IT IS STRONGLY ADVISED THAT YOU SEEK THE ADVICE OF COMPETENT LEGAL COUNSEL BEFORE YOU FILE BANKRUPTCY AND THE INFORMATION CONTAINED HEREIN IS CLEARLY NOT LEGAL ADVICE NOR A SUBSTITUTE FOR AN EXPERIENCED ATTORNEY IN THE FIELD.
- What are the differences between Chapter 7, 11, and Chapter 13?
- What changes were made in 2011 with respect to New York State exemption laws?
- Will the filing of a Chapter 7 affect my personal property? I need my car for both work and pleasure?
- Will the filing of a bankruptcy damage my credit forever?
- What specific steps should I take to repair my credit?
- Is there a Court hearing in front of a judge?
- I really don’t wish to put in the bankruptcy all of my creditors? Do I have a choice? I would like to keep one for an emergency.
- What is the simplest and least expensive way to obtain a credit report to review my credit history?
- What paperwork is necessary to be provided at the first visit to the office?
- Is there a guarantee or lock that a bankruptcy will go through?
- Are government student loans and private student loans discharged in a bankruptcy?
- What is the tax treatment of IRS and New York State obligations in a bankruptcy?
- What are the fees to file bankruptcy and is there a payment plan?
- How can you help me with creditor harassment? Creditors are just stressing me out, calling at all hours
- What is a wage garnishment or income execution? Can a bankruptcy stop this legal process?
- What is pre-bankruptcy credit counseling and post-filing debtor education? Can I complete this by computer?
- What is passing a Means Test?
1) What are the differences between Chapter 7, 11, and Chapter 13?
CHAPTER 7 is a bankruptcy legal proceeding designed to assist individuals discharge most but not necessarily all debt. Generally, no repayment is made to creditors and typical credit card and personal loan debts are wiped out. The exception occurs if a debtor has a non-protected or non-exempt asset. In that case, the asset would be liquidated to cash and there would be a distribution to creditors. The overwhelming number of Chapter 7 cases are no asset cases and creditors receive no monies as a result of the bankruptcy filing and most debts are wiped out as a result of a bankruptcy discharge order, signed off by a judge. However, there are certain debts which cannot be discharged in bankruptcy; a partial list includes: current government taxes (specific and complex rules govern this area) ; government-backed and private student loans in general; there is a limited exception for “undue hardship” (an exceedingly difficult position to establish); child support; alimony; willful and malicious 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 legal proceeding designed for individual debtors who have a regular source of income and wish to reorganize and better manage debt obligations. Chapter 13 is a powerful tool for people with mortgage and maintenance debt or other secured collateral who wish to retain their assets but need a plan to payback these arrears to stop or prevent a foreclosure. The duration of the plan is 3-5 years. 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 of great help to handle debts which are not dischargeable in a Chapter 7. This may include older back taxes, student loans, child support as some examples. Chapter 13 may also be used to enable individuals 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; thus, there is some disposable income available to pay back debt obligations, but not a sufficient amount to satisfy creditors outside of the bankruptcy process. The debt ceiling, adjusted for cost of living and good through April 1, 2013 for unsecured debt in a Chapter 13 is $383,175 and for secured debt is $1,149,525.
CHAPTER 11 is a bankruptcy generally for business reorganization but may be used by individuals who cannot qualify for Chapter 13.
2) What changes were made in 2011 with respect to New York State exemption laws?
New Yorkers since early 2011 may choose between two sets of exemptions to protect 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 have the option of 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 State exemptions, you may protect $150,000 of any equity cushion in your PRIMARY RESIDENCE if you either live in New York City proper or in Westchester, Rockland, Putnam, Nassau or Suffolk County.
The exemption is $125,000 if you live in Dutchess, Albany, Columbia, Orange, Saratoga or Ulster County.
The exemption is $75,000 for any County not listed above that is in New York State.
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)
|
Federal Law |
New York State |
|
|
Automobile |
$3,775 |
$4,250 |
|
Wildcard |
$13,100 |
$1,000 |
| (if no homestead exemption is claimed) | ||
|
Homestead |
$23,675 |
$150,000, $125,000 or $75,000 |
|
Personal Injury |
$23,675 |
$7,500 |
|
Cash |
||
|
(includes checking & savings types of accounts and assuming no homestead claim) |
||
|
Household Property |
$12,625 (not inclusive of cash) |
$11,025 (inclusive of cash) |
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)
3) Will the filing of a Chapter 7 affect my personal property? I need my car for both work and pleasure?
