INDIVIDUAL BANKRUPTCY ALTERNATIVES
The immediate benefit of any bankruptcy is the automatic stay (injunction) which comes into effect immediately upon the filing of the petition. With very few exceptions, all creditors, including governmental agencies, such as tax agencies, are stopped from proceeding against you at the moment the bankruptcy is filed. Even if an asset has been seized already, it may be possible to get it back.
There are two Individual bankruptcy choices:
This Chapter provides a complete fresh start. With few, specified, exceptions the personal obligation to pay debts is discharged and you get what the law simply calls a fresh start. This directly relieves you of unsecured debts. These include regular credit card debts, medical bills, old utility bills, personal loans; in short, any debt not secured (see below) and not subject to special rules (see below).
With secured debts, you would have to make a choice. A secured debt is one where the creditor has the right to repossess something if you do not pay. The best examples are car loans or leases, and mortgage loans. If you want to keep the collateral, you must continue to make your payments. However, if you are willing to give back the collateral to the bank, or lender, you can be free of the payments. This choice is only yours. Neither the court nor the creditor can make the choice or force you to pick a particular option. And there is no penalty to either choice. For example, if you lease a car, you know that if you give the car back early there are penalties and charges. In a bankruptcy you can give the car back without any penalty. Whatever is owed to the creditor is discharged with other unsecured debts.
Some debts, even though unsecured, cannot be discharged in Chapter 7 bankruptcy. These include:
- Maintenance and child support
- Income taxes less than 4 years old
- Trust Fund taxes - no time limit
- All Government guaranteed student loans (new law)
- Drunk driving related debts
These are non-dischargeable by definition. Bad faith or bad conduct is irrelevant. No action need be brought by the creditor to have these types of debts declared non-dischargeable.
There are other debts, based on improper conduct, which can be found to be non-dischargeable. For these debts, the creditor must file an action in the Bankruptcy Court within a time limit and request the Court to find the debt non-dischargeable. The most common objection is based on some type of fraudulent conduct.
Chapter 7 Effect on Property or Belongings
As stated above, your personal obligation is discharged. This means no one can come to you and ask for payment, or sue you, or garnish your pay. But, if you own something which the law allows the Court to sell, the Court will sell the asset and use the proceeds to pay part of your debts. If what you have is defined by the law as exempt that means you keep the asset. Exempt assets cannot be taken from you.
In New York, some exemptions are unlimited; others have limits. Exemptions include:
- Household Furnishings, personal clothing and specified jewelry
- A car with equity (value over the loan amount) of $4000 or less. Husband and Wife can each claim an exemption;
- Residence with equity of $150,000 for New York, Bronx, Westchester, Rockland and Putnam; $125,000 for Dutchess and Orange
- IRAs, Keoghs and pension plans
- All life insurance including proceeds and cash value
- Most Annuities
- Personal injury claims up to $7500 for bodily injury, plus lost earnings
- Cash up to $6000, but only if do not take homestead exemption
- Tools of Occupation
- Burial Plot
In addition, New York law allows a person to claim the exemptions in the Federal Law instead of the New York exemptions listed above.
After filing, you will have to make one (1) appearance at the Bankruptcy Court. The Trustee examines you regarding your petition, to be sure you have listed everything accurately.
Based on the circumstances, an individual may opt to file a Chapter 13 proceeding. The main reasons are:
- A house, condo or co-op in foreclosure
- To save a non-exempt asset from being sold in a Chapter 7
- To pay part or all or a debt which would be non-dischargeable in a Chapter 7
In exchange for stopping a foreclosure proceeding, or protecting a non-exempt asset we would propose a plan under which you would pay a portion of your unsecured debts over time. The maximum plan is 5 years. It is like a debt consolidation where you make one payment to the Court appointed. Trustee and he then distributes the money to all creditors. Many people pay as little as ten percent of their unsecured debts in their plan. Some people are required to pay 100%.
Some debts are always paid in full under the Plan, such as the mortgage arrears and income taxes. The regular payments on your secured debts, such as mortgages and car loans, are simply paid directly to the lender, outside of the bankruptcy. Like a Chapter 7, you can choose to surrender the collateral on a secured debt. In Chapter 13, surrender may be accepted as full payment of the debt; or any balance due (after sale of the collateral by the lender) would be paid under the Plan.
There are some qualifications for Chapter 13:
You must have a regular income. However, wages are only one possible source of "regular" income. Further, the income does not have to be consistent to be regular. So, self-employed people can file.
Debt limits: To file Chapter 13, your secured debts, such as mortgages or car loans, cannot total to greater than $1,010,650.00 and unsecured debts must be up to $336,900.00. If you exceed these limits, you cannot file a Chapter 13; you would have to consider a Chapter 11.
Only an individual can file a Chapter 13. A corporation cannot.
After filing you will have to make at least two (2) appearances at the Bankruptcy Court. The Trustee examines you regarding your petition, to be sure you have listed everything accurately and can make the payments proposed in the Plan. The second appearance is before the judge, and is for the purpose of confirming (approving) the payment plan. If we are not ready to confirm, one adjournment is routine, but only if all technical requirements are met. These usually are having made all payments to the Trustee, and having provided all requested documents to the Trustee.