CHAPTER 7
is a bankruptcy generally used as a
means for individuals to completely wipe out most debts in a
legal proceeding conducted under the jurisdiction of The
U.S. Bankruptcy Court. There is a small percentage of
Chapter 7's wherein a Trustee, usually an attorney, is
appointed by the U.S. Trustee’s Office who will sell off
non-exempt property of an individual or liquidate a business
for the benefit of creditors. As a general rule, most
Chapter 7's are no asset cases wherein creditors do not
receive any money as payment for those debts listed in the
bankruptcy schedules and the debtor is relieved from any
obligation of paying back monies to creditors. However,
there are certain debts which cannot be discharged in
bankruptcy, including but not limited to: most, but not all
government taxes; student loans without a showing in a
separate legal proceeding of a legal hardship (an extremely
difficult position to establish); child support; alimony;
willful injury to another's person or property; fraud or
misrepresentation in obtaining goods or services; government
fines and penalties and certain court-ordered restitution
orders; and injury or death resulting from the unlawful
driving of a motor vehicle under the influence of drugs or
alcohol.
CHAPTER 13 is a bankruptcy designed
for individual debtors who have some regular flow of income
seeking an adjustment of debt. Chapter 13 is used primarily
for people with mortgage and maintenance debt or other
secured collateral who wish to keep their assets, yet need
time to stretch out these arrears or back payments in a Plan
to deal with their creditors. The time frame is generally 36
to 60 months. Chapter 13 will stop a foreclosure up until
the day and time of a sale. Depending upon your equity in
the house, some minimum payments to unsecured creditors,
credit card and personal loan debt, will also be necessary.
Chapter 13 may also be utilized to handle debts which are
not dischargeable in a Chapter 7. This may include back
taxes, student loans, child support, and even debts that
involve some type of fraud or misrepresentation on the
debtor's part as well. Chapter 13 may also be used to
handle situations in which individuals may wish to retain
their assets, yet pay back their creditors in a more
favorable treatment than allowed by their creditors outside
of bankruptcy. Also, Chapter 13 may be used by individuals
having a cash flow problem, wherein there is some disposable
income available to pay back creditors in whole or in part,
but not a sufficient amount to satisfy creditors outside of
the bankruptcy process. The debt ceiling, adjusted for cost
of living on April 1, 2007 for unsecured debt in a Chapter
13 is $307,675.00 and for secured debt is $1,010,650.00.
CHAPTER 11 is a
bankruptcy generally for business reorganization but may be
used by individuals who cannot qualify for Chapter 13.
Go to Questions
2)
What is the importance of the change in New York State
exemption laws?
As of January 22, 2011 New Yorkers have the option of
choosing between two sets of exemptions to protect your
personal property and real property (house, co-op,
condo, land). These choices are important to analyze and
consultation with a competent attorney is critical. You
either choose all of the New York State exemptions or
all of the Federal exemptions. The New York State
changes for real property are listed below:
Under New York exemptions, you may protect $150,000 of
any equity in your PRIMARY RESIDENCE if you either live
in the 5 boroughs of New York or in any of the following
counties: Westchester, Rockland, Putnam, Nassau and
Suffolk.
The exemption decreases to $125,000 if you live in the
following counties: Dutchess, Albany, Columbia, Orange,
Saratoga and Ulster.
The exemption decreases further to $75,000 if you live
in any other county not specified above.
The following will contrast just some of the major
exemptions allowable under federal and state law:
(CAUTION: this information needs to be interpreted by
competent legal counsel)
|
|
Federal Law |
New York State |
|
Automobile |
$3,450 |
$4,000 |
|
Wildcard
|
$11,975
$1,000
(if no homestead exemption is claimed)
|
|
Homestead |
$20,200 |
$150,000, $125,000 or $75,000 |
|
Personal Injury |
$21,625 |
$7,500 |
|
Cash
|
$11,975
$6,000
(includes checking & savings types of
accounts and assuming no homestead is
claimed) |
|
Household Property
|
$11,525
$10,000
(not inclusive of cash)
(inclusive of cash)
|
Qualified Pension, 401(k), Profit Sharing, IRA or other
similar Plans; Also, benefits under an Annuity Contract,
and benefits under an Insurance Contract are generally
exempt. Any recent contributions to an annuity will need
specific legal advice.
