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Law Office of
Jeffrey B.Peltz, P.C.
26 Court Street, Ste. 503
Brooklyn, New York 11242
Telephone: (718) 625-0800

Chapter 7

 


 

Chapter 7 Bankruptcy   


     Chapter 7 is the most common type of bankruptcy. Chapter 7 Bankruptcy eliminates or, in legal terms, discharges most types of debts, including credit cards, medical bills, money owed due to cars that have been repossessed and homes that have been foreclosed. Certain debts are never discharged in Chapter 7 Bankruptcy, such as court ordered child support, parking tickets or other types of civil or criminal fines. Some debts may be dischargeable under certain circumstances, such as income taxes and student loans. Even if a debt is dischargeable, you may wish to continue paying the debt anyway. For example, if you have a home with a mortgage or a car with a loan, you must continue to pay the mortgage or car loan if you want to keep those items.

 

Bankruptcy Exemptions


   When you file a Chapter 7 Bankruptcy, the bankruptcy trustee, who represents the court, may take possession and sell your property to raise funds for your creditors. This sounds far harsher than it really is, because laws exempt specific items of your property from the trustee and allow you to keep them. As a result, in the vast majority of cases, there are no assets for the trustee to sell. The laws that protect your property are called bankruptcy exemptions.

 

     The term "exemptions" refers to the types of property that you are allowed to keep when filing for Chapter 7 bankruptcy. States have the option to follow either the Federal exemptions or their own. New York offers a choice between the Federal bankruptcy exemptions and its own New York bankruptcy exemptions. When you file bankruptcy, you must choose either the Federal exemptions or the New York exemptions. You cannot select some from one and some from the other. The exemptions limits are periodically updated. If you are filing a joint bankruptcy with your spouse, you may double the amounts of either the New York or Federal exemptions. 


     New Jersey also allows people filing bankruptcy to choose either the New Jersey bankruptcy exemptions or the Federal bankruptcy exemptions.  However, since the New Jersey bankruptcy exemptions are generally less generous than the Federal bankruptcy exemptions, most people filing bankruptcy in New Jersey select the Federal bankruptcy exemptions.  Again, if you are married and filing bankruptcy together, you may double the Federal Bankruptcy exemptions.


Some of the more commonly used New York bankruptcy exemptions:


  • Homestead Exemption: covers your residence, provided that the residence is in New York, you have at least a partial ownership interest, and you reside in the residence. The amount of equity that you are allowed depends on the county in which you reside. The maximum exemption is $165,550, if you live in any of the following countries: Richmond, Kings, Queens, New York, Bronx, Nassau, Suffolk, Westchester, Rockland and Putnam. The maximum exemption is $137,950 if you live in any of the following countries: Dutchess, Orange, Ulster, Columbia, Albany and Saratoga. The maximum exemption is $82,775 for all other countries in New York State. The residence can be a house, condo, coop or mobile home. Please note that you only need to exempt your portion of the equity in the property.  For example, if you are one of two people on the deed, you only need to exempt half of the equity in the home.  If you use this Homestead exemption, you cannot also use the exemptions for cash, clothing, furnishings or the New York Wildcard Exemption discussed below.
  • Cash up to $5,525, which includes money in your bank accounts, cash in your possession. tax refunds, and U.S. Savings Bonds.  Note, that the use of this exemption will reduce the amount you have under the following exemption for $11,025.
  • Clothing, Furnishings, Tools of the Trade up to $11,025. You are permitted to value these items based upon their current fair market value, which is the amount that a buyer would pay for each item on the open market, and not what you paid for the items. In most cases, $11,025 covers the value of these items. Within this exemption, the limit on the value of tools of the trade is $3,300. The total limit of $11,025 is reduced by the amount of cash that you are exempting in the $5,525 exemption listed above.  For example, if you have $2,000 in cash, you can only exempt up to $9,025 in clothing and furnishings.  This exemption is also only available if you are not using the New York Homestead Exemption.
  • The New York Wildcard Exemption allows you to use $1,100 for anything. This exemption is not available if you use the New York Homestead Exemption.
  • Retirement Plans and IRAs. Most retirement plans, such as 401(k) and 403(b), are fully exempt. An IRA funded by a roll-over from a qualified retirement plan is also exempt.
  • Car with up to $4,425 in equity. For example, if you own a car or other motor vehicle worth $15,425, and you owe $11,000 on the car loan, you are allowed to keep the car, since you have only $4,425 in equity. If the motor vehicle is equipped for a disabled person, then the exemption allowed is $11,025. If you are over the exemption may be required to pay that amount to the bankruptcy trustee in order to keep your car.  If you don’t, your car may be sold and you would receive the allowed exemption amount.
  • Personal Injury Claim up to $8,275. If you have a claim for personal injury caused by another person's negligence, such as in the operation of an automobile or a defective condition that caused you to slip and fall, you are allowed to keep the first $8,275 received from such a claim. Your personal injury lawyer will also be permitted to receive his or her legal fee and expenses. The bankruptcy trustee is also entitled to a fee for dealing with your personal injury action. If there is money left over after your creditors, personal injury attorney and trustee are paid, in addition to the $8,275, you will also receive the remaining balance of the settlement or award. This exemption does not cover money received for pain and suffering or compensation for actual pecuniary loss.  This means, if any of the settlement or award is labeled compensation for “pain and suffering” or for “pecuniary loss,” you would not be able to keep those amounts.
  • Disability Insurance: You may keep all money received as benefits from disability insurance.
  • Social Security: You may keep all money received from Social Security
  • Security Deposits: You may keep all money given for a security deposit, such as apartment rent security or for utilities.
  • Public Assistance: You may keep all money received for public assistance.
  • Life Insurance: You may keep all money received as benefits from life insurance.
  • Unemployment Insurance: You may keep all money received as benefits from unemployment insurance.
  • Veteran Benefits: You may keep all money received as veteran benefits.
  • Armed Forces: You may keep all wages earned from the armed forces of the United States.
  • Workers Compensation: You may keep all money received as benefits from workers’ compensation.
  • Spendthrift Trust: If the spendthrift trust was established by someone other than you, you may keep all the funds in the spendthrift trust.

