Five years after the recession was declared, families and individuals in Florida and throughout the U.S. still find themselves mired in debt. Whether through the poor housing market, job loss, divorce, illness or mounting credit card bills, many turn to bankruptcy as the last, best chance for starting over. Many are also surprised that they do not qualify for Chapter 7 bankruptcy because, in spite of the fact that they can’t pay their bills, their income is too high and they may even have some, though little, disposable income.
Eligibility for Chapter 7 bankruptcy, in which debts are eliminated, is based on passing a means test that is intended to keep people from abusing the bankruptcy system. If you make more than the median income in your geographical area, you will not be able to file Chapter 7. However, you may still be eligible to file for Chapter 13.
Is it worth it, though, if you cannot eliminate your debt? Under Chapter 13, you may be able to eliminate some debt (even some credit card debt) but what it really does is buy you the time you need to get back on track. Chapter 13 is often called a wage-earner plan. It is a court-protected way to repay debts over a three- to five-year period. Chapter 13 allows you to:
- Keep your home by forestalling foreclosure and allowing you to catch up on mortgage payments that are in arrears
- Lower overall debt through restructuring
- Protect items that you might otherwise have to liquidate under Chapter 7, including heirlooms or other items of importance and value to you and your family
- Through the trustee, come up with a plan that you can live with to pay off your debt
Chapter 13 is worth it if you desire to keep your home and are willing to stick to a plan. Of course, filing for any type of bankruptcy is a personal choice. To help you understand the process and feel secure with the decision you make, it might be in your best interest to discuss your options with a Florida bankruptcy attorney.
Attorney Shane Herbert also contributed to this post.