(Exempt under both federal and state law)
Go to Questions
3)
If I
file a Chapter 7, will I lose my personal property,
including my car which I must have for both work and
pleasure?
An analysis must be
made both under federal exemptions and New York State
exemptions. An equity exemption of $3,450.00 in a motor
vehicle is allowed under federal exemptions as well as
the potential to use up to $11,975 of a wild card
exemption if the homestead exemption is not claimed. An
exemption of $4,000 is allowed under state exemptions
with a wild card exemption of $1,000 if no homestead
exemption is claimed. However, Thus, to determine your
equity, you must subtract any lien (car loan) attached
to the car from the fair market value of the car. For
example, a car with a fair market value of $10,000
(generally determined by Kelley Blue Book or NADA value,
or a professional independent appraisal) with an
outstanding car loan of $3,000 will yield an equity of
$7,000, possibly falling within the allowable exemption
under federal law (by using the wild card exemption).
However, the $4,000 exemption under state law may not
fully protect the auto with a equity of $7,000.
CAUTION: The implications of this can only be analyzed
by competent legal counsel. The fair market value is
determined generally by the industry's Blue Book or a
current appraisal by a dealer.
Go to Questions
4)
Does filing bankruptcy mean I lose
credit forever?
No, it means your credit
will be substantially hurt if you have good credit going
into the bankruptcy and there will be a notation on your
credit report for a period up to ten years. However, you
can take steps to repair your credit.
Go to Questions
5)
How can I repair my credit?
One way to assist in repairing
your credit is to obtain secured credit cards. You can
generally place a minimum of $100.00-$300.00 into a
savings account and receive a credit line up to the
value of the account or even 150% of the value of the
account, in some cases. Timely payments of minimums or
the timely paying off of the entire balance each month
will demonstrate a new history that will enable you to
better obtain future credit. After a year of timely
payments, that secured credit card may become partially
unsecured, or store cards may become available to you to
further repair your credit history. Continuation of this
disciplined approach to the use of your credit cards
will result in obtaining new unsecured credit cards in a
relatively short period of time. If, and only if,
secured credit cards are used wisely, they may be of
great benefit to you.
Go to Questions
6) Do I have to go to Court
and see a judge?
In a typical Chapter 7
bankruptcy, there is no need to appear before a Judge.
You are required to attend what is called a section
341(a) hearing in front of a Trustee who is not a judge
but an attorney whose job it is among other things is to
review your Petition and your financial status (asset,
liabilities, income, expenses) and determine that you
have complied with the Bankruptcy laws. In the typical
no asset bankruptcy case, the five-ten minute hearing is
generally non-confrontational and the case is closed at
the conclusion of the hearing, provided all necessary
documents have been submitted. You then wait
approximately 3-5 months from the date of your hearing
to receive formal notice in the mail that you have been
discharged from your listed debts.
Go to Questions
7)
Do I have to list all of my debts? I am current on some. I
would love to keep one or two just in case there is an
emergency?
You are required by law
to list all of your debts. Failure to list a creditor
may result in considerable difficulty with respect to
extinguishing that debt. Thus, when your bankruptcy case
is closed or sooner, that unlisted creditor will seek to
collect on that debt. Consequently, it is vital that all
creditors with their proper correspondence addresses be
ascertained and listed. Failure to list a creditor can
also be a double whammy. You will be pursued by that
creditor and you will most probably have your credit
card privileges canceled, if it is a credit card debt.
To ensure that all creditors are listed, we require a
current credit report.
Go to Questions
8)
How can I obtain a credit report to protect myself
against creditors?
OBTAINING A CREDIT REPORT: The
fastest and easiest way to get a free credit report is
to go to
www.annualcreditreport.com.
Once you're there, select your state, and click on
“Request Report”. Fill out the form with the required
information then click on "Continue". You should choose
the "Experian", "Equifax", and "Transunion" credit
reports. You are entitled to one free credit report from
each of the three reporting agencies.You must go to this
site to obtain the free report. In the alternative,
print the application form by clicking on the following
link and mail to the directed address.
