Most New York bankruptcy debtors are fortunate to walk the streets freely, but some people who might need to file bankruptcy aren’t so lucky. Off the bat, though, the Bankruptcy Code does not limit the right of debtors to file from within detention, jail, or prison. This is quite fortuitous because it’s usually impossible to repay creditors when confined. Here are some considerations for debtors who might be incarcerated or heading there.
First a preliminary point: Most jailed debtors are going to need to file in chapter 7. Unless the sentence is quick, like a 30-day jail term, and the debtor is going to back to work upon release, a debtor won’t be able to earn the regular income necessary to convince the bankruptcy court to confirm a chapter 13 plan.
That does not, however, mean the debtor will be able to avoid taking the means test. It’s possible that the debtor’s income over the previous six months will have been high enough to trigger the test, even if the debtor’s prospective income is zero. Debtors in this situation will be able to argue that special circumstances should keep them in chapter 7.
Now we move to the question of why a debtor would want to file bankruptcy from behind bars. Much depends on the length of a debtor’s sentence, but a sufficiently long prison term is going to ensure that creditors will give up on the debtor, charge off the debts, and move on. Collection agents know they can’t get anything from prisoners. So why bother?
There are two answers. One is that it’s still possible that upon release from a shorter sentence a creditor will try to enforce a debt, and leaving a debt unpaid is going to only result in more interest charges and penalties. It’s better to get rid of such a debt earlier rather than later. The second answer is if the debtor has any serious assets, like a house, that need to be sold. Indeed, filing from jail or prison can be one of the circumstances in which a debtor will want to file in chapter 7 without the goal of receiving a discharge. If a debtor is about to go prison, then it’s better to file sooner to obtain the automatic stay and be able to claim the homestead exemption. It’s also a chance to sell the home, even if it’s done by the trustee.
The other hurdle for debtors in or about to enter criminal detention is attending the section 341 meeting of the creditors. Debtors are required to participate in the meeting, even if they cannot freely report to the courthouse. Bankruptcy trustees will accommodate incarcerated debtors, either by permitting them to participate telephonically or by conducting the meeting at the debtor’s correctional facility. Another option, from my experience, is to obtain an order directing the prison to bring the debtor to the bankruptcy court and deliver him or her to the marshals to appear at the 341 meeting. Telephonic attendance is more common, though. Click to read more about what to do if a debtor cannot or does not want to attend the meeting of the creditors.
A jail or prison sentence is not a bar on filing bankruptcy, but it will add challenges. If this is a situation you, or more likely a loved one, is about to face, then it’s crucial to discuss your situation with an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.