An analysis must be made both under federal exemptions and New York State exemptions. An equity exemption of $3,775.00 in a motor vehicle is allowed under federal exemptions as well as the potential to use up to $13,100 of a wild card exemption if the homestead exemption is not claimed. An exemption of $4,425.00 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; the car can be protected under federal exemption laws. However, this situation, like all others must be analyzed by competent legal counsel.
4) Will the filing of a bankruptcy damage my credit forever?
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.
5) What specific steps should I take to repair my credit?
One way to assist in repairing your credit is to obtain secured credit cards or obtain a secured loan from a bank. 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. As an alternative, you may request a loan against your savings account and pay back that secured loan in a timely manner for every month of the loan obligation.
6) Is there a Court hearing in front of a judge?
In a typical Chapter 7 bankruptcy, you do not see a Judge. You are required to attend a hearing before a Trustee; he is not a judge but an attorney. His job is to be the gatekeeper and review your Petition, including your financial status (asset, liabilities, income, expenses) and assess compliance with the Bankruptcy laws. A typical no asset bankruptcy case requires your appearance for a short hearing that is generally non-confrontational and the case is closed at the conclusion of the hearing, provided all necessary documents have been submitted. You generally receive discharge papers, signed off by a judge in approximately 3-5 months from the date of your hearing and thus all debts that are dischargeable (with some limited exceptions) are officially discharged.
7) I really don’t wish to put in the bankruptcy all of my creditors? Do I have a choice? I would like to keep one for an emergency.
You are required by law to list all of your debt obligations. Failure to list a creditor may result in considerable difficulty with respect to extinguishing that debt, inviting potential lawsuits in the future if those debts remain unpaid. 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 minimum of two (2) current credit reports.
8) What is the simplest and least expensive way to obtain a credit report to review my credit history?
OBTAINING A CREDIT REPORT: The fastest and least expensive way to get a free credit report is to go to www.annualcreditreport.com. 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. Only 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.
9) What paperwork is necessary to be provided at the first visit to the office?
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 filed, 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, and social security card. You need to sort and organize your bills by eliminating for us all envelopes, duplicates, and attachments.
10) Is there a guarantee or lock that a bankruptcy will go through?
Maybe death & taxes are a guarantee. However, as an established law office, we will share our many years of experience, identifying, what if any, issues may be potentially troublesome. Your creditors have sixty (60) days from the date of the 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 give FULL DISCLOSURE OF ANY AND ALL ASPECTS OF YOUR CURRENT OR PAST FINANCIAL LIFE. Full disclosure is both a requirement under the law as well as the proper approach to build a strategy, if necessary, for difficult issues. Make sure that you thoroughly discuss with our office if any of these problems apply to you or any other issue that arises from the video watched in the office, the questionnaire provided to you at the first appointment, or any consultation or subsequent discussion. 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.
11) Are government student loans and private student loans discharged in a bankruptcy?
Generally, student loans are not dischargeable in bankruptcy. There are limited exceptions. Some of the rules are loosening and there may be income driven payment plans outside of bankruptcy that can ease the crushing burden of student loan debt
12) What is the tax treatment of IRS and New York State obligations in a bankruptcy?
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 may be discharged provided that certain strict rules are satisfied. Some of those rules are: the three (3) year rule, the two (2) year rule, the 240 day rule, and no fraud or willful evasion. 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.
13) What are the fees to file bankruptcy and is there a payment plan?
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 analysis of the case, the preparation of a Plan, review of creditor claims, handling any motions and objections from creditors, and preparation of order(s) for the Court.
14) How can you help me with creditor harassment? Creditors are just stressing me out, calling at all hours.
Once you have come into our office, brought in the requested documents, signed a retainer agreement and paid a $100.00 toward the fee arrangement, 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 most creditors are prohibited thereafter by law from calling you at home or work after you have retained an attorney. In Conjunction with another law firm, we do go after creditors who may violate your rights.
15) What is a wage garnishment or income execution? Can a bankruptcy stop this legal process?
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.
16) What is pre-bankruptcy credit counseling and post-filing debtor education? Can I complete this by computer?
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. Our office uses Greenpath as a general rule. Specific information with respect to the procedures will be provided once you have retained our office. It is generally done by computer and involves a session lasting of approximately one hour. After filing a chapter 7 or chapter 13 bankruptcy, you are required to complete a debtor education course, also generally by computer. There are no failures involving the course. More specific details shall be provided once you have retained our office.
17) What is passing a Means Test?
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 or she 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 or the economic partnership circumstances of the given household. However, 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 $69,066 (figures current as 10/11/12) 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 Illustration Only)
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 $2,842. 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 $3,517 (as of 10/11/12). 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.
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