I. Consumer Bankruptcy
There are two types of consumer bankruptcies. Chapter 7 which is a straight bankruptcy and does not involve any plan of distribution to creditors. Chapter 13 bankruptcies are prepared for individuals who are not qualified to file Chapter 7 bankruptcies. Chapter 13 bankruptcies are often file to stop foreclosures on homes, coops and condos. Chapter 13 bankruptcies are often filed to deal with home foreclosures and to stop the sale of the home.
II. Chapter 7 Bankruptcy
Who can file a Chapter 7?
Individuals who seek to file a Chapter 7 bankruptcy must qualify by meeting the requirements of the “means test” before they can move forward with a Chapter 7 bankruptcy filing. Prior to filing a Chapter 7 bankruptcy, the consumer or other entity must take an approved credit counseling course either on the internet or telephone and produce documentation of completing this course.
The bankruptcy code was enacted to give individual debtors a “fresh start”. By filing a Chapter 7 bankruptcy, an individual or a married couple will no longer have any liabilities. Their debts are satisfied by the Chapter 7 filing. The creditors can no longer harass them or contact them after the filing of a Chapter 7 bankruptcy. If the debtors own a home or other type of real estate and there is a lien or mortgage on this property the discharge will not remove the lien or mortgage. However, there may be other types of legal action that can be takes either in the bankruptcy court or in the New York State Court to eliminate these types of liens.
Filing the Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is designed to help you eliminate your debts. All dischargable financial debts are completely eliminated. In most Chapter 7 bankruptcies the debtors have no assets that are not exempt and therefore no assets are surrendered to the Trustee. The purpose of a Chapter 7 bankruptcy is to give the individual a “Fresh Start.” An individual’s credit can be reestablished after being discharged in a Chapter 7 bankruptcy.
The debtors must also file a certificate indicating they have taken a credit counseling course. Individuals who file a Chapter 7 bankruptcy must produce all financial records for a minimum of 6 months prior to filing bankruptcy.
There is a filing fee of $335 that must be paid to file. It is paid to the clerk of the bankruptcy court upon filing.
The Means Test
Individuals who seek to file a Chapter 7 bankruptcy must qualify under what is referred to as the “means test.” The Chapter 7 Bankruptcy Trustee will use the income of the debtors for the past 6 months as the basis to determine what their actual income is. If the individual does not qualify under the means test, he or she cannot move forward with a Chapter 7 bankruptcy.
The Automatic Stay
When a person files a bankruptcy in a federal bankruptcy court he or she obtains an automatic stay. This stops all collection actions of every type and nature against the debtor. No other legal action can be taken in any court once the automatic stay goes into effect. When the automatic stay is in effect creditors cannot pursue lawsuits. Wage garnishments and income executions against the debtors are also stopped. Telephone calls by collection agencies and written communications by collection agencies are also immediately stopped.
After the filing of the Chapter 7 bankruptcy, there will be a meeting before a Chapter 7 bankruptcy Trustee. The Trustee will have reviewed all of the documents filed by the debtor. The Trustee will ask the debtor various questions under oath. The Trustee may request further information from the debtor. If all the documents are not provided to the Trustee prior to the first Trustees meeting the first meeting may be adjourned to give the debtor more time to produce the necessary documents requested by the Trustee.
The Chapter 7 Trustee
The Chapter 7 Trustee is an attorney appointed by the court to examine the validity of the filing of the Chapter 7 bankruptcy. The Trustee represents the interest of the creditors. In most Chapter 7 bankruptcy filings there are no assets and the case is marked as a no-asset case and there is no distribution of assets. However, if the Trustee finds assets the Trustee can seize assets and distribute those assets to creditors on a pro rata basis.
The Bankruptcy Estate
The bankruptcy case creates what is referred to as a “estate”. If the trustee finds non-exempt assets in the debtors estate the Trustee is empowered to liquidate these non-exempt assets and distribute these funds to the creditors.
Discharge of Debtors
If the debtor has provided all the necessary information the Trustee required and the Trustee certifies that the case is a no-asset case the debtor receives a discharge. The discharge prevents creditors, who had been listed in the bankruptcy, from taking further legal action of any type against the debtor.
III. Chapter 13 Bankruptcies
A Chapter 13 bankruptcy allows you to stop foreclosures and helps you keep your home and your car. Your debt will be restructured and we will be set up a manageable payment plan. The payment plan will allow you to repay your debts usually over a period of 5 years. People who file a Chapter 13 bankruptcy not only keep their homes and cars but they are relieved from creditor harassment and crushing financial difficulties. After the bankruptcy is discharged, a program can be set up to reestablish your credit again. Some individuals, after filing bankruptcy find when they reestablish their credit, their credit is better than it has been in the past.
