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Bankruptcy Frequently Asked Questions (FAQs)

What is Bankruptcy?

Bankruptcy affords honest debtors a fresh start by reducing or removing debts. Through the mechanisms of stays and discharges, a bankruptcy proceeding alleviates the pressures of calls, letters and suits from creditors and mounting balances that you cannot repay.

Federal law determines the type of bankruptcy you can file, your obligations as a debtor and the extent of the relief you can obtain under bankruptcy. The laws of New York also impact limited aspects of your bankruptcy case. A Long Island bankruptcy attorney can help you with the questions you have and which may arise in a bankruptcy case.

What is Chapter 7 Bankruptcy?

Chapter 7 is a liquidation of your non-exempt assets. The trustee appointed over your case can sell property such as land, cars, jewelry, furniture, securities and other property you own -- except to the extent you can protect (exempt) it from being used by the trustee. From the proceeds of any liquidation, the trustee pays your creditors at least some portion of the amount you owe.

Debtors with limited assets may flock to Chapter 7 to get a discharge and keep all of their property. To qualify for Chapter 7, you must satisfy a means test that determines if you have enough income to repay a portion of your debts through Chapter 13 (more below). You become eligible if your income does not exceed the median income for a family of your particular size in New York.

Even if you rise above the median, you can satisfy the means test if your expenses cause your income to fall below a particular level. Under the means test, you get deductions for mortgage and other housing expenses. Standard amounts are set for Nassau County, Suffolk County and other counties in New York. Other expenses include car payments, transportation costs, education, food, medical expenses and life insurance.

What is Chapter 13 Bankruptcy?

Chapter 13 often goes by the moniker of a “wage-earner plan.” In this type of bankruptcy, you pay to a Chapter 13 trustee your “disposable income.” This takes into account your monthly income and your expenses such as the mortgage, car payments, utilities, insurance, food, and health care. Your monthly plan payment may include car payments or your mortgage if you’re behind.

In many cases, New York debtors file Chapter 13 because their income is too high to qualify for Chapter 7. You may need Chapter 13 if you have more assets than you can exempt under the federal bankruptcy law. Your monthly payment may depend on the amount of excess equity to have.

What is an Automatic Stay?

The filing of a bankruptcy triggers an immediate automatic stay. This prohibits creditors, including the State of New York, Nassau County, Suffolk County, the Internal Revenue Service and other agencies, from taking any action to collect from you unless and until the bankruptcy court lifts the stay. In addition to preventing or halting lawsuits, the stay protects you from demand letters, repossessions, collection calls and attempts to garnish your wages or place liens. Creditors face serious consequences for violating the automatic stay.

What is a Discharge?

Upon conclusion of the bankruptcy case, a discharge eliminates your personal responsibility or liability for debts included in the bankruptcy. Creditors of discharged debts may not start or continue lawsuits or other methods to get a judgment against you or hold you individually responsible. Such actions violate the discharge stay provided by bankruptcy law.

A discharge does not remove any liens against your property. As such, mortgages, tax liens and judgments that existed before the bankruptcy remain on your assets. Secured creditors may generally proceed with a foreclosure or repossession sale if otherwise allowed by the law.

Does Bankruptcy Remove All of My Debts?

Certain debts survive bankruptcy. You do not get a discharge of most kinds of student loans. To avoid this result, you must demonstrate that you need the discharge to avoid an undue hardship for you or your family. Other non-dischargeable debts include those arising from or incurred by fraud, false pretenses or embezzlement; resulting from impaired driving and alimony or child support obligations.

If you are ordered to pay criminal fines and restitution due to a criminal conviction or traffic offense, you will still owe them after a Chapter 7 bankruptcy. If you file Chapter 13, fines and penalties that you owe the government are discharged unless you are convicted and sentenced for criminal violations of the bankruptcy law.

You may get a discharge from civil fines that the bankruptcy law treats as reimbursement of expenses. In this category, you will find charges by a county or city for correcting a condition that violates a municipal ordinance or regulation.