Click
here for your Free Credit Report by Mail or Phone.
Go to Questions
9)
What documents are necessary to gather to bring into
your office to get started?
You will need to bring in
at least 2 months of your most recent pay stubs, if
working, tax returns for the last two years, if
available, your bills, (one for each credit card, store
card, personal loan, medical bill, car loan, mortgage
loan, student loan, IRS & NYS Department of Tax bill(s),
and other assorted bills, your driver’s license or
non-driver’s photo identification, social security card,
and $100.00 towards the retainer. It would be quite
helpful if you are able to sort and organize your bills
by eliminating for us all envelopes and attachments.
Go to Questions
10)
Can you
guarantee me that my bankruptcy will go through?
There is no guarantee in
life about anything, other than death & taxes, they say.
Your creditors have sixty (60) days from the date of the
section 341(a) hearing to file an objection through the
initiation of an Adversary Proceeding. It is rare for a
creditor in a typical individual Chapter 7 case to file
an Adversary Proceeding. However, it can occur if there
has been "loading up" (going on a substantial shopping
spree or taking substantial cash advances near the time
of the filing of the bankruptcy with respect to any one
creditor), recent substantial debt consolidation or
balance transfers, the use of new credit cards or
obtaining new loans with little or no repayment to that
creditor, or any fraud, or misrepresentation in
obtaining credit cards or loans. These problems are the
extreme exception rather than the rule. Make sure that
you thoroughly discuss with our office if any of these
problems apply to you. Even with these problems just
noted, we will be able to assist you by explaining your
options if you give us full disclosure of your
activities. For most creditors, once this sixty (60)
deadline has passed, creditors are forever barred from
collecting on this debt. There are exceptions to this,
such as student loans and government taxes, which
generally survive bankruptcy. Specific legal advice may
be necessary to sort out any of these issues.
Go to Questions
11)
How are government student loans and private student
loans treated differently
than other unsecured debt?
Government-backed student
loans, in whole or in part, are generally not
dischargeable. As of October 8, 1998 student loans are
not dischargeable unless it can be established in a
separate proceeding that there is a legal undue
hardship. This is a particularly tough hurdle to
overcome. You must seek specific legal advice with
respect to this. The previous law permitted a discharge
for student loans if seven years had elapsed from the
time the loan went into repayment, excluding any
suspension of repayment periods. This provision has been
eliminated.
Go to Questions
12)
How are tax debts treated differently than other unsecured
debt?
Tax debts are treated
generally as priority unsecured debts, meaning they are
not dischargeable but payable in full at the conclusion
of your bankruptcy case. However, tax debts for years in
which a tax return was filed on time and where there was
no fraud or willful evasion to pay the tax may be
dischargeable if three (3) years has elapsed from the
filing due date of that taxable year. For example, a tax
return filed for the 2007 tax year would be due on or
about April
15, 2008. Such a tax debt may be dischargeable if a
bankruptcy is filed sometime after April 15, 2011 (there
may be a need to wait several days after April 15th
based upon certain rules of timing), assuming no fraud
or willful evasion exists. There are other rules
relating to late filed tax returns, non-filed tax
returns and tax assessment dates which may have
applicability. CAUTION: Only a careful review of the
particulars of your case would enable our office to
determine the likelihood of discharge for your tax
debts.
Go to Questions
13)
How much does it cost to file bankruptcy and can it be
paid out over time?
Our fee for a Chapter 7
is reasonable. This fee is payable over a six (6) month
period. However, the petition cannot be filed until
payment is made in full. The fee for a Chapter 13 will
vary depending upon complexity but it is significantly
more than a Chapter 7 because of the need for at least
one appearance before a judge in addition to the
appearance in front of a Trustee, as well as the
substantial time involved in the review of creditor
claims and preparation of motion(s) and order(s) for the
Court.
Go to Questions
14)
Creditors are making my life miserable. They are calling
me 7 days a week and even calling my job. What can you
do to help me?
Once you have come into
our office, brought in the requested documents and a
$100.00 retainer, you may direct creditors to contact
our office to confirm or verify that we have been
retained to file a bankruptcy on your behalf. We will
provide you with our own office identification number
for you to provide to your creditors. You are only
required to give our name and telephone number pursuant
to the Fair Debt Collection & Practices Act, as
creditors are prohibited thereafter by law from calling
you at home or work after you have retained an attorney.
