Pros and Cons of Declaring Bankruptcy Under Chapter 7 in New York

Facing debts that you cannot afford to pay can be frightening, stressful, and overwhelming. The U.S. Bankruptcy Code offers debt relief for individuals, couples, and businesses. The bankruptcy system is designed to give a debtor the relief from debt he needs to recover from a financial crisis and rebuild his finances without the worry of debt collections. It is also designed to protect some of the equity in a person’s property so that the person has the means to recover and rebuild after completing a bankruptcy case.

There are several chapters of bankruptcy available to individuals, including filing under Chapter 7 of the Bankruptcy Code. Our Long Island bankruptcy lawyers can help you determine if filing bankruptcy under Chapter 7 is your best debt relief option.

For a free bankruptcy consultation, call The Law Offices of Adam C. Gomerman at (631) 549-1111 to discuss your situation with a New York bankruptcy attorney.

What is Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy case is referred to as a liquidation bankruptcy case. However, most debtors retain all their property while getting rid of their debts. A Chapter 7 trustee is appointed to administer the bankruptcy case. The trustee reviews the bankruptcy petition and schedules, investigates the debtor’s financial affairs, and assesses the equity in the debtor’s property.

An experienced Long Island, New York bankruptcy lawyer can determine if filing for bankruptcy under Chapter 7 is in your best interest. Below we explore some of the pros and cons of filing Chapter 7. You can obtain more information about Chapter 7 and how to get out of debt by calling our law firm for a free consultation.

Pros of Filing a Chapter 7 Bankruptcy Case

During a free consultation, our NY bankruptcy attorney discusses the benefits of filing a Chapter 7 bankruptcy petition. Below are several of the benefits of filing Chapter 7 that apply in most cases.

· Quick Debt Relief — A Chapter 7 case can be completed in four to six months from the date of the filing of the bankruptcy petition. If your case is deemed to be a no-asset Chapter 7 case, you could receive your bankruptcy discharge in less than six months. In other words, you could be debt free much quicker by filing under this chapter of bankruptcy than if you file under Chapter 13.

· Keep Your Property — Most of the Chapter 7 cases filed in New York are no-asset Chapter 7 cases. Therefore, you get rid of most, if not all, of your unsecured debts while keeping all your property. New York has very generous bankruptcy exemptions that protect the equity in your Long Island home, car, and other property. However, debtors may choose to use the federal bankruptcy exemptions if the federal exemptions provide a higher level of protection of property. Our New York bankruptcy lawyer thoroughly analyzes your case to determine how to apply bankruptcy exemptions to protect your assets.

· Completely Eliminate Most Unsecured Debt Without Payments — In a Chapter 7 case, you do not pay back any portion of your unsecured debt that is subject to a bankruptcy discharge. In most cases, dischargeable debts include credit cards, medical bills, old utility bills, personal loans, old rent or lease payments, some older income tax debt, and most debts secured by household goods.

· Obtain New Credit — It is a bankruptcy myth that debtors who file under Chapter 7 never qualify for new credit. Some debtors may qualify for credit cards, car loans, personal loans, or other lines of credit within one year after filing for bankruptcy relief. However, debtors should be cautious of lenders who prey on debtors with promises of credit because it can be easy to get into trouble again.

· File a Chapter 13 Case — If you do experience debt problems after filing Chapter 7, you can file a Chapter 7 again after six years. However, you may be eligible to file under Chapter 13 much quicker if you need debt relief before the end of six years.

· End Creditor Harassment — On Long Island, fling a bankruptcy case ends collection efforts by creditors and debt collectors. Creditors are prohibited from contacting you to collect any debt that is discharged in your Chapter 7 case.

· Stop Debt Collection Lawsuits — Filing a Chapter 7 petition immediately stops debt collector lawsuits. If the lawsuit is seeking payment for an unsecured debt that is dischargeable, the debt will be discharged with your other unsecured debts.

Cons of Filing a Chapter 7 Bankruptcy Case

While there could be some risks and disadvantages of filing under Chapter 7 for Long Islanders, many debtors find that the disadvantages of filing significantly outweigh the benefits of Chapter 7. Below are some of the issues you may encounter when filing a Chapter 7 case.

