• Discharge & Reorganize Debts
• Credit Cards
• Stop Foreclosures
• Rehabilitate Credit Report
• Stop Harassment
• Gambling Debts
• Electronic Case Filing
A bankruptcy case is one of the most misunderstood legal matters. There are several myths to be dispelled about bankruptcy, (e.g. that debtors will lose all of their property, or that the law prohibits the acquisition of property, or obtaining credit after bankruptcy.) The stigma of bankruptcy was created by creditors who reinforce these notions.
However, bankruptcy is your Constitutional right, and provided for by the Bible (2 Deut 15:1-2). Companies like Pan Am, W.T. Grant, Texaco, and famous people like Jerry Lewis, Craig Nettles, and former U.S. Treasury Secretary John Connally have not hesitated to utilize this right.
The Bankruptcy Code is the strongest and most effective Consumer Protection Act that Congress has ever passed. It is meant to provide a "fresh start," especially to those that have mistakenly overextended themselves, or who have suffered illness, loss of employment or incurred unexpected financial obligations.
There are two types of bankruptcy for consumers. The first type is liquidation under Chapter 7 ("straight") bankruptcy, where all of a debtor's money and assets are distributed to creditors. At the end of the case, the consumer (referred to as the "debtor") receives a discharge, which absolves him or her from any responsibility for paying debts. The second type of bankruptcy is Chapter 13 and involves the reorganization of the debtor's financial affairs - where the debtor proposes a plan for payment of some or all of the debts from his or her disposable income.
Congress passed a new bankruptcy law that now scrutinizes your income and expenses under the Means Test to determine your eligibility to file a Chapter 7 case. If your income is too high you may have to make some repayment under a Chapter 13 Plan. However, many deductions can be made against your gross income, such as employment taxes, pension loan repayments, student loans, child support, debts on secured loans - home and car payments). In addition, the number of persons in your household plays an important part. Hence, it is possible for even high income individuals to file Chapter 7 cases and not pay back anything.
It is extremely important to obtain an experienced attorney who will know how to take all deductions you are entitled to under the law. Choosing the wrong attorney can needlessly cost you thousands of dollars. Numerous attorneys in New York City refer their clients to me to handle their bankruptcy cases.
A person can receive a discharge of most debts they owe or claims made against them. Debts includes bank loans, credit card payments, obligations you co-signed, court judgments, certain taxes, liens, hospital and doctor bills. Claim is defined to mean even claims that you dispute, or that are contingent (i.e. co-signer on a loan). The discharge means you can obtain a "fresh start," be rid of your debts, and get on with your life. However, there are certain debts that cannot be discharged, such as alimony, child support, willful or malicious injury to another, or student loans.
You are given the right to reaffirm certain debts (house mortgage, car loans, one credit card) if you inform the court you want to keep this property and sign a reaffirmation agreement. Furthermore, you can voluntarily pay any creditor you wish after the bankruptcy case is over.
Once you file a bankruptcy Petition, your creditors are barred from taking any action against you. This means that you can stop harassment from collection agencies, lawsuits, automobile repossessions, foreclosures, or evictions from your apartment. Moreover, creditors are not allowed to call or write to you or your employer or your friends. You may even be able to recover money taken from your salary or bank account by judgment creditors up to 90 days before you file. You can also prevent a utility from cutting off your service.
Saving Your Home
A bankruptcy filing can stop a foreclosure sale. Either Chapter 7 or Chapter 13 can be used. The filing of the case gives you more time to work out a deal with the bank (re-negotiate, refinance, short-sale), or file a reverse mortgage for elderly persons. You can file a Chapter 13 after a Chapter 7 filing. However, for multiple filings special rules apply and the automatic stay may not apply on a third filing, and a motion may need to be made after a second filing. In addition, if the sufficient income can be gathered you may be able to file a proper Chapter 13 case and make payments on the arrears for a five year period.
Your Property & Exemptions
Once you file, any kind of assets that you own become property of the Bankruptcy Estate and is administered by the Court. Your assets include cash, stocks, bonds, IRA's, houses, cars, debts owed to you, and law suits you have against others.
The law allows a debtor to exempt certain types of property, up to certain limits, and Debtors may be able to retain their homes, cars, pension plans, annuities, household goods, TV, stereo, clothing. In most consumer cases, most of the property will be considered 'exempt property" and the consumer will be able to keep their property.
Funds in 401 (k), IRA's, annuities, pensions are exempt property and you get to keep them even if you file for bankruptcy and owe creditors money. Owners of homes are entitled to a $50,000 homestead exemption. This means that if you own a home that does not have a lot of equity, you may be able to keep the home if you are able to make the monthly payments.
Note: With proper preparation- the benefits a debtor receives from Workers' Compensation. Social Security Disability, V A, pensions, annuities, alimony, child support are completely exempt, even if the amount of money is substantial.
Meeting of the Creditors
After you file the Petition, generally you will have to appear once before the bankruptcy Trustee, who will ask you questions about your debts, asset schedules, and financial statements. Usually, there are no problems and only occasionally do creditors appear. If all goes well, you should receive a Discharge Notice from the court about three months later.
In a Chapter 13 bankruptcy, the debtor is given the opportunity to adjust his or her affairs without having to liquidate current assets. The case usually involves payment of debts out of future income. The Debtor is allowed to keep and use all property and pay some or all debts according to a plan approved by the court. There are certain limitations on who can qualify. You must have a steady income from wages, disability benefits or other source of dependable income.
The Debtor can propose a plan for up to three years (sometimes five) and should apply a reasonable amount of disposable income towards the plan. If you are behind in your home mortgage or car loan and if you have the money to make monthly payments, you can pay the back money owed over a 3 to 5 year period. If no problems arise, and the court approves the plan, at the end of the plan, all debts are discharged and you can retain your property.
Your Credit Rating
Every lender has its own policy on persons who have filed for bankruptcy. Some lenders believe you are a better credit risk because you cannot file for bankruptcy again for several years; other lenders will not think you are a good risk. Experience has shown that debtors are able to build up their credit rating within a couple of years and obtain credit cards. In any event, most debtors' credit rating has significantly suffered before they have filed for bankruptcy.
A debtor needs to gather information on all debts that he or she may owe, (e.g. credit cards, bank loans, medical bills, utility bills, money from friends or relatives, judgments, liens, foreclosures, repossessions). The debtor must also gather information on all assets they may have and prepare a budget of income and expenses. There are about 20 pages of detailed forms to be filled out. A debtor should consult an experienced attorney. If you file without understanding all the ramifications, it could lead to severe consequences, particularly if proper exemptions are not made. Bankruptcy is not for everyone, especially those with substantial assets.
The court filing fee is $299, and a married couple can file jointly, and pay the same fee. The amount of the attorney's fees will depend on the number of creditors, amount of debt, number of exemptions and reaffirmations. Generally, home owners can expect to pay more than renters. However, 90% of cases are straight forward without complications and the legal fees should be reasonable.
Our office has computerized filing forms and this helps us keep our fees very reasonable.