Florida Bankruptcy Exemptions and Law
If you are a Florida resident who is in debt and having a hard time paying your bills, bankruptcy could offer protection from collection agencies while you take back control of your finances. Filing for bankruptcy can force creditors to accept payment plans or reduced payments and give you a fresh start free from most debt.
The U.S. Bankruptcy Courts are governed by the U.S. Bankruptcy Code, but states may make their own rules about the property you can protect from creditors. This is known as “exempt property" and it is property you keep at the end of your case. The bankruptcy code offers a set of federal exemptions, but Florida residents must use the state exemptions.
Florida's exemptions are among the most favorable in the country, but they only apply to filers who meet strict residency requirements. To use the Florida exemptions, you must have lived there for at least two years before filing for bankruptcy. If you can't prove you were a resident for the full two years, you must apply the rules in the state where you lived during the six-month period prior to that two-year period. The federal exemptions are used if you no longer qualify for the exemptions in your previous state.
The Two Types of Consumer Bankruptcy
To understand how the exemption process works, it helps to know that there are two types of personal bankruptcy:
- Chapter 7 Bankruptcy. Chapter 7 allows you to eliminate most of your unsecured debt. However, it is only available if your income is under the state median for a household of your size. While you will lose all of your non-exempt assets, you will exit Chapter 7 free from most of your debts. And you will not be left without anything, as bankruptcy law protects homes, cars
- Chapter 13 Bankruptcy. Chapter 13 will let you reorganize your debt so that it can be paid off over three to five years. Any remaining debt after that time is usually discharged. Chapter 13 is a popular choice for people who want to keep most or all of their property but just need more time or better terms to pay their debts.
One benefit you will enjoy if you file under either chapter is the automatic stay issued by the court when you file. The stay will stop any collection actions against you, including foreclosures and most court cases. The stay gives you breathing room to resolve your debt problems without being harassed by creditors. It also keeps some creditors from trying to jump in front of others to get paid first.
Secured vs. Unsecured Debt
To understand how your debts will be treated during both Chapter 7 and Chapter 13 bankruptcies you must first know that most of your debt will be divided into two categories: secured and unsecured. Each type will be treated differently during bankruptcy.
When you have unsecured debt, your creditor does not have the right to repossess your property for failure to pay. These debts are the most likely to be significantly reduced, or eliminated, during the bankruptcy process. Credit card debt, court judgments, medical bills, and some unpaid income taxes are common examples of unsecured debt. However, some unsecured debt, such as unpaid child support, cannot be eliminated in bankruptcy and must be repaid in full.
You have a secured debt when a creditor has the right to seize your property if you fail to pay. Home mortgages, car loans, and property liens are the most common types of secured debt.
If you file for Chapter 7 bankruptcy, you can often eliminate most of your unsecured debt. However, creditors holding secured debt will still have the right to repossess your property for non-payment. This means that you may lose your home, car, or other property to secured lenders in Chapter 7. You will usually have three options for dealing with secured creditors:
- Give back the property. If you choose to do this, you will lose the secured property, but you usually won't need to make additional payments. This is because once you have returned the property the remaining unpaid debt is unsecured and is usually eliminated.
- Make payments. This is more likely in Florida than most states due to its generous homestead exemption. If you have a mortgage and can keep up your payments, you can usually keep the property.
- Buy the property outright. This rarely happens in Chapter 7 because it requires making a cash payment, and you will likely need to turn most of your cash assets over to the bankruptcy trustee.
Chapter 13 bankruptcy lets you create a plan for repaying your creditors. However, your mortgage will not be part of the plan and you will continue to make payments on it outside of the plan. If you have fallen behind on your payments, the trustee can often negotiate a repayment agreement. Your unsecured debts will be repaid with whatever income is left after the secured creditors have been paid. Any non-mortgage debt will be eliminated once you have completed the plan.
If you meet Florida's two-year residency requirement you must also pass a means test to file for Chapter 7. There are two means tests usually used to find whether you can file for Chapter 7. Under the first test, if your household income is less than the median for one of the same size in the state, you qualify. According to U.S. Census data, the median income for a three-person Florida family was $70,815 as of November 2020.
When your income is above the state's median, you may qualify under a second test based on disposable income. You will project your monthly disposable income over the next five years by taking your monthly gross income and multiplying it by 60, then subtracting allowable expenses.
- If your projected disposable income over the next five years is less than $7,025, you can file under Chapter 7 in Florida.
- If your projected disposable income is more than $11,725, then you cannot file under that chapter.
- If your projected disposable income falls between $7,025 and $11,725, you will qualify the disposable income amount is less than 25% of your unsecured debt.
To file for bankruptcy under Chapter 13 you cannot have unsecured debts of more than $419,275. Your total secured debts cannot total more than $1,257,850
Florida has created its own bankruptcy exemptions and you must use them if you file there. Luckily, many of the Florida exemptions are more generous than those offered under federal law or by other states. One of the reasons for Florida's strict residency rules is that so many people from other states try to file there to take advantage of the generous exemptions.
