Following are some frequently asked questions about bankruptcy. These FAQs are provided for informational purposes only and do not constitute legal advice. Please contact us to schedule a free consultation with one of our experienced bankruptcy attorneys to answer any additional questions about bankruptcy and to help determine if bankruptcy is your financial strategy in your situation.
Do I qualify for bankruptcy?
This is one of the most complicated questions about bankruptcy to answer in general terms. Qualification depends upon your individual situation, household income and living expenses. If your income is above the median income, you will have to pass a means test. Rosenberg, Musso & Weiner are experts in analyzing your individual financial circumstances and helping you determine whether bankruptcy is your best option.
If I declare bankruptcy will I ever be granted credit again?
You can start rebuilding your credit right after filing a bankruptcy petition. Many people find that their credit actually improves after bankruptcy and are often offered credit again. When this happens, it’s often a good idea to apply for a credit card and use it responsibly.
Should I attempt to settle my debts rather than filing?
That depends a lot upon your individual circumstances. However, it’s important to note that debt forgiveness is not without tax consequences. According to the IRS, any portion of a loan that is forgiven is considered to be income. However the Mortgage Debt Relief Act of 2007, allows for the exclusion of debt forgiven through modification or foreclosure of a mortgage on a primary residence, if that forgiveness occurs between 2007 & 2012.
If I file bankruptcy, what happens to alimony and child support payments I’m supposed to make or receive?
If you pay alimony or child support, you will continue to make the payments throughout and after filing a bankruptcy petition. As well, if you receive alimony or child support, these payments will be protected if you file for bankruptcy.
Will filing bankruptcy eliminate all of my debts?
Bankruptcy eliminates most, but not all debts. Exceptions are most student loans, recent taxes, alimony and child support, debts acquired through fraud, government penalties, restitution or fines, debt from luxury services or goods and certain cash advances taken within 60 days of a bankruptcy filing. Please speak with your attorney for specifics on non-dischargeable debts in your individual situation.
What assets may I keep in a bankruptcy filing?
Generally speaking New York residents may keep the following assets when filing a bankruptcy petition:
• The first 50k of equity in a house, coop or condo. (x2 if both husband and wife are filing)
• Equity in a car up to $2400.
• Basic furniture, household goods, appliances, clothes and pets: up to 5k (based on “quick sale value”)
• Jewelry: wedding ring and watch not exceeding $35 in value
• Tools of the trade: up to $600 in value
• Life insurance: any cash value is completely exempt
• IRA, 401K or pension plans are completely exempt.
• The first $7500 of a personal lawsuit
• 5k in personal property (cash or stock accounts) if you don’t own a home.
Please speak with your bankruptcy attorney to determine exactly what property you will be able to keep if filing a bankruptcy.
How long will a bankruptcy filing remain on my credit report?
A chapter 7 bankruptcy will stay on your credit report for up to 10 years, a chapter 13 bankruptcy will remain on your credit report for up to 7 years.
What is a “secured debt”?
A secured debt is one where the debtor has pledged an asset to back the loan. If the loan is not paid when due, the creditor has the right to sell the asset and use the proceeds to repay part or all of the loan. In a bankruptcy, if the collateral is not sufficient to repay the loan, secured creditors have preference over non-secured ones and are entitled to repayment of the secured loans before unsecured debts are paid.
The majority of secured debts are residential mortgages and motor vehicles loans, however some store purchases are also secured. In this case, if a consumer fails to repay according to the credit card agreement, the store can take back the merchandise.
Will I lose my home if I file bankruptcy?
Not necessarily the chances of losing your home vary according to the type of bankruptcy you file and whether you are a homeowner or renter.
In a Chapter 7 liquidation, if the debtor is behind in their mortgage the bank may foreclose on the property depending upon how much equity the debtor has and what is owed on the mortgage. Speak to your attorney to find out how this would impact your specific situation.
In a Chapter 13 bankruptcy, if the debtor is behind in their mortgage payments and the wage-earner plan shows how the missed payments will be repayed, the debtor should be able to retain the house as long as certain deadlines are met.
Renters should seek the advice of an attorney. The automatic stay will stop eviction proceedings temporarily. If you have a residential lease and are current with your landlord you may be able to continue to live there as long as you pay rent according to the lease terms.
