Sometimes New York bankruptcy debtors are confused about the bankruptcy process. In the past I’ve discussed persuasive reasons to list every debt in bankruptcy, but this time I’ll focus on a common confusion debtors may have about bankruptcy and why listing all debts is necessary and helpful. In particular, sometimes debtors believe they can (or must) pick and choose which debts to file bankruptcy on.
To begin with, the answer is no. Debtors don’t have a choice as to which debts they can discharge in a chapter 7 New York bankruptcy case. There are a variety of reasons debtors rely to justify this position. Sometimes they think that if they include the debts in their bankruptcies they’ll lose something they feel they need, notably houses, cars, or even low-interest credit cards. Other debtors may think that omitting a creditor means it won’t find out about the bankruptcy and not retaliate. Finally, some debtors simply want to repay some creditors, such as personal ones, whom they don’t want to offend.
Fortunately, debtors have options for mitigating these downsides they perceive bankruptcy will cause them. For homeowners, unless there’s significant, non-exempt equity in the home, the trustee will probably not sell it to satisfy the creditors. This leaves debtors with a house that still has a mortgage on it. Lenders in this situation are unlikely to foreclose if debtors are still paying on time. (In other situations, debtors should consider chapter 13 for keeping a home.)
Cars, for their part, can be kept through chapter 7 by reaffirmation agreements or even simply continuing to pay the auto-loan creditor on time.
The credit-card example, though, doesn’t leave debtors with post-bankruptcy options. Because they’re unsecured debts, they’re going to be discharged—if there’s anything left after the distribution of the bankruptcy estate. Meanwhile, debtors who wish to repay personal creditors after bankruptcy are free to do so.
While listing all debts is important, it’s also necessary to point out that doing so doesn’t mean they’ll be discharged either, even if debtors might want to. A variety of debts are excluded from the chapter 7 discharge order, and debtors who owe those types of debts will need to consider further whether bankruptcy will accomplish their objectives.
Bottom line, bankruptcy requires full financial disclosure on penalty of perjury. Debtors have wiggle room after bankruptcy, but the system is designed to ensure debtors get their fresh starts and creditors get some of the bankruptcy estate if there is any. If you are facing serious financial problems, then talking to an experienced New York bankruptcy lawyer can help you determine which course of action is best for you.
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.