If you are married and file a joint bankruptcy petition, the amount of each of these exemptions are doubled. The amounts of the above listed New York exemptions are adjusted every three years.  The next adjustment will take place on April 1, 2018.

 

Some of the more commonly used Federal Bankruptcy Exemptions:


  • Homestead Exemption: $23,675 in equity for a home, condo, coop or mobile home, in which you have at least a partial ownership interest, which is located in New York, and you reside in.  Please note that you only need to exempt your portion of the equity in the property.  For example, if you are one of two people on the deed, you only need to exempt half of the equity in the home. 
  • Personal property up to $12,625. This category includes household possessions and clothing.  The fair market value of each item is limited to $600.
  • Motor vehicle with up to $3,775 in equity. For example, if your car is worth $10,000 and you have a car loan of $6,225, your equity in the car would be $3,775, which is the limit of this exemption.  If the amount of your equity exceeds the limit, you may also use the Wild Card Exemption, if it is available to you.   If your equity in the motor vehicle exceeds both the motor vehicle and wild card exemptions, if using it, you may be required to pay that amount to the bankruptcy trustee in order to keep your car.  If you don’t, your car may be sold and you would receive the allowed exemption amount. 
  • Tools of the trade are exempt up to $2,375. This exemption covers tools or books that you use to earn a living.  These items are valued at their current fair market value.
  •   Qualified Retirement Accounts are fully exempt.  This covers most common types of retirement accounts, such as 401K, 403B, profit-sharing, SEP and simple IRAs, and defined benefit plans.
  • IRAs and Roth IRAs are exempt up to $1,283,025.·         
  • Personal injury awards are exempt up to $23,675.  If you have a claim for personal injury caused by another person's negligence, such as in the operation of an automobile or a defective condition that caused you to slip and fall, you are allowed to keep the first $23,675 received from such a claim. Your personal injury lawyer will also be permitted to receive his or her legal fee and expenses. The bankruptcy trustee is also entitled to a fee for dealing with your personal injury action. If there is money left over after your creditors, personal injury attorney and trustee are paid, in addition to the $23,675, you will also receive the remaining balance of the settlement or award. This exemption does not cover money received for pain and suffering or compensation for actual pecuniary loss.  This means if any of the settlement or award is labeled compensation for “pain and suffering” or for “pecuniary loss” you would not be able to keep those amounts.·         
  • Life Insurance up to $12,625.  This applies to the loan value or interest you have in a life insurance policy. 
  • Proceeds from a Life Insurance Policy: Life insurance proceeds you receive from a policy on the life of a person you depend upon and need for support are exempt.
  • Wrongful Death Recovery: The full amount recovered for the wrongful death of anyone that you depended upon is exempt.
  • Health Aids:  Fully exempt
  • Public Assistance: You may keep all money received for public assistance.
  • Unemployment Insurance: You may keep all money received as benefits from unemployment insurance.
  • Veteran Benefits: You may keep all money received for veteran benefits.
  • Crime Victims Compensation: You may keep all payments received as crime victim’s compensation.
  • Workers Compensation: You may keep all money received as benefits from workers’ compensation.
  • Alimony and Child Support: Amounts received for both Alimony and Child Support that are needed for support are exempt.
  • Wild Card Exemption: $1,250, which can be applied to protect any assets.
  • Homestead Wild Card Exemption: Up to $11,850 of any unused Federal Homestead Exemption may be used to protect any assets. 

