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 and medical bills. There are exceptions, however. For example, court ordered child support payments, parking tickets, and most taxes are not discharged, although, under certain circumstances, income taxes may be discharged. Student loans are almost never discharged. 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 would need to continue paying 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 your property and sell it 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 either following the federal exemptions or their own. New York has elected to follow its own exemptions. The following are the more common exemptions allowed in New York:

  • Cash up to $2,500, which includes money in your bank accounts and cash in your wallet. Tax refunds also fall within this category.
  • Clothing and furnishings worth up to $2,500. 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, $2,500 covers the value of these items.
  • 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 exempt.
  • Tools of the trade worth up to $600. Again, the value given to each of these items is its current fair market value.
  • Car with up to $2,400 in equity. For example, if you own a car worth $15,000 and you owe $13,000 on the car loan, you are allowed to keep the car, since you have only $2,000 in equity.
  • Up to $50,000 of equity in a house, co-op, condo, or mobile home, provided that you live in the house, co-op, condo or mobile home. For example, if the property is appraised for $750,000 and you owe $700,000 on the mortgage, you are allowed to keep the house, since you have only $50,000 in equity. If you use this exemption, there is no exemption for cash.
  • Personal Injury Claim up to $7,500. If you have a claim arising out of another person’s negligence, for example in the operation of an automobile or a defective condition that caused you to slip and fall, you are allowed to keep the first $7,500 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. 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.
  • If you are married and file a joint bankruptcy, you may double the amount of these exemptions. For example, if you own a house and you are both on the deed, you may claim a $100,000 exemption.

If you have an asset that is not exempt in a Chapter 7 Bankruptcy and you want to keep that asset, you must 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 level. To take this test, first add up your income from 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 over the same six month period. Certain types of income, such as social security, should not to be 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, 2010 the amounts in New York are as follows: The median income for a family of 1 is $45,548; for a family of 2, $56,845; for a family of 3, $67,292; and for a family of 4, $82,587. For households larger than 4, $7,500 is added to $82,164 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 median income exceeds the limit allowed in your state, all is not lost. There is a second step that allows you to deduct certain expenses from your income. If after applying these additional deductions, your net income drops to the amount allowed, you will have passed the “Means Test.” Calculating your expenses is a bit complicated. It is best to consult with an experienced bankruptcy attorney to determine whether you pass the Means Test. More information on which expenses are allowed.

If, after completing the Means Test, 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.

To file your bankruptcy, you must complete a class entitled Credit Counseling. This class must be taken within 180 days of the filing of your petition. Once you file your bankruptcy, you must also complete a second class entitled Personal Financial Management. If you do not complete your Financial Management class within 45 days of your bankruptcy hearing, your petition will be denied. Each class takes approximately two hours to complete and is offered by a court-approved company. Each class costs a modest fee of usually $50. The classes may be taken in person, on the telephone, or on the Internet. The classes are offered in many different languages

Find an approved agency that provides credit counseling

Find an approved agency that provides the Personal Financial Management course

When you file a Chapter 7 Bankruptcy, you must attend 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 paid to handle your case. The bankruptcy trustee will question you regarding your assets and your debts. The questioning usually takes about 10 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, a second hearing will be scheduled to occur approximately two weeks later.

There is a period of two months from the date of the 341 meeting that your creditors have an opportunity to file an objection with the Bankruptcy Court regarding a discharge of their debt. Such objections are usually made when a debtor has made significant and recent use of credit before filing bankruptcy, especially if few payments were made. If we know of such activities we would not file your petition. If an objection by a creditor is threatened or made, 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. Save the discharge notice and copy of your petition for at least the next ten years. That will be your proof that you don't need to pay those debts. You are now ready to rebuild your credit and for your fresh financial start.

If you obtain a discharge, and you have future financial problems, you may not file another Chapter 7 Bankruptcy for a period of eight years from the date of your prior filing. However, you may file a Chapter 13 Bankruptcy four years after filing a Chapter 7 Bankruptcy, in which you received a discharge.

Procedure and Cost

During our free consultation, we will review your situation and advise you of your options and of our fees.

Our fee for a Chapter 7 Bankruptcy is usually between $1,050 and $1,500. The exact amount will depend upon the following factors: how much you owe, the types of debts, the number of creditors, the types of property you own; if you wish to keep any of your debts (for example, a car loan or a mortgage); your income (whether you earn more than the median income); whether you are self-employed; and whether you are filing with your spouse. In addition to our legal fee, you must pay $299 for the court filing fee and $35 for a credit report (combined from all three major credit reporting agencies). In addition, you must pay $100 to the organization that provides the two classes that you are required to complete. At the end of our free consultation, you will know exactly how much the Chapter 7 Bankruptcy will cost.

If you wish to retain our office to represent you in a Chapter 7 Bankruptcy, you must sign a retainer agreement and pay $200 as a deposit, also known as a retainer fee. After your first payment, you must pay us at least $200 per month until the balance of our fee is paid in full. 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 that they must call us and stop calling you.

When you have finished paying us, you will need to complete first required class, the Debtor Counseling class. Once you have completed this class, you will visit our office for a few hours and bring the information that we will request so that we may be able to prepare your bankruptcy petition. Once your petition is completed, we will file it with the U.S. 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 one of your bank accounts has 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.

After we file your petition, you will take your second required class, Personal Financial Management. The hearing known as the meeting of creditors will occur about one month after we file your petition. Prior to that hearing, we will tell you what to expect and what questions the trustee will ask you. We will be sitting at your side during the hearing.

About three months after your hearing, you will receive your discharge from the Court. If any of your creditors listed in your bankruptcy petition continue to harass you, we will deal with them at no cost to you.

Pursuant to New York law this website is considered attorney advertising.