1. What is Bankruptcy?
Bankruptcy is a means for good people in bad situations to legally get a fresh start. There are certain requirements, but generally, anyone meeting those requirements has a legal right to file. As soon as a petition is filed, all creditors are prohibited from attempting to collect on all debts listed in the petition until the Court either discharges you from these debts or determinates that you are not entitled to such relief.
2. What is the process for filing?
First, any qualified bankruptcy attorney will probably require you to fill out a questionnaire for them to review to determine whether or not bankruptcy is right for you. If it is determined to be your best option, the attorney will have to decide under which Chapter you will file. You will likely meet with the attorney on more than one occasion to answer questions, provide documents and for the attorney to answer any questions you might have. After the bankruptcy petition (legal papers filed with the bankruptcy court that commences your bankruptcy proceeding) is filed, you will be required to appear in court at at least one occasion, the Meeting of Creditors, for a Chapter 7 filing, and probably more than one appearance if your bankruptcy petition is a Chapter 13 filing (Meeting of Creditors and Confirmation Hearing).
3. What is Chapter 7?
Chapter 7 is a liquidation proceeding under the United States Bankruptcy Code. In a Chapter 7 proceeding, a trustee appointed by the bankruptcy court will take custody of and sell off any of your non-exempt assets. The money received from this sale will be used to pay your creditors. Your debts are then discharged. This means that creditors are forever prohibited to try and collect on these discharged debts in the future.
Certain debts, like taxes, alimony, child support, student loans, and debts that have not been listed in the Chapter 7 petition (as well as debts which have been incurred as a result of either an intentional tort or the defrauding or misleading of a credit) are not dischargeable. This means that after the discharge, you will continue to be liable for these debts.
4. What is a Chapter 13?
A Chapter 13 is designed primarily for residential homeowners, and allows a person or married couple to pay off all, or a portion, of their debts under the supervision and the protection of the US Bankruptcy Court while remaining in their home. A Chapter 13 Plan is primarily used to repay mortgage arrears, while also addressing all other debts you owe to any other creditors. Payment of your mortgage other debts are generally spread out over a 3-5 year period. Chapter 13 is also used as an alternative to credit counseling. Individuals are permitted to repay their credit card debt over a 3-5 year period without any additional interest charges. A Chapter 13 filing is designed for those individuals who are currently employed and have steady incomes, yet are still overwhelmed with bills, judgments, lawsuits or other financial obligations.
5. What types of property are exempt?
Certain types of personal property is classified as exempt under the Bankruptcy Code. This means that you get to keep this property even after your debts are discharged. In New York, State Law provides for specific exemptions including, among others: (a) cash, checking or savings accounts, US Savings Bond, stocks, and other marketable securities, and tax refunds up to a maximum total of $ 2,500.00; (B) equity in a motor vehicle up to $ 2,400.00; (C) basic wearing apparel; (D) $ 50,000.00 of the equity in your home, co-op or condo; (E) social security benefits; (F) household furnishing and certain appliances; (G) IRA, 401K and other qualified retirement accounts.
6. Will I lose all my credit cards after bankruptcy?
You are required to list all outstanding debts that you owe as of the date of the filing of a bankruptcy petition. Any accounts that have a zero balance do not have to be listed. For those credits cards that have balances, if you agree with the creditor to repay all or any portion of the card's balance at the time of filing, you may be able to execute a document known as Confirmation Agreement that documents your willingness to continue to be responsible for this debt after the bankruptcy is discharged. In most cases, the Bankruptcy Court must approve of the Declaration agreement before it becomes effective.
7. How long will it take?
A typical Chapter 7 case takes normally 4-6 months. A Chapter 13 case may take anywhere to 3-5 years to complete.
8. What is a Meeting of Creditors?
Section 341 of the United States Bankruptcy Code affords creditors the right to meet with the debtor to determine if a discharge or a reorganization of debt is appropriate based upon the facts and circumstances presented by a debtor in their bankruptcy petition. While creditors do technically have the right to attend these proceedings and to question the debtor, creditors rarely appear at these proceedings.
In Chapter 7 proceeding, the Meeting of Creditors serves two important purposes. First, the Court, through examination by the Court appointed Trustee, verifies that all of the representations contained in your bankruptcy petition are true and correct to your best of your belief and knowledge. Second, the Bankruptcy Court Trustee also utilizes this meeting to verify on behalf of the Court that there are no assets that may be considered non-exempt, which could have been sold by the Trustee to repay part, or all, of your debt. A typical meeting of creditors in a Chapter 7 taking takes approximately 5-10 minutes to complete.