Chapter 13 and Foreclosure
A Chapter 13 bankruptcy stops foreclosures and allows you to keep most of your assets. Once the homeowner files a Chapter 13 bankruptcy, he or she receives an automatic stay, all foreclosure proceedings must come to a halt. Bankruptcies are filed in a federal court and most foreclosures are filed in state courts. The state courts simply lose jurisdiction to deal with the issues concerning the debtor’s non-payment of their mortgage upon the filing of a Chapter 13.
When a debtor files a Chapter 13 bankruptcy he or she can also file for loss mitigation. The loss mitigation is a process in the federal court where the debtor under court supervision seeks to have the mortgage modified in a manner that allows the debtor to set up a plan that is affordable and meets the debtors needs.
The nuts and bolts of a Chapter 13 bankruptcy
The debtor who is filing the bankruptcy must file a schedule of assets and liabilities; a schedule of current leases, contracts the debtor has entered into and in addition a statement of financial affairs. The debtor must also take a credit counseling course and file documentation of taking this course within 60 days of filing the bankruptcy. The Chapter 13 Trustee will also require a statement of monthly net income anticipated increases in income and copies of the debtors federal and state income tax returns.
The filing fee for filing Chapter 13 is $310. This is paid to the federal court before the bankruptcy can be filed.
When an individual, who is married, files a Chapter 13 bankruptcy even if his or her spouse is not part of the Chapter 13 bankruptcy, he or she must file financial information with regard to their income.
Similar to the filing to the filing of a Chapter 7, upon filing a Chapter 13 bankruptcy, all legal action against the debtors must immediately stop. If a homeowner has a foreclosure sale and he or she files a Chapter 13 bankruptcy that foreclosure sale will be stopped. Their home will not be sold. The bankruptcy will proceed for the purpose of preventing the home from being sold in the future.
Trustee in a Chapter 13 Bankruptcy
A Trustee is appointed in both Chapter 7 and Chapter 13 bankruptcies to represent the interest of creditors. The Trustee in the Chapter 13 bankruptcy will review the finances of the debtor, review all of the information filed by the debtor and thereafter schedule a meeting to question the debtor under oath. The purpose of the meeting is to ascertain information as to whether there are other assets that were not disclosed and to answer questions the Chapter 13 Bankruptcy Trustee has with regard to the debtors bankruptcy plan for repayment of the creditors.
Creditors in a Chapter 13 bankruptcy
There are three types of creditors in a Chapter 13 bankruptcy. Secured creditors in a Chapter 13 bankruptcy are the financial institutions which have mortgages on the individuals home or banks that have a lien on the individual’s car. Unsecured creditors usually involve credit card companies and financial institutions that have personal loans executed by the debtor. Priority creditors usually involve the taxing authorities from the or federal government.
Chapter 13 Plan
A debtor must file a plan as part of a Chapter 13 bankruptcy. The plan is reviewed by the Chapter 13 Bankruptcy Trustee with regard to how secured, priority and unsecured creditors are treated under the plan. The Trustee may advise the attorney for the debtors he or she wants changes to the plan to further benefit the creditors. There can be negotiations and discussions between the attorney for the debtors and the Trustee to fine tune plans. If the Chapter 13 Trustee approves the plan it is usually rubber stamped by the Judge assigned to the case.
Exemptions in Bankruptcy
Various types of property which are exempt and cannot be attacked by creditors or Bankruptcy Trustees in either Chapter 7 or 13 bankruptcies. There are two types of exemptions. Federal and State. The following are a list of the Federal exemptions:
- $3675 in real or personal property is used a residence
- $3775 in equity in a car or other motor vehicle
- $3625 household goods furnishings or clothing
- $1600 in jewelry for personal use
- $2375 in tools used by an individual in a trade
- A debtors right to receive certain benefits to include veterans benefits, pensions and retirement benefits, social security benefits, spousal maintenance or other domestic support payments.
There is a wild card exemption that applies up to $1250 in value plus $11,850 of unused portion of the homestead exemption which is $25,150.
Exemptions Under New York State Law
Bankruptcy exemptions under New York State law are listed below:
- stoves and heating equipment
- books up to $55 in value
- domestic animals worth $1100
- apparel and goods $13,400
- house hold furniture
- refrigerator, television, computer, cell phone cooking utensils, table wear, wedding ring, jewelry and art not to exceed $1000.
- Tools of trade not exceeding $3300
For a debtors principle place of residence, in the downstate counties of Nassau, Suffolk, Kings, Queens, New York, Bronx, Richmond, Westchester, Rockland and Putnam counties. There is a $170,825 for equity in the property.
If husband and wife both file bankruptcy, each of them is entitled to a homestead exemption of $170,825. Thus they would have a total homestead exemption on their home of $341,650.
Property that is exempt under New York State Law
The following items of property which are exempt in bankruptcy in the State of New York
- Social security benefits
- local public assistance benefits
- veterans benefits
- unemployment compensation
- disability or illness benefits
- alimony or domestic support payments
- pension and qualified retirement plans
- one motor vehicle worth up to $4550
- $8550 in payment of a personal injury award