Will I Owe Taxes After Bankruptcy?

As a general rule, Nassau County and Suffolk County property taxes that you owe more than one year before filing bankruptcy are dischargeable. However, this fact does not remove any tax lien placed on the property. That means your property can still be sold by Nassau County or Suffolk County after the bankruptcy by the taxing authority, but you will not owe any deficiency from the sale. Bankruptcy also gets rid of federal income taxes, but not debts for some employment taxes.

Where Will My Bankruptcy Case Be Filed?

If you have lived on Long Island for 180 days before filing bankruptcy, you file your petition in the United States Bankruptcy Court for the Eastern District of New York. This court has venue over debtors who live in Nassau County and Suffolk County.

How Do I Start a Bankruptcy Case?

You start a bankruptcy case by filing a petition using Form B101. On the petition, you provide your full name, your address, whether you have filed bankruptcy in the last six years and the type of bankruptcy. Most individuals will choose between Chapter 7 (liquidation) and Chapter 13 (wage earners). Businesses file Chapter 11 to reorganize and adjust business debts.

Prior to filing, you must take a credit counseling class. The Bankruptcy Court for the Eastern District of New York maintains a list of agencies it has approved for you to take the class. Generally, these agencies offer classes online. You must file bankruptcy no later than 180 days after taking the course, or you will have to take it again.

What Must I List on My Bankruptcy Papers?

As part of the bankruptcy, a bankruptcy lawyer prepares a number of schedules based on information about your finances. You list on some of the schedules your home, vehicles, household furnishings, jewelry, bank accounts, retirement accounts and other property. For those schedules that ask you for credit cards, loans and matters referred to collection, you should bring the lawyer your credit report. With the last six months of paystubs, your lawyer prepares statements of your monthly income. Other schedules ask for monthly expenses, legal actions against you, gifts you have made and received, and whether you are holding property belonging to someone else.

What Happens at a Creditor’s Meeting?

Upon filing, the bankruptcy court will notify the creditors listed in your schedules that you have filed bankruptcy. This notice includes the automatic stay order and the date and time of your creditors meeting. At this session, your trustee will ask you questions based upon the papers you filed with the petition. In a Chapter 7, you will be examined on subjects such as the valuation of property, any transfers by you and whether you have listed all assets you own. A trustee in a Chapter 13 case focuses upon your proposed payment, whether it is enough and whether you realistically have enough income to make the payment.

Can I Keep My Property If I File Bankruptcy?

You can protect your property from liquidation in Chapter 7 up to a certain amount. New York bankruptcy filers can choose from the federal exemptions or exemptions afforded by New York law. If you choose the latter and live in Suffolk County or Nassau County, up to $170,825 of equity in your home (value less any mortgages) is protected. You can exempt up to $4,450 in equity for one vehicle.

In New York, you can avail yourself of a $1,150 wild-card exemption. This applies to any personal property or cash that you otherwise cannot protect. For instance, the wild-card exemption can cover any shortfall in your motor vehicle exemption if the car is worth more than the $4,450 you’re permitted to take for the one vehicle.

Notably, you cannot use exemptions to protect your property from a mortgage or lien. In Chapter 7, secured creditors get the proceeds of any sale of the collateral before unsecured ones or you.

How Do I Keep My Vehicle If There is a Loan?

Chapter 13 debts repay car loans through the bankruptcy plan. Generally, your plan includes a monthly amount to pay off the balance owed on the car loan at the time you file. If you bought your vehicle more than 910 days before filing bankruptcy, you can ask the court to Chapter 7. This process reduces what you owe to the value of the vehicle if it is less than the balance of your car loan. The deficiency between the value and balance becomes unsecured debt.

If you file Chapter 7, you must enter into a reaffirmation agreement to keep the vehicle. Reaffirmation is not automatic upon your wish to do so. The bankruptcy judge must find that reaffirmation will not cause you an undue hardship. The Bankruptcy Court presumes undue hardship if your monthly income is less than your expenses, including the proposed monthly payment.

