Chapter 7 Bankruptcy, otherwise know as “straight bankruptcy,” is a liquidation proceeding where the debtor turns over all non-exempt assets to the Bankruptcy Trustee. The trustee will then sell those assets for the benefit of the creditors. In most cases, exemption laws allow the debtor to keep all of their assets.
In exchange, the debtor receives a discharge and is forever relieved of their responsibility on those debts included in the bankruptcy. In a typical Chapter 7 Bankruptcy case, the discharge is granted approximately three to six months after the filing.
More information on Chapter 7 Bankruptcy.
What Is Chapter 13 Bankruptcy?
Chapter 13 Bankruptcy, otherwise known as “reorganization bankruptcy,” is only available to consumer debtors. Chapter 13 Bankruptcy is filed by individuals who have non-exempt assets they want to protect and/or debts that they want to pay off over a period of three to five years.
Chapter 13 Bankruptcy is also available to individuals who fail the “means test” and do not qualify for Chapter 7 Bankruptcy.
A Chapter 13 Bankruptcy Plan is approved by the court and at the conclusion of “the plan,” the discharge is granted.
More information on Chapter 13 Bankruptcy.
The means test is a income calculation formula used to determine eligibility under the bankruptcy laws. In general, it is used to ascertain if you have the “means” to pay back all or some of your debt.
Prior to filing bankruptcy, the means test will determine if your average monthly income for the previous six months is below the median income for your state. Family size and certain additional deductions are also taken into account.
Assuming you “pass” the means test, you meet the income requirements to file Chapter 7 Bankruptcy. If you “fail” the means test, you will be required to file a Chapter 13 Bankruptcy.
Please do not rely on online “means test calculators” to determine if you qualify. Contact an experienced Bankruptcy Lawyer to discuss the means test.
For more information on the bankruptcy means test requirement, please visit the United States Department of Justice website located here: Means Testing Information.
Will My Creditors Stop Harassing Me?
Yes, they will. In fact, upon the filing of any bankruptcy case, an “Automatic Stay” goes into effect preventing your creditors from taking any further action against you to try to collect their debts. Creditors cannot initiate or continue any lawsuits, initiate or continue wage garnishments or move forward with repossession or foreclosure proceedings.
In fact, creditors are prevented from contacting you at all once a bankruptcy case has been filed. No more collection letters or harassing telephone calls demanding payment. All communications must go through your attorney or the Bankruptcy Court.
How Long Does A Bankruptcy Case Take?
A typical Chapter 7 Bankruptcy usually takes approximately three to six months from the date of filing to the date of discharge.
A Chapter 13 Bankruptcy takes anywhere between thirty-six and sixty months depending on the length of your Chapter 13 Plan.
Yes, at least one court appearance is required in Chapter 7 Bankruptcy and at least two court appearances are required in a Chapter 13 Bankruptcy.
Every debtor is required to attend a “Meeting of Creditors.” This is misleading as usually, no creditors are present. At the Meeting of Creditors, a court appointed “Trustee” examines the debtor under oath to determine if the representations in the bankruptcy petition are true and correct and to determine if the debtor has any non-exempt assets that can be sold for the benefit of creditors.
The Meeting of Creditors is an informal court hearing. It is not in a court room and the judge is not present.
In a Chapter 13 Bankruptcy, the debtor is also required to attend a “Confirmation Hearing.” This hearing is typically held in a court room in front of a judge and is designed to determine whether the proposed payment plan is feasible.
Will My Bankruptcy Affect My Spouse?
If you file bankruptcy individually, your bankruptcy filing will not directly impact your spouse’s credit in any way.
Indirectly, however, there are some possible adverse effects to keep in mind.
If you and your spouse are joint account holders on debts listed in your bankruptcy petition, at the conclusion of your bankruptcy case, the creditors can now pursue your spouse to recover 100% of the debt.
Also, if any non-exempt assets are jointly owned, the trustee may have a right to seize and sell those assets.
In the majority of cases, an individual filing will have no adverse affect on the non-filing spouse. It is important to consult with an experienced Bankruptcy Lawyer before deciding to file an individual bankruptcy.
Where Is The Bankruptcy Court?
If you live in Long Island, the Bankruptcy Court is located at:
U.S. Bankruptcy Court
Eastern District of N.Y.
Alfonse M. D’Amato U.S. Courthouse
290 Federal Plaza
Central Islip, NY 11722
If you live in Queens or Brooklyn, the Bankruptcy Court is located at:
U.S. Bankruptcy Court
Eastern District of N.Y.
