People or families who are struggling with debt may find that bankruptcy is their best option. Filing for bankruptcy will force creditors to stop any attempts to collect debts that are owed, and it may also put a halt to foreclosure proceedings, wage garnishment, and repossessions of vehicles or other property. When a debtor completes the bankruptcy process, some or all of their debts may be discharged, meaning that they will no longer have the obligation to repay the amount owed to creditors. However, it is important to follow the correct procedures during the bankruptcy process, since failure to do so may result in the dismissal of a case, which will allow creditors to resume their collection efforts.

Reasons for a Bankruptcy Dismissal

During a bankruptcy case, creditors may ask for a dismissal if they believe that a debtor committed violations of bankruptcy laws. The bankruptcy trustee may also take action to dismiss a case if the debtor fails to meet certain requirements. Reasons why a case may be dismissed may include:

• Failure to pay filing fees - A debtor is required to pay certain fees and court costs when filing a bankruptcy petition. If they do not pay these fees as required, the court may dismiss their case. If a person does not have the financial means to pay filing fees, they may be able to apply for a waiver that will allow them to proceed with the bankruptcy process without meeting this requirement.

  ...

There are many types of debts that may cause a person to experience financial problems. When it becomes difficult or impossible to repay debts, bankruptcy may be the best option for avoiding serious consequences, such as a home foreclosure, the repossession of property, or legal judgments that may result in wage garnishment or liens against a person’s home. However, it is important to understand how different debts will be addressed during the bankruptcy process. Domestic support obligations such as child support or alimony are one type of debt that may need to be considered.

Domestic Support Obligations Are Priority Debts

While domestic support obligations are considered to be debts owed by the payor to the recipient, they are treated differently than other types of debts. Financial support paid by a person to provide for the needs of a child or ex-spouse may be necessary to ensure that the recipient can cover their ongoing living expenses. Because of this, a person will generally be required to continue making payments, and they will also be obligated to make up any payments that are past due.

After filing for bankruptcy, an automatic stay is implemented that requires creditors to cease any attempts to collect debts from the debtor. However, this automatic stay does not apply to domestic support obligations. A person must continue making any child support or spousal support payments that are required. 

Originally published: July 20, 2020 -- Updated: March 18, 2022

Update: Florida homeowners will want to understand exactly how the homestead exemption may be used in cases involving bankruptcy or foreclosure. The Florida State Constitution states that a property that is considered a homestead will be exempt from “forced sale” based on debts that are unrelated to the property itself. That is, a creditor who is seeking repayment for another loan, such as the balance on a credit card, may not place a lien on a debtor’s home. However, a mortgage lender will have the right to pursue foreclosure if a homeowner defaults on their loan. Unpaid property taxes may result in tax liens, and a mechanic’s lien may be placed on a home if a contractor is not paid for work performed on the property.

Student loans make up a significant percentage of the debt carried by people in the United States. In fact, student loan debts are second only to mortgage loans in the categories of consumer debts, and they total more than $1.7 trillion. These debts can place a significant burden on many people, and due to interest charges, collection fees, or other costs, they can last throughout a person’s entire life. Unlike many other types of debt, student loans cannot currently be discharged through bankruptcy in most cases. However, this may soon change due to a new bill that was introduced in the U.S. Senate.

The FRESH START Through Bankruptcy Act of 2021

On August 3, 2021, Senator Dick Durbin (D-IL) and Senator John Cornyn (R-TX) introduced a bill that would allow debtors to discharge student loan debts through bankruptcy in certain cases. This bill would restore an option that was available to borrowers before bankruptcy laws were changed in 1998. Under this provision, federal student loan debts would become eligible to be discharged in a bankruptcy proceeding 10 years after the due date of the first loan payment. 

For student loans that have been due for under 10 years, or for private student loans made by non-governmental institutions, debts would be handled the same way they are currently, and they may only be discharged through bankruptcy if a borrower can demonstrate undue hardship. Proving undue hardship can be a difficult process, and borrowers will usually need to initiate a legal case known as an “adversary proceeding.” In these cases, borrowers will be required to provide extensive and invasive details about their finances to show that the requirement to pay student loans has caused significant financial difficulties and affected their ability to provide for their ongoing needs.

If you have significant debts, bankruptcy can offer a way out of this difficult situation. Chapter 7 bankruptcy may be the ideal choice for you, since it will allow you to complete the bankruptcy process quickly, usually within a few months. You may be required to surrender certain non-exempt assets, which will be liquidated to repay some of the debts you owe. Once the bankruptcy process is completed, any debts included in the bankruptcy will be discharged, and you will no longer be required to pay them, giving you the fresh financial start you need. However, to qualify for Chapter 7 bankruptcy, you must meet certain requirements, which are known as the “means test.”

Understanding the Chapter 7 Means Test

As the name of the means test implies, it is meant to determine whether you have the financial means to pay back some of the debts you owe. The means test has two parts, and you will need to fill out a separate form for each part:

• Form 122A-1: Statement of Your Current Monthly Income - On this form, you will list the average monthly income you earned from all sources over the past six months. In addition to the wages you earned through employment, including tips, commissions, bonuses, and overtime pay, you will also include any alimony or spousal support payments you receive, interest from savings, dividends from investments, royalties, income from a business or rental property that you own, unemployment benefits, and income from a pension or retirement savings account. If you are married, you will also need to list your spouse’s income, even if they will not be filing for bankruptcy with you. After totaling all forms of income, you will compare this amount with the median income in your state for the number of people in your household. In Florida, the median income for one person for 2021 is $53,182. If your income is less than the median income, you will qualify for Chapter 7 bankruptcy. Otherwise, you will need to complete the second part of the means test.

  ...