is to give individuals and businesses a dignified fresh start. This is why the law classifies some assets as exempt from liquidation. The debtor can focus on rebuilding their finances without losing everything they own. Exemptions vary by state, and Florida’s are often considered one of the more generous.

A person must have lived in Florida for at least two years to use the state’s bankruptcy exemptions. Otherwise, the debtor would be restricted to either the federal list of exemptions or the exemptions of the state they lived in the six months preceding the two-year window.

Debtors list their exempt assets in the schedule accompanying the bankruptcy petition. The exemptions are considered final if no objections are raised 30 days after the 341 meeting. Exempt assets are subsequently separated from the bankruptcy estate and cannot be sold by the trustee or attached by creditors.

Asset Valuation

For bankruptcy purposes, an asset’s value refers to its present sale value as opposed to its replacement value or original purchase price. For example, what would your car be worth if you sold it, or what would your jewelry be worth if you pawned it? In instances where the debtor co-owns an asset, bankruptcy proceedings will only calculate the debtor’s portion in the item’s equity. This valuation method is favorable to debtors.

We Try To Demystify The Legal Process

Debt problems are stressful, and the idea of filing for bankruptcy can add to that anxiety. We are here to help you understand the process and take full advantage. To discuss your financial situation in a free consultation, call our Orlando office at 407-686-1819 to schedule an appointment or contact us online.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.