Bankruptcies in America don’t have very descriptive names, and many people find it hard to decide upon Chapter 7 or Chapter 13 without any prior knowledge and based on name alone. But this choice is an important one, affecting your life and financial freedom for years to come. In this article, we provide information about two of the most common Sarasota bankruptcy options. If you have questions or concerns, we are here to help.

Sarasota bankruptcy options

  1. Eligibility Requirements: Identifying what kind of bankruptcy is available to you is the first step in rebuilding your financial life and planning for the future.
    • Means Test for Chapter 7: To qualify for a Chapter 7 bankruptcy in Florida, you must pass a means test comparing your household income to the median income of a Florida household of similar size. If your income is below this number, you qualify. If it’s above, additional calculations determine your ability to repay certain debts, potentially disqualifying you from Chapter 7.
    • Debt Limits for Chapter 13: Chapter 13 doesn’t require a means test, but it does have specific debt limits. Your secured debts must be under a certain amount, and the same applies to unsecured debts like credit card bills. Additionally, you must have a regular income to create a feasible repayment plan.
  2. Impact on Assets and Property: Each of the Sarasota bankruptcy options (Chapter 7 and Chapter 13) treats assets very differently, which can be a dealbreaker when selecting the right option for you.
    • Asset Liquidation in Chapter 7: Nearly all non-exempt assets are liquidated to repay creditors during a Chapter 7 bankruptcy. Exemptions typically cover basic necessities like household items, clothing, and sometimes a portion of home equity. If you own valuable non-exempt property, you risk losing it to satisfy your debts.
    • Asset Retention in Chapter 13: Chapter 13 allows you to keep your assets, provided you adhere to a court-approved repayment plan. This is beneficial if you have significant non-exempt property you want to protect. Instead of selling assets, you repay creditors over three to five years.
  3. Repayment Structure: The way debts are repaid under Chapter 7 and Chapter 13 is a major difference that impacts your financial future and ability to plan far into the future.
    • Discharge of Debts in Chapter 7: Chapter 7 typically results in the discharge of most unsecured debts, like credit cards and medical bills, within a few months. This means you’re no longer legally required to pay these debts, offering a quick financial reset. However, certain debts, including federal student loans and child support payments, are usually not allowed to be discharged.
    • Repayment Plan in Chapter 13: Chapter 13 involves setting up a repayment plan that lasts three to five years. During this repayment period, your money is sent to a bankruptcy trustee who disperses funds to your creditors. This plan allows you to catch up on secured debts like mortgage arrears and car loans while paying a portion of your unsecured debts.
  4. Duration and Financial Impact: Chapter 7 offers faster relief but may have harsher immediate impacts on your credit score and could result in property loss. Chapter 13 requires longer-term financial discipline but helps protect your assets and gradually improves your financial situation.

Once you discuss your case with a professional bankruptcy attorney, your choice between the Sarasota bankruptcy options is likely to become clear. Obviously, being ineligible for Chapter 7 will prevent you from going that route, but the very fact you are ineligible based on income may signal that Chapter 13 is the better choice.

If you are still struggling to decide, an experienced bankruptcy attorney can answer all your questions in one simple and confidential consultation. Contact Richard V. Ellis today. He and his team have been helping Sarasota families and small businesses navigate bankruptcy for over 40 years.