     If you are married and file a joint bankruptcy petition, the amount of each of these exemptions is doubled. The amounts of the above listed Federal exemptions are adjusted every three years. The next adjustment is scheduled for April 1, 2019.


     Due to the more generous homestead exemption, if you own a home with more than $25,000 in equity, you probably should use the New York exemptions. However, if you do not need the New York exemptions, you probably will do better using the Federal exemptions. However, due to other differences in the New York and Federal exemptions, you should decide which to use only after a careful analysis by an experienced bankruptcy attorney.


If you have an asset that is not exempt in a Chapter 7 bankruptcy and you want to keep that asset, you should consider Chapter 13 bankruptcy for relief.


Qualifying for Chapter 7 Bankruptcy


   To qualify for a Chapter 7 Bankruptcy, you must first pass the “Means Test,” which requires that your income not exceed a certain amount. This test requires that you first add up your income earned during the six previous complete months. Next, add up all of the income from all sources in your household, including yours and the income of the other members of your household during the same six-month period. Certain types of income, such as social security, are not included in your calculations. Then, multiply the resulting number by 2 to obtain your yearly income.


   Once you have determined your yearly income, compare it to the median income for your state. These figures are updated every May 1st and November 1st. As of May 1, 2017, the amounts in New York are as follows: The median income for a family of 1 is $ 51,408; for a family of 2, $66,056; for a family of 3, $75,870; and for a family of 4, $91,998. For households with more than 4 family members.   $8,400 is added for each additional family member. If your yearly income is no more than the median income you will qualify for a Chapter 7 Bankruptcy.


 As of May 1, 2017, the amounts in New Jersey are as follows: The median income for a family of 1 is $ 62,933; for a family of 2, $75,305; for a family of 3, $93,656; and for a family of 4, $114.886. For households with more than 4 family members.   $8,400 is added for each additional family member. If your yearly income is no more than the median income you will qualify for a Chapter 7 Bankruptcy.


    Information on median income for states other than New York or New Jersey.


   If your income exceeds the median income in your state, all is not lost. There is a second step that allows you to deduct certain expenses from your income. This part is not as straight forward. Most of the expenses that may be included are not your actual expenses, but the average expense for someone living in the county in which you reside.  These expenses can be found on the website of the U.S. Department of Justice.    You are also allowed to include certain types of actual expenses, however they are limited to certain types of expenses and limited by amounts.  After applying your expenses, if your net income does not exceed the allowed amount, you will pass the “Means Test.”


    If your income exceeds the allowed limits, you may still pass the Means Test, if your income exceeds the allowed amount by no more than $128.33 per month.


     If your income exceeds the allowed limited by more than $128.33 per month, but no more than $214.16 per month you can still pass the means test if the amount that you are over would not be enough to pay at last 25% of your unsecured and non-priority debt over a 5-year period.


    After completing the Means Test, if you are still above the allowed income limit, you will not qualify for a Chapter 7 Bankruptcy. In that case, you will have to look to Chapter 13 Bankruptcy for relief.


    If you pass the “Means Test,” you must still pass the budget analysis of your actual income and expenses.  If you have too much discretionary income you won’t be able to file a Chapter 7 Bankruptcy, and instead look to Chapter 13 Bankruptcy for relief.


    As you can see from this short summary, this is a complicated area of the law. You risk much if you make an error. To find out if Chapter 7 Bankruptcy is right for you, it is best to consult with an experienced bankruptcy attorney.


Procedure & Cost


   We offer a free consultation and help clients who live in the following counties of New York: Kings (Brooklyn), New York (Manhattan), Staten Island (Richmond), Queens, Bronx, Nassau, Suffolk, Westchester, Rockland, Putnam, Dutchess, Orange, Sullivan, Albany, Clinton, Columbia, Essex, Franklin, Fulton, Greene, Jefferson, Montgomery, Rensselaer, St. Lawrence, Saratoga, Schenectady, Schoharie, Ulster, Warren, and Washington. In addition, we cover all of New Jersey.