Go to Questions
15) I
just received a garnishment notice (formally known as an
Income Execution Notice) from the Marshal. What is a
garnishment? Can this be stopped or if they started
taking money out of my check, can you stop it? Is it too
late?
A garnishment is a legal
device to enforce a judgment obtained by a creditor. It
allows a Marshal to inform and order your employer to
generally deduct 10% of your gross wages to begin to
satisfy your obligation to pay back that debt. It is
never too late to stop a garnishment. It can be stopped
before it gets to the Marshal, after it gets to the
Marshal, or even after it is actually executed by your
employer. Once the bankruptcy is filed, which means all
documents had been brought in and the entire fee had
been paid, notification by our office will be sent to
the Marshal, the Employer (if it is in that stage), and
the creditor's attorney simultaneously on the same day
the petition is filed or the first business day
subsequent to the filing. The garnishment legally stops
on the day of the filing and no future deductions as of
that date may be made from your pay check. Any
inadvertent deductions that occurred will be returned to
you.
Go to Questions
16)
What are the requirements of credit counseling and debtor
education?
Before you file a chapter
7 or chapter 13 bankruptcy, you are required to obtain a
credit counseling certificate from an approved credit
counseling organization. Specific information with
respect to the procedures will be provided once you have
retained our office. It is generally done by telephone
and involves a consultation lasting of approximately one
hour. After filing a chapter 7 or chapter 13
bankruptcy, you are required to complete a debtor
education course by telephone or online for
instructional purposes only. There are no failures
involving the course. More specific details shall be
provided once you have retained our office.
Go to Questions
17) What is the Means Test?
In order to qualify to do
a Chapter 7 under the new law, one must subject one’s
income to a means test analysis as well as to a separate
analysis of current income and actual expenses. As for
the means test, you first need to ascertain your gross
income during the six month window period prior to
filing based upon all sources of income with limited
exceptions (social security income is not countable).{
If you are married and living together, your spouse’s
income is included into the economic mix even if he is
not filing. It is necessary to carve out the non-filing
spouse’s expenses if he is living together with his
spouse for those expenses not accounted for in the means
test.} Additionally, you must establish the size of your
household. Generally, it is deemed the number of
dependents as noted on your tax returns but this issue
has not been settled by the courts. For simplicity sake,
an individual (with no spouse or with a spouse living
separate and apart) with two minor children would be
deemed a household of (3) three. If your income as
averaged over the six month period prior to filing (if
you file in January, you are averaging July-December)
known as your current monthly income (CMI) is under the
sum of $68,396 (figures current as 7/1/11) known as
your median family income (MFI, as determined by Census
Bureau statistics, calculated for each state and varying
with family size), then in this scenario the proposed
debtor in bankruptcy would pass the means test, one of
the two tests for eligibility.
For individuals
with above median family income, a second level of
scrutiny is necessary under the means test. The current
monthly income is then reduced by allowable expenses,
mainly based upon IRS statistical tables and some actual
expenses to arrive at a disposable income figure, if
any, that would require one to pay back creditors in
whole or in part in a Chapter 13 bankruptcy, generally
over a 36 or 60 month period. In Westchester County,
including but not limited to Yonkers, Mt. Vernon, New
Rochelle, White Plains, Eastchester, a family size of 1
person has an allowable expense for housing and
utilities in the sum of $2,683. In Westchester County,
including but not limited to Scarsdale, Tuckahoe,
Bronxville, Rye, Harrison, a family size of 3 has an
allowable expense for housing and utilities in the sum
of $3,321. Other expenses that reduce current monthly
income include national standards for food, clothing and
other items, transportation, taxes, involuntary payroll
deductions, and other allowable expenses that need
careful analysis by a competent attorney experienced
with these issues.
Even if one passes the
means test, a review of your current income and actual
expenses must be separately analyzed to ascertain if
there is any significant disposable income for pay back
to creditors. Only an experienced and competent attorney
should be consulted to advise you of your options. The
new law requires this more than ever.
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