Conrad B. Duberstein U.S. Courthouse
271 Cadman Plaza East
Suite 1595
Brooklyn, NY 11201-1800
For additional information, please visit the website for United States Bankruptcy Court, Eastern District of New York at http://www.nyeb.uscourts.gov/.
Can I Get Rid Of My Student Loans In Bankruptcy?
The short answer to this question is no. However, under extremely limited circumstances, student loans can be discharged in bankruptcy. A student loan may be discharged in bankruptcy if “…excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents.”
Courts will apply a three part test to determine hardship:
1. That the debtor cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off student loans;
2. That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
3. That the debtor has made good faith efforts to repay the loans.
What Are Bankruptcy Exemptions?
Bankruptcy Exemptions are laws that are in place to ensure that certain assets belonging to the debtor are protected after you file bankruptcy. These exemption laws are critical to allowing debtors to achieve the “fresh start” that bankruptcy is designed to provide.
As of January, 2011, New York has some of the most liberal exemption statutes in the entire country. Some examples are:
- Cash, bank accounts, stocks, bonds and other securities, tax refunds, household furnishings and appliances, basic wearing apparel and jewelry up to an aggregate maximum total $10,000.00;
- Equity in a motor vehicle up to $4,000.00 or $10,000.00 if the vehicle is equiped for a disabled person;
- Real property including co-op, condo, or mobile home, to $150,000 for the counties of Kings, New York, Queens, Bronx, Richmond, Nassau and Suffolk;
- Virtually unlimited exemption for certain tax exempt pensions and retirement savings accounts (IRA, 401K, etc);
- There is a wildcard exemption that allows an individual to use some of the unused portion of the $10,000.00 total property exemption to protect other assets of your choice, such as cash received from an income tax refund.
In addition to these New York State exemptions, debtors filing in New York are now allowed to elect to use the Federal Exemptions. In most cases, these Federal Exemptions are even more favorable to filing debtors.
A full list of the federal exemptions can be found here: Federal Bankruptcy Exemptions – 11 USC § 522.
Will My Employer Find Out If I File Bankruptcy?
Probably not, however, bankruptcy filings are public record. There are two ways that an employer can find out about your bankruptcy filing:
1. They could pull your credit report (most likely scenario); or
2. They could go to the Bankruptcy Court and ask to pull your records (highly unlikely).
A potential employer would be much more likely to get a credit report and see your bankruptcy status.
However, it should be understood that Federal Law prohibits employer discrimination based on an employee’s bankruptcy filing.
I Have A Credit Card That I Am Paying. Do I Have To Include It In My Bankruptcy?
The law requires that debtors include all outstanding debt in their bankruptcy petition. In the interest of fairness, the court does not allow the debtor to “pick and choose” which debts will be discharged in bankruptcy.
If an account has no outstanding balance, then they are not a creditor and do not have to be included in your bankruptcy petition.
How Much Does Bankruptcy Cost?
Attorney’s fees are typically assessed based on the type of bankruptcy you are filing and how complicated your case is. You must consult with an experienced Bankruptcy Lawyer to determine the fees that will be associated with your case.
Aside from the attorney’s fees, there is a court filing fee and a credit counseling fee. The court filing fee is $306.00 for a Chapter 7 Bankruptcy and $281.00 for a Chapter 13 Bankruptcy.
Credit counseling fees vary depending on the counseling agency that you use. Typically the credit counseling fee ranges from $15.00 to $50.00.
In certain instances, depending on your income, the bankruptcy filing fee and credit counseling fee can be waived.
How Long Does Bankruptcy Stay On Your Credit?
A Chapter 7 Bankruptcy will remain on your credit for up to ten years from the date the case was filed.
A Chapter 13 Bankruptcy will remain on your credit for up to seven years from the date the case is filed. This means that with Chapter 13 Bankruptcy, by the time the five year plan payments are completed, it will only be listed for up to two more years.
Bankruptcy is a dirty word to many and the fear of credit damage drives many people away from bankruptcy. The reality is, if you are facing bankruptcy, odds are that your credit has already taken a hit.
A bankruptcy filing shows that you are taking positive steps to resolve your debt issues. At the close of your case, you will be debt free and that alone makes you less of a credit risk.
It is hard to believe, but in many cases, bankruptcy can actually improve your credit score.
*For additional bankruptcy information please visit the United States Courts Bankruptcy Website.