    During our free consultation, we will discuss your options in bankruptcy and non-bankruptcy options that may be available. We will determine our fee for a Chapter 7 Bankruptcy based on the facts of your particular situation. We consider such factors as whether you are filing with your spouse, the total amount of your debt, the type of debts you have, the amount of money you earn (whether you are over the median income), and whether you own real estate or a business. Our fee for a typical, simple bankruptcy will likely cost between $1,200 and $1,700. For a more complicated Chapter 7 Bankruptcy case, our fee will likely cost between $1,700 and $2,500. The most complicated cases will cost more than $2,500.  In addition to our legal fee, you must pay $335 for the court filing fee, $38 for a credit report (combined from all three major credit reporting agencies), and $24 for the two required classes.   During our free consultation, we will let you know exactly how much your bankruptcy will cost.


   If you wish to retain our office to represent you in a Chapter 7 Bankruptcy, we will prepare a retainer agreement. Upon signing the retainer agreement, you will be required to pay $200 as a deposit, which is also known as a retainer fee. You will pay the balance of our fee in a monthly amount of at least $200 until the fee is paid in full. We will provide you with detailed instructions regarding the information that we will need to prepare your bankruptcy petition. Once you have retained our law office, you should stop paying the bills that you intend to be discharged in bankruptcy. You should also tell your creditors to call us and to stop calling you.  If you prefer, we will call your creditor for you to tell them to stop calling you.


   When you have paid our fee in full, you will need to complete the first of two required classes, Debtor Counseling. This class must be taken within 180 days of the filing of your petition. Once we file your bankruptcy, you must also complete a second class entitled Personal Financial Management. If you do not complete your Personal Financial Management class within 45 days of your bankruptcy hearing, your petition will be denied. Each class takes approximately two to three hours to complete, is offered by a court-approved company.   The classes may be taken either on the telephone or on the Internet.  They are also available in Spanish.


    Once you have finished paying us, and completed the Debtor Counseling class, you will visit our office for a few hours, bringing the information that we will instruct you to bring, so that we may prepare your bankruptcy petition.


    Once we complete and you sign your bankruptcy petition, we will file it with the Bankruptcy Court. The moment that we file your bankruptcy petition, an automatic stay will be issued through the Court that will stop your creditors from taking or continuing collection and legal actions against you. This means that, if your wages are being garnished or if your bank accounts have been frozen, the creditor must stop such actions. If any money is taken from you once we file your petition, the money must be returned to you.


   When we file your bankruptcy petition, the Court will schedule a hearing, which is known as a 341 meeting or a meeting of your creditors. This is a bit of a misnomer, since creditors rarely appear. At the hearing, you will be questioned by the bankruptcy trustee, who is a court-appointed attorney to handle your case. The bankruptcy trustee will question you regarding your assets and your debts. The questioning usually takes about ten minutes.  If you need a translator, one will be provided to you, regardless of what language you require.  This is done via speaker phone.


     If the bankruptcy trustee is satisfied with your answers and has no further questions, the trustee will “close” the meeting, and no further appearance will be needed. However, if the bankruptcy trustee has further questions that cannot be answered at that time, you will be required to attend a second hearing that will be scheduled to occur approximately two weeks later.


   During the two months after the date of the 341 meeting, your creditors will have the opportunity to file an objection with the Bankruptcy Court regarding the discharge of their debt. Such objections are usually filed when a debtor has made significant and recent use of credit before filing bankruptcy, especially if few payments were made.  We will not file a petition for bankruptcy for a person who has committed such acts. If an objection by a creditor is threatened or filed, it is usually resolved through a negotiated settlement.


   Approximately four months after filing your petition, you should receive your discharge from the Bankruptcy Court. The discharge states that you are not legally liable for your discharged debts. You should save the discharge notice and a copy of your petition for at least the next ten years, because they will be your proof that you are not obliged to pay the discharged debts. You will then be ready to embark on your fresh financial start and to rebuild your good credit.


     Please note, that we have never had a bankruptcy client, that has been truthful to us, denied a discharge.


    Once you obtain a discharge, you may not file another Chapter 7 Bankruptcy for a period of eight years from the date of your prior filing even if you encounter new financial problems during that period. However, you may file a Chapter 13 Bankruptcy four years after filing a Chapter 7 Bankruptcy, in which you received a discharge.


Questions About Bankruptcy? Call Us to Schedule a Free Consultation


Call the Law Office of Jeffrey B. Peltz, P.C., at 718 625-0800 to speak to an experienced bankruptcy attorney regarding Chapter 7 bankruptcy. We have evening and weekend appointments available and are also speak Spanish.