The perceived financial abyss created by insurmountable debt can be a frightening experience for almost anyone. For many, unmanageable debt is even more worrisome when it is generated by unexpected events that necessitate large expenditures – such as medical emergencies – which in turn can lead to missed mortgage payments and overdue credit card statements. Sadly, many individuals in Florida are so unsure of how to deal with this debt that they find themselves frozen in a state of inaction – all the while late fees and penalties continue to build making things that much worse.
In most instances, individuals in Florida facing immense debt should avoid waiting for the problem to fix itself. They should address it quickly and directly, which is best accomplished using the tools provided under bankruptcy law. For instance, both Chapter 7 and Chapter 13 bankruptcy laws allow indebted individuals the opportunity to get out from under their debt and start anew.
Importantly, however, there are several significant differences between Chapter 7 and Chapter 13 bankruptcies. Most notable of these differences is that Chapter 7 bankruptcy allows qualified debtors to discharge much of their debt in exchange for liquidating their assets. Conversely, Chapter 13 permits debtors to pay back their debt on a set payment schedule. Consequently, if an individual wants to keep most, if not all, of his or her property, a Chapter 13 bankruptcy may be the best option.
Benefits of a Chapter 13 bankruptcy
Essentially, a Chapter 13 bankruptcy enables an individual to pay off all, or a portion, of his or her debt using a payment plan, which usually last three to five years. Upon completion of the payment plan, all of the debts subject to the plan will be completely eliminated – debts such as credit card and medical debt, among others.
In addition, Chapter 13 can be used to address and pay back-taxes and child support, which are generally not eliminated during a Chapter 7 bankruptcy.
A Chapter 13 bankruptcy is also helpful when the individual filing for bankruptcy is a homeowner with equity in his or her home that is greater than the bankruptcy homestead exemption. For instance, during a Chapter 7 bankruptcy an individual’s home may be sold if the equity in the home is larger than the protected exemption amount, with the nonexempt portion of the sale going to creditors. Alternatively, an individual does not risk losing their home during a Chapter 13 bankruptcy so long as he or she sticks to the payment plan.
Interestingly, however, this distinction is less significant in states such as Florida that have an uncapped homestead exemption, meaning there is no dollar limit on the amount of equity protected during a bankruptcy. Although, Florida homeowners are still subject to a federal exemption cap of $155,675 for home equity if they purchased their home within 1215 days (40 months) of filing for bankruptcy, in which case Chapter 13 can still be helpful.
Given the complexity of bankruptcy law, there are several additional benefits to a Chapter 13 bankruptcy not addressed in this article, which is why it is always advisable to seek the counsel of an experienced personal bankruptcy attorney. A skilled attorney can assist in reviewing your debt and help determine which form of bankruptcy will be best suited for your situation.