In Chapter 13 proceeding, a debtor is also required to appear before the Chapter 13 truste. In a Chapter 13 case, the meeting of creditors serves a slightly different purpose. In addition to verifying that all of the representations made by a debtor are true and correct, the Chapter 13 trustee will also verify that the debtor has calculated the means test properly, and that the debtor has the financial ability with which to make the payments proposed in the proposed Chapter 13 plan. Verification of a debtors ability to make payments in a Chapter 13 case is based upon both the debtor testimony at the meeting and various documentation, usually tax returns and / or pay statements, that must be presented to the Chapter 13 trustee to verify the representations made in your Chapter 13 petition. As in a Chapter 7 case, a typical meeting of creditors in Chapter 13 case takes between 5-10 minutes to complete.
9. How will filing affect my credit?
Under the Fair Credit Reporting Act, a Chapter 7 may remain on your credit report for 10 years. A Chapter 13 filing is legally allowed to be reported for 7 years. The filing of any bankruptcy petition will seriously impact your credit score in the near future. By beginning to slowly build up your credit after your bankruptcy is discharged, you tell future lenders that your problems with credit are now behind you. One way is to obtain a "secured" credit card from a bank as soon as you are able. With a secured card, a debtor puts up a certain amount of money, as little as $ 200.00, in an account at the bank to guarantee payment. This limit is usually increased as the debtor proves his or her ability to pay the debt.
Two years after your bankruptcy is discharged, you will be eligible for a mortgage loan on similar terms to individuals with similar financial profiles that have not filed bankruptcy. It is then that the amount of your down payment and your employment and income stability become more important to a bank than your past bankruptcy filing.
10. What if I filed before?
For an individual, you may only file for relief under Chapter 7 once every eight years. This date runs from the date bankruptcy is actually discharged. Please note however that the 8-year period does not run from the date of the filing of the first petition, but rather from the date the court issues the bankruptcy discharge.
11. Will I be able to get out of repaying my student loans?
With two exceptions, student loans are not dischargeable in a bankruptcy proceeding. However, the student loan may be discharged if it is either insured or guaranteed by a governmental unit, nor made under any program funded in whole or in part by a governmental unit or non-profit institution. Finally, the student loan may discharge if paying the loan will "impose an undue hardship on the debtor and debtor's dependents." 11 USC Section 523 (a) (8)
12. Will I lose my home?
A Chapter 13 proceeding is designed to help residential homeowners keep their home while helping them to reclaim their lives and start anew. Chapter 13 filing is permitted for persons that owe less than $ 250,000.00 in unsecured debt and less than $ 750,000.00 in secured debt. Thus, it is possible to file bankruptcy and keep your home.
13. Will I lose my car?
In New York, there is an exemption for a motor vehicle valued at $ 2,400 or less. If you have a $ 20,000 car and owe $ 10,000 on this vehicle, it is likely that the bankruptcy trustee will liquidate such an automobile in a Chapter 7 proceeding.
14. Does my spouse have to file?
New York is a common law state. Unlike community property states, your spouse will not be affected by your bankruptcy if they are not responsible for any of your debt. If they have a supplemental credit card they are probably responsible for that debt, but unless they also signed the agreement, they are probably not liable in NY. Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
15. What happens if I do not list all my property?
Failing to list all property is a crime. Many assets are protected from being located by the bankruptcy court, but only if they are listed. Bankruptcy crimes are punishable by imprisonment for up to five years. Criminal conduct includes: filing a bankruptcy petition to defraud your creditors; concealing property from the court or bankruptcy trustee; knowingly and fraudulently make a false oath or account; an intentional transfer or concealment of property to defraud creditors; and concealing, altering, destroying, or falsifying records or documents.
16. Will my employer find out?
Technically, Chapter 7 filings are public records and it is possible for anyone to find out. However, without your employer searches bankruptcy filings, it is illegally they will find out. The Credit Bureaus will record your filing and it will remain on your credit record for 7-10 years.
17. Can I lose my job?
No. Employers are prohibited from discriminating against you because you filed bankruptcy governor to USC Sec. 525.
18. Is my pension / retirement accounts safe?
Employee contributions to ERISA qualified retirement plans, deferred compensation plans, tax-deferred annuities, and health insurance plans are exempt assets. Also, Section 522 of the Bankruptcy Code states that an individual can now exempt up to one million dollars in an IRA account. Interestingly enough, Section 522 specifically excludes SEP IRA's from such exemption, although this type of IRA may possibly fall under an ERISA plan (anyone self-employed should consult with their attorney and ensure that their SEP IRA is actually exempt before filing).