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Contact Information

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 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.

 

   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 term “exemptions” refers to the types of property that you are allowed to keep when you file for Chapter 7 Bankruptcy. States have the option of following 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 following are the more common New York 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 country 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. If you use this exemption, there is no exemption available for cash, clothing, furnishings or the New York Wildcard Exemption discussed below.
  • New York’s Wildcard Exemption: You may use $1,100 for anything. This exemption is not available if you use the New York Homestead Exemption.
  • Cash up to $5,525, which includes money in your bank accounts and cash in your possession. Tax refunds also fall within this category. Note that this exemption is not available if you are using the New York Homestead Exemption.
  • Clothing and furnishings worth up to $10,000. 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, not what you paid for the items. In most cases, $10,000 covers the value of these items. Again, this exemption is not available if you are using 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.
  • Tools of the trade worth up to $3,300. This exemption applies to tools that you use to make a living. The value given to each of these items is its current fair market value.
  • 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.
  • Personal Injury Claim up to $8,275. If you have a claim for personal injury arising out of 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, you will receive the remaining balance of the settlement or award. Note that this exemption does not cover money received for pain and suffering or compensation for actual pecuniary loss.

    If you are married and file a joint bankruptcy petition, the amount of each of these exemptions is doubled.

   The above exemptions are adjusted every three years.  The next adjustment is scheduled for April 1, 2018.

 

    The following are the more commonly used Federal Bankruptcy Exemptions:

 

  • Homestead Exemption: $23,675 in equity for a home, condo, coop or mobile home, in which you reside.$13,100 in any asset, including cash and bank accounts. This exemption is available only if you are not using the Federal Homestead Exemption.
  • Personal property up to $12,625. This category includes household possessions and clothing.
  • Motor vehicle with up to $3,775 in equity.
  • $2,375 for tools of the trade. This exemption covers tools or books that you use to earn a living.
  • $1,600 in jewelry.
  • Qualified retirement and IRA accounts. This covers all common types of retirement accounts, such as 401K and 403B accounts.
  • $23,675 from a personal injury award. This does not include compensation for pain and suffering or for actual pecuniary loss.

   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.

 

    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.

 

   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 periodically revised. As of November 1, 2015, the amounts in New York are as follows: The median income for a family of 1 is $ 50,768; for a family of 2, $65,233; for a family of 3, $74,925; and for a family of 4, $90,852. For households with more than 4 family members.   $8,400 is added for each additional family member. If your yearly income is less than the median income for your state, you will qualify for a Chapter 7 Bankruptcy.

 

    Information on median income for states other than New York

 

   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. Some of the expenses that may be included are not your actual expenses, but the average expense for someone living in the country in which you reside. Some of the expenses that you are allowed to use are your actual expenses. After applying these additional deductions, if your net income does not exceed the allowed amount, you will pass the “Means Test.”

 

   Information on allowed expenses

 

    If your income exceeds the allowed limits, you may still pass the Means Test, if your income exceeds the allowed amount by less than $128.33 per month.

 

   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 for relief.

 

    If you pass the “Means Test,” you must still pass the budget analysis. If your monthly income exceeds your monthly expenses by $100 or more, you will not qualify for Chapter 7 and must instead look to Chapter 13 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 $2,000 and $3,000. The most complicated cases will cost more than $3,000.  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.

 

   When you have paid our fee in full, you will need to complete the first of two required classes, DebtorCounseling. 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 ,and costs a modest fee of usually $25 to $50. The classes may be taken in person, on the telephone, or on the Internet and are offered in many different languages.

 

    Once you have 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 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.

 

    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.