Florida's homestead exemption lets you exempt the equity you have in your home, no matter the amount. For example, if you own a home valued at $1 million and have no mortgage debt, your creditors cannot force you to sell. The exemption covers homes on properties of a half-acre or less in a municipality, or 160 acres or less everywhere else.
However, to take advantage of the exemption you must have owned the home for at least 1,215 days before filing (roughly three years, four months). You must use the federal exemptions if you have owned it for a shorter period.
The wages of the head of the family are fully exempt up to $750 per week. This applies to paid or unpaid wages and wages deposited into a bank account for up to six months before filing. Other family members may protect up to 75% of their wages, or 30-times the federal minimum wage, whichever is greater.
Personal Property Exemptions
Personal property that falls into one of the following categories will be exempt in Florida:
- Personal property of up to $1,000, which increases to $4,000 if you do not use the homestead exemption. Personal property generally includes items like furniture, art, and electronics.
- Health savings, education savings, and hurricane savings
- Tax credits and refunds
- Prescribed home health aids
- The cost of a funeral paid to Florida's Preneed Funeral Contract Consumer Protection Trust Fund
- Some of the property in a business partnership
You can use the Florida wildcard exemption if you do not use the homestead exemption. The wildcard exemption can be used on up to $4,000 of personal property. The exemption doubles to $8,000 if you file jointly with your spouse. You can also claim the wildcard exemption if you own your home, but have no equity to protect with the homestead exemption. This means that if you owe the banks more than the home is worth, you can still use the wildcard exemption.
Motor Vehicle Exemption
Florida lets you exempt up to $1,000 of the equity you have in a motor vehicle. Since this amount is so low, many residents lose their cars if they can't work out a payment agreement with the bankruptcy trustee.
Most types of pension and retirement funds are exempt, including:
- ERISA-qualified retirement plans and pensions, including 401(k) 's, 403(b) 's, profit-sharing plans, money purchase plans, IRAs and Roth IRAs, and other defined benefit plans.
- Teachers' retirement benefits
- Public employee retirement benefits
- Firefighter and municipal police pensions
Insurance and Benefits Exemptions
Florida residents may exempt the following:
- The proceeds from a life insurance policy payable to a specified beneficiary.
- Disability income benefits
- The cash surrender value of a life insurance policy
- The proceeds of an annuity contract, except for annuities set up for lottery winners
- Fraternal society benefits
Public Benefits Exemption
The following benefits are exempt from bankruptcy in Florida:
- Social Security benefits
- Veterans' benefits
- Workers' compensation and unemployment benefits
- Crime victim's compensation benefits unless you are trying to discharge debt related to a crime-related injury.
- Local public assistance benefits
- Reemployment assistance benefits
Alimony and Child Support Exemptions
Child support payments and alimony are exempt to the extent they are reasonably necessary for your support.
Exemption for Some Damage Awards
Damages for injuries received while working in a hazardous occupation are exempt. All other proceeds from lawsuits or pending legal claims belong to the bankruptcy estate. If the lawsuit was not resolved when you filed, the trustee can retain an attorney and decide whether it should be settled or proceed to trial.
The Florida federal courts have been split into three districts and each has its own bankruptcy courts. If you are unsure of the nearest bankruptcy court, search under “U.S. Bankruptcy Courts" in the Federal Court Finder.
The Northern District operates bankruptcy courts in:
- Panama City
The Middle District operates bankruptcy courts in:
- Fort Myers
The Southern District operates bankruptcy courts in:
- Ft. Lauderdale
- West Palm Beach
Filing under Chapter 7 in Florida will cost you $338 in filing fees. The filing fees for a Chapter 13 case are $313. The filing fees are the same whether you represent yourself (known as a “pro se" filing) or have a lawyer. You can ask to pay in installments over 120 days if you can't afford the filing fee. You can also seek a fee waiver if your income is less than 150% of the poverty line.
While some filers will represent themselves in bankruptcy, most will hire an attorney to help them with the complex process. The cost of hiring an attorney can vary widely based on where you live in Florida and the complexity of your case, but a Chapter 7 filing will usually cost you from $1,000 and $2,500. A Chapter 13 filing often runs between $2,500 and $5,000. Some lawyers will charge more if your mortgage needs to be renegotiated.
Looking for Help Filing for Bankruptcy in Florida?
If you cannot pay your bills and do not see your financial situation improving in the future, it is often a good idea to meet with a local bankruptcy attorney. An attorney will help you assess your situation and whether filing for bankruptcy really is your best option. If you do choose to file, a lawyer will assist you in deciding whether filing under Chapter 7 or Chapter 13 is your best option.
A bankruptcy filing is often a complex process and your creditors will have lawyers to protect their interests. You should, too. A bankruptcy attorney will understand the complexities of bankruptcy law and ensure that you fulfill your legal obligations while retaining as many of your assets as possible.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.
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