Your bankruptcy attorney can counsel you on exactly what may happen with home in the event you file bankruptcy.
Are there any laws that govern debt collection practices?
The Fair Debt Collection Practices Act (FDCPA) limits what a collection agency is allowed to do. For example:
• It prohibits a collection agency from contacting any third party except to attempt to locate the debtor.
• The FDCPA prohibits agencies from contacting a debtor directly if they are represented by an attorney unless the debtor has specifically given them permission.
• The act prevents a collection agency from contacting a debtor before 8am, after 9pm or at work.
• It prohibits a collection agency from harassment, abuse or threats, to use violence or obscenity, or to publish a debtor’s name or to call them repeatedly.
• The act prevents an agent from lying about the debt, concealing their identity, using false or misleading statements, or adding penalties, fees or interest to the amount owed or deposit post-dated checks ahead of schedule.
In addition, the FDCPA requires that a collection agency contact the debtor via an introductory letter which advises them of their rights and includes the amount of the debt, name of the creditor, what to do if they feel the debt is not valid and let the debtor know that they will provide verification of the debt if it is disputed.
What happens to my student loan if I file bankruptcy?
With very few exceptions, student loans are not discharged in Chapter 7 or Chapter 13 bankruptcies as it is very difficult to prove the kind of hardship that would grant discharge of a student loan.
What is a fraudulent conveyance or preference?
A fraudulent conveyance is a term used to identify assets that are transferred to a friend or family member in advance, to avoid having it sold to repay debts during a bankruptcy. A preference is a term used to describe assets or payments made that favor one creditor over another.
If a bankruptcy trustee finds evidence of either preferences or fraudulent conveyances, he or she will sue to recover the assets and use the proceeds to pay back creditors in the order the bankruptcy court deems fair.
I’ve filed a Chapter 13 wage-earner plan and my salary has changed, what happens now?
In a Chapter 13 wage-earner plan, the debtor must use their projected disposable income to repay creditors until the plan is completed. If a salary goes up or down significantly, the trustee may adjust the payment plan accordingly, looking at both the change in salary as well as any change in expenses.
More information about bankruptcy law
Bankruptcy is a federal court proceeding which provides options for dealing with overwhelming debt. Individual consumer debtors as well as business debtors can choose to liquidate their assets and divide the proceeds amongst creditors, or reorganize and pay all or part of their debts over time.
The bankruptcy code is a federal law however there are certain aspects of bankruptcy that are governed by the individual states, such as what property the debtor is allowed to keep.
Most US filings are liquidations which come under Chapter 7 of the Bankruptcy Code. In this chapter, the trustee sells all non-exempt assets and distributes the assets to creditors according to a priority established under the law. In the case of individual debtors, the bankruptcy court may discharge any remaining debts. In the case of a business, the business is closed.
Creditors often have a better opportunity for repayment under reorganization, which are normally covered by Chapter 11 and Chapter 13 of the Bankruptcy Code. Chapter 11 is most often used by businesses and high incomes and or complex debts, whereas Chapter 13 is utilized most often by individual consumers. In each of these chapters, debtors agree to repay debts over time according to a court and sometimes debtor approved plan.
The Means Test
Before an in individual can file a Chapter 7 bankruptcy, they must pass a means test which determines if they are financially eligible. If the means test determines that they are capable of paying back some of their debt overtime, they must file Chapter 13 instead, which gives creditors a better chance of a larger repayment.
Voluntary vs Involuntary Bankruptcy
Most bankruptcies are voluntary, filed by debtors. After the bankruptcy petition is filed, an automatic stay goes into effect which prevents any debt collection activity and leaves repayment up to the courts.
Creditors also have the option of forcing debtors into involuntary bankruptcy. This is usually done when a number of creditors petition the courts. They prove whether they are entitled to relief under the Bankruptcy Code. If the court finds that they petition has no merit, it may require creditors to pay attorney fees and damages.
Debtors and Creditors Rights
Bankruptcy attorneys often help debtors and creditors and may help prevent bankruptcy filings by remedies such as debt settlement or collection actions, garnishments, workouts, repossessions or foreclosures.
If you have more questions about bankruptcy, are facing mounting debt, our experienced bankruptcy attorneys can help you determine if a bankruptcy filing is your best option. Contact Rosenberg, Musso & Weiner by phone or use our handy online contact form to schedule a free consultation.