Talk with a Long Island bankruptcy lawyer if you are considering reaffirming a car debt in Chapter 7. Reaffirmation has the consequence of reinstating your personal liability for the car loan. Should you miss payments or otherwise default on a reaffirmed vehicle loan, the lender or finance company can repossess the vehicle and sue you for any deficiency.

Do I Need a Reaffirmation Agreement to Avoid Foreclosure?

Generally, you do not need to reaffirm a mortgage to keep your home after Chapter 7. If you are current on your payments, the bank or mortgage company cannot treat you in default so as to start foreclosure. When you get a bankruptcy discharge, your personal liability for any deficiency between what you owe and the proceeds of a foreclosure sale is extinguished. By reaffirming the mortgage through an agreement, you revive a lender's claim for a deficiency judgment. Even if foreclosure proceedings start after you file Chapter 7, New York law allows you to stop the foreclosure if you catch up on late payments prior to the foreclosure sale.

What Happens If I Miss or Can’t Make My Chapter 13 Payments?

Missed plan payments can but do not necessarily result in dismissal of your Chapter 13 case. Your trustee might ask for dismissal if you miss payments before the bankruptcy court confirms your plan. Falling behind before confirmation might signal that you are not financially able to perform under the plan you have proposed.

Should you face a loss of job or reduction of income after confirmation, you can ask the court to modify your bankruptcy plan. This might involve lowering your plan payments. You might also request modifications due to unanticipated expenses such as emergency or medical bills.

Can I File Another Bankruptcy If I Have Previously Filed One?

Whether and when you can file multiple bankruptcies depends on the bankruptcy chapters involved and whether you obtained a discharge in the first.

Generally, if you get a Chapter 7 discharge, you must wait eight years after filing the first one to file a second Chapter 7. If you proceed under Chapter 13 for the second case, your waiting period runs four years after filing the Chapter 7. If you obtained a discharge in a Chapter 13 case, you must wait two years to file Chapter 13 again and six years to file Chapter 7. The six-year lapse does not apply if you either paid all unsecured creditors in full in the Chapter 13 or paid 70 percent of the unsecured claims, and your plan was filed in good faith.

Dismissal of a Chapter 13 does not automatically bar a second bankruptcy filing. However, you don’t get the protection of the automatic stay unless you wait a year after the first filing. Satisfying the one-year waiting period only gives you a 30-day automatic stay. You must show that you filed the second case in good faith to get a stay beyond 3o days.

How Long Does a Bankruptcy Stay on Your Credit Report?

If you complete the plan, your Chapter 13 will disappear from your report after seven years from the date you filed. A Chapter 7 bankruptcy stays on a report for ten years from filing.

Contrary to conventional thought, a bankruptcy does not necessarily damage your credit score. Bankruptcy often comes as a later or last resort to handling financial problems. In other words, constant late payments, collections, high levels of debt, or foreclosures likely have diminished your credit score. That means a bankruptcy likely will not lower your score significantly. In fact, with a bankruptcy comes a discharge and elimination of your unsecured debts. A clean slate might make some creditors more likely to loan you at least small amounts at the outset.

The filing of your bankruptcy does not, by itself, remove discharged accounts from your credit report. Delinquent accounts remain in your history for seven years from the date you first were late and did not catch up. As a result, some delinquencies may show on your report after you obtain a discharge in bankruptcy.

How Can a Long Island Bankruptcy Lawyer Help Me?

Filing bankruptcy affords you a fresh start when debts mount beyond your ability to pay. The process to that fresh start can be complicated given the volume of bankruptcy laws and rules. Omissions and mistakes in your petition and schedules may result in dismissals or other sanctions. Contact a Long Island bankruptcy who can help you accurately and competently file your bankruptcy papers and guide you to a discharge.
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