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Q. What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?

A: While I normally answer this question by responding to my clients that the difference between a 13 and a 7 is “6″, there really are some VERY significant differences that need to be understood.

A Chapter 7 filing generally is appropriate in cases where the debtor has no disposable income or minimal disposable income and in such cases, the debtor will receive a discharge of his or her debts within approximately 90 days of the date of filing, without a payment to creditors. There are numerous exemptions the debtor is allowed to take in order to protect certain assets including one for personal property. The precise dollar amount of personal property that a bankruptcy debtor is permitted to protect from creditors depends, as of fairly recently, on whether he/she is a homeowner and if so whether it is his/her intention to retain or surrender their home. If the debtor has non-exempt property or property valued in excess of the allowed exemptions, the debtor may be forced to file a Chapter 13 bankruptcy, or alternatively to pay the Chapter 7 trustee the value of such assets. Aside from this personal property, there are other exemptions available to protect most retirement accounts, cash surrender value of life insurance, alimony and child support payments, and other assets including but not limited to specific jointly owned property (owned by husband and wife).

A Chapter 13 filing is generally appropriate in cases where the debtor has a) disposable income, (b) assets over allowed exemptions, or is in a foreclosure and/or vehicle repossession case. IT IS WITHIN A CHAPTER 13 CASE THAT A HOMEOWNER CAN ENDEAVOR TO SAVE HIS/HER HOME, AND SOMETIMES EVEN MODIFY THE TERMS OF THE EXISTING MORTGAGE AND ELIMINATE SECOND MORTGAGES OR HOME EQUITY LINES OF CREDIT (HELOC). The amount of money the debtor will be required to pay to his/her UNSECURED creditors (creditors without collateral) depends on the dollar value of the non-exempt assets. The monthly disposal income of the debtor may also determines the amount of money the debtor will be required to pay these unsecured creditors.

Q. Since the bankruptcy laws changed in October 2005, I have heard that it is no longer possible to file a Chapter 7 bankruptcy. Is this true?

A: No! While the Bankruptcy Reform Act has made it necessary to jump through a few additional hoops before you can file a Chapter 7 bankruptcy, it is estimated that approximately 85% of those individuals who could have filed BEFORE the law change can still file AFTER it changed. It is self-serving rhetoric from the credit card industry that has spread the rumor that Chapter 7 filings are essentially no longer available. This is simply NOT TRUE!

Q. Other than my defaulting under my credit card agreement, what are some of the factors that allow my creditors to suddenly increase my interest rate without warning?

A: Believe it or not, credit card companies can increase your interest rate in these circumstances, just to name a few:

  1. Your balance is too close to our credit limit
  2. You are late in making your payment on ANOTHER COMPANY credit card, a utility company, or your mortgage holder or auto finance company
  3. The credit card company believes you have too much debt. (Even if you are perfectly current on all of it)
  4. The credit card company believes you have too much available unused credit
  5. You obtain a new credit card

I have actually had a client tell me that his credit card company advised him that although he was current on all his debt, they instinctively felt he would default soon and raised his interest rate. Unbelievable!

Q. I have more than one mortgage on my property, can I get rid of this mortgage and, if so, how? What about Home Equity Lines of Credit?

A: In a Chapter 13 bankruptcy, and ONLY in a Chapter 13 bankruptcy, if your home is realistically valued at less than the balance of your 1st mortgage, we very likely can eliminate any subsequent mortgages or lines of credit on your home. This option is becoming increasingly more available as property values plummet in relation to loan balances that are likely decreasing with payments being made at a minimal rate or more likely increasing, as a result of non-payment.

Q. If I go into foreclosure and lose my home and the bank sells the home for less than I owed the Bank, can the Bank come after me for the difference.

A. Yes, they can. Florida law specifically allows for deficiency judgments such as you describe. Although this right has been available to the Banks for a long time, they have only recently begun to exercise this option.

Q. What is a Short Sale? If I Short Sale my property, is there a Tax ramification?

A. Short Sale means that you sold your real estate for less than the balance you owe on your bank loan.
A. Yes, if the property in Short Sale is not your primary residence, there very well can be. If your real estate sold for less than you owe on your bank loan, the remaining balance that you are NOT required to repay your bank, could be considered as taxable income.


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