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    Chapter 7 Bankruptcy

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    Bankruptcy Laws in Florida

    Florida has everything: hunting, fishing, beaches, Disney, pro sports teams, Republicans, Democrats, and a whole lot of humidity. The only thing it doesn’t have is state income tax, which is yet another reason why it might just be the perfect state.

    A perfect state or not, it still has its oddities. We’ve all seen the #FloridaMan meme, which is shockingly persistent and hilarious. And when it comes to bankruptcy laws, Florida is very unique — it is one of the states that has opted out of the common federal rules for property exemptions, meaning when you file bankruptcy, you have to look at Florida law to determine what property you get to keep. (Many states will allow you to choose between the federal default rules or state rules.)

    We know what you are thinking, “But wait, bankruptcy is filed in federal court. Why isn’t everything federal law?” We have a few educated guesses, but first, let’s take a step back and see how Florida property exemption rules work alongside federal bankruptcy law to determine both whether you are eligible to file a Chapter 7 bankruptcy and how much of your property you’ll be able to keep.

    Federal Law For Courts and Forms, Florida Law for Eligibility and Property

    One of the unique and odd things about the United States is that we have 50 independent little governments with their own legal systems, courts, and lawmakers, plus we have this nationwide federal system layered on top of all of them. Because of that, it can be hard to tell where a federal law ends and state law begins. Bankruptcy falls into that trap: even though the right to bankruptcy is enshrined in the federal Constitution, bankruptcy courts are federal courts, and nearly all of the laws governing bankruptcy are set forth in the US code (federal laws passed by the US Congress), the states still have input. Why? Historically, property and debt law have been a state issue, but the regulation of interstate financial transactions is federal. One suspects that this historic trend is the reason why the federal government sets most of the rules for bankruptcy, but the state government gets to tell you what property you get to keep.

    Historical babbling aside, just know this: pretty much all of the informational articles on this website apply to everyone in the United States — a bankruptcy in Florida looks very much like a bankruptcy in Wyoming. However, there are a couple of rules that are specific to your state that we will describe below, primarily rules addressing the amount of property that is exempt from being sold to pay off debts and the amount of income you can make before you become ineligible to file.

    Florida Means Test

    The most common type of bankruptcy filing is Chapter 7 bankruptcy. In Chapter 7, your debt is eliminated after your excess assets are sold off to pay down some of your debt. (The far less popular Chapter 13 bankruptcy is essentially a repayment plan to pay back the debt you owe over multiple years, and even these filings often end up being converted to Chapter 7 when the payment plans fail.)

    Before you can file a Chapter 7, you must first pass either of two means tests. The first part of that test is based on household income: as of May 2022, a single person filing must make less than the median household income of $55,681, more for families.

    The second component of the means test – an alternative to the income cutoff – is an analysis of your last six months of income and expenses to determine how much you have left over after covering the essentials — your disposable income. The court will look back at your income, your expenses on rent and food, plus a few other essentials, to see how much disposable income you have. If it is little to nothing, you will likely be eligible for Chapter 7. Before you invest time and money preparing the paperwork to file your case, you should check with your attorney to determine whether you are eligible for a Chapter 7 filing. If you are not, Chapter 13 might be an interesting alternative, as it allows you to catch up on your finances and redo some debt, though not nearly as much as you might be able to discharge under Chapter 7.

    Florida Bankruptcy Property Exemptions

    The idea of selling your property to pay off your creditors, then emerging from bankruptcy with a bad credit score and a “fresh start” may sound intimidating — OK, it is intimidating – but know that you will not have to sell everything you own. Florida has some of the most generous exemptions, at least with regard to the most valuable assets that most people have — their home and retirement accounts.

    Also, as we mentioned: Florida requires you to use their exemptions, not the federal ones. So you will have to use these so long as you need the residency requirement. Just to make things a little more complicated, the rule generally is two years of residency before the state exemptions apply to your case. But, in Florida, if you want to take advantage of their extremely lucrative exemption for your home, you actually have to be there for at least 1215 days, which is an oddly specific number, but rounds off to about three years and four months.

    Homestead Exemption

    Most states will allow you to keep your home, up to a certain amount of equity. A few states have no exemption for your home – unless you can use the federal exemption, your home will be sold to pay off your debt.

    Florida? It has an unlimited exemption for your equity in your home. This means you could have a $1 million house, a $5 million house, or a completely paid-off mansion, and theoretically, it would be exempt from a forced sale under bankruptcy to pay off your creditors. There are some limits, such as a half-acre or less of actual land if you are in a city, or 160 acres if you are out in the country. (Yes, it did cross our minds that if you have enough income to maintain a $5 million house, you are probably not filing a Chapter 7 bankruptcy because you are well beyond the income limits, but we can all dream of big mansions.)

    However, if you do not meet that 1,215-day requirement that is specific to the homestead exemption in Florida, you will be stuck with the federal rule which is a mere $27,900.

    Wildcard Exemption

    Like many states, Florida has a wildcard exemption that allows you to protect up to $4,000 in personal property — any type of personal property. However, this exemption is only available if you do not use the homestead exemption to protect the equity in your home. (In other words, if you do not own a home, you are letting your home go in the bankruptcy, or you owed more than the home was worth so there is no equity to protect.)

    Automobile Exemption

    Florida gives us, and Florida takes us away. While Florida is extremely generous with homeowners, their automobile exemption is downright tiny. Florida only exemptions up to $1,000 in equity in a motor vehicle. And we don’t need to tell you that in 2022, $1000 vehicle does not work. A car with 500,000 miles, enough for us to make the tailpipe fall off when you hit a pothole, and two flat tires, will probably still cost you more than that. However, remember that that is equity — you may have a nice car, but you have to at least owe the value of the car minus $1000.

    Personal Property Exemption

    Florida exempts personal property of up to $1000 for people who are using the homestead exemption, and $4000 if you do not use the homestead exemption. This includes furniture, electronics, etc.

    Wages, Cash, and Pensions

    You will need cash for your fresh start. Fortunately, the wages of the head of household are exempt up to $750 per week, so long as those wages were deposited into a bank account for up to six months before your date of filing. If this is a joint bankruptcy filing with a spouse, the spouse can protect up to 75% of his or her wages, or 30 times the federal minimum wage, whichever is more.

    With all that being said, you are probably here to hear about retirement. After all, Florida has a well-earned reputation as a haven for retirees. Indeed, if you are a retiree considering bankruptcy, know that most types of pension and retirement funds are exempt from your filing. This includes all of your standard retirement accounts like a 401(k), a 403B, 414H, IRA, profit-sharing plans, and private pensions. Plus, teachers, public employees, firefighters, and police pensions and other retirement benefits are likely exempt as well.

    As always, since retirement plans may vary greatly depending on the employer, and your ongoing income is vital to your financial recovery post-filing, discuss your pension or retirement accounts with a bankruptcy attorney before filing and assuming exemptions will protect that income.

    Exemptions are Complex: Get Professional Help

    You can’t get a fresh start with no money, no credit, and no property. Florida, fortunately, has extremely generous exemptions that protect your home, your retirement accounts, and much of your income from being sold off to pay off your debts. While you will walk away with less property, “walk” being the keyword since the vehicle exemption is so stingy, at least you will have some assets to get you started on your new path. Maximizing those asset exemptions is where expert advice from a bankruptcy attorney can really pay off — your attorney can help you maximize the amount of exempt property and set you up for a strong financial future after filing. For expert advice, schedule a consultation with one of our network attorneys.

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