· Your Credit Score May Drop — Filing a bankruptcy case under any chapter of bankruptcy can cause a temporary drop in your credit score. The severity of the decrease depends on many factors. For debtors with a high credit score, they may see a larger decrease compared to a debtor who already has a low credit score. However, the damage to your credit score is not permanent. Many debtors see an improvement in their credit score within a year of completing their Chapter 7 case. There are many ways debtors can work to improve credit scores after bankruptcy, including using the information provided in the Bankruptcy Debtor Education Course and the information that can be found on the FTC’s website.

· Loss of Property — Chapter 7 is a liquidation bankruptcy chapter meaning any non-exempt property is subject to being sold by the Chapter 7 trustee to pay unsecured debts. As stated above, most Chapter 7 cases filed on Long Island or in the State of New York are no-asset cases. Our Long Island, New York bankruptcy lawyer carefully and thoroughly analyzes your case to determine if any property is at risk. If so, you may choose to file under Chapter 13 to protect the equity in your property.

· Obtaining New Credit — You will lose your credit cards and other lines of credit when you file a bankruptcy case, either Chapter 7 or Chapter 13. As discussed above, a debtor usually can obtain new credit within a year or so after completing the bankruptcy case. However, the interest rate may be higher, and the credit limit may be lower until you improve your credit score. Also, the time to obtain a mortgage varies. It could take between one to three years after receiving a bankruptcy discharge to qualify for some mortgages.

· Alimony and Child Support — You cannot discharge your obligation to pay child support or alimony by filing a bankruptcy case. If you owe child support or alimony arrearage, a Chapter 7 will not eliminate this debt, nor stop any court actions to collect the debt. However, filing a Chapter 13 case could help you by allowing you to pay the arrearage through a Chapter 13 bankruptcy plan instead of facing contempt charges.

· Student Loan Debt — Student loan debt is also not eligible for a discharge in Chapter 7 or Chapter 13. A Chapter 13 case suspends payments on the debt during the pendency of the bankruptcy plan, but interest continues to accrue. Filing a Chapter 7 case will get rid of other unsecured debts allowing you to focus on payment of your student loans.

· Income Tax Debt — Some old income tax debt may be eligible for a discharge in Chapter 7. However, not all income tax debt is dischargeable in a Chapter 7 case. If the tax debt is not dischargeable in Chapter 7, it will not be dischargeable in a Chapter 13 case, although you can arrange to spread out the tax payments over three to five years by filing a Chapter 13 bankruptcy plan.

· Refiling for Bankruptcy Relief — You cannot file another Chapter 7 case for six years; however, you could be eligible to file a Chapter 13 case after a Chapter 7 case. Our New York bankruptcy lawyer can review your prior case filings to determine your eligibility to refile bankruptcy.

· Secured Liens are Not Released — A Chapter 7 case does not release a valid lien on real estate, vehicles, and any other assets. However, if you want to eliminate secured debts, you can surrender the property to the creditor in full satisfaction of the debt. Even if the collateral is not sufficient to pay the debt in full, your bankruptcy discharge eliminates your legal liability to repay the debt.

· Income Requirements — You must meet income requirements to file under Chapter 7. If your median income or disposable income exceeds the average income set by law, you are not eligible to receive a discharge under Chapter 7. However, this requirement may not apply in all cases such as a debtor whose debts are primarily business-related debts.

Are You Ready to Explore Filing a Chapter 7 Bankruptcy Case to Get Rid of Debt?

The above pros and cons of filing Chapter 7 may or may not apply in your case. Furthermore, the above list is not an exhaustive list of each benefit and potential disadvantage of filing a Chapter 7 case. A Chapter 7 bankruptcy case offers debtors the ability to eliminate debt quickly and affordably. However, a Chapter 7 filing is not the best option for everyone. It may be in your best interest to file under Chapter 13 or explore other options for resolving debt problems, including alternatives to bankruptcy.

The decision to file a bankruptcy case can be complex. Regardless of the chapter of bankruptcy being considered, the decision to file for bankruptcy relief is a serious matter that you should not undertake without the advice and guidance of an experienced bankruptcy lawyer in New York. Before you make any decisions regarding debt relief, we encourage you to meet with our local Long Island bankruptcy attorney to discuss how filing a Chapter 7 bankruptcy case may be the best debt relief option for your financial situation.

Call Now for a Free Bankruptcy Consultation with a New York Bankruptcy Lawyer or contact us today using our easy contact form.

Contact The Law Offices of Adam C. Gomerman at (631) 549-1111 for a free consultation with a NY bankruptcy lawyer on Long Island.