Bankruptcy — Chapter 7

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, 2013 for unsecured debt in a Chapter 13 is $383,175.00 and for secured debt is $1,149,525.00.

CHAPTER 11 is a bankruptcy generally for business reorganization but may be used by individuals who cannot qualify for Chapter 13.

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)

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)

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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. Assuming that one is living in Westchester County, including but not limited to Yonkers, Mt. Vernon, New Rochelle, White Plains, Eastchester, with a family size of 1, there will be 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.