There are times when filing New York bankruptcy isn’t a good idea, like when debtors only owe a couple thousand dollars, but it’s a much more difficult proposition advising debtors who can’t file. The Bankruptcy Code doesn’t offer relief for everyone in all circumstances, so it can help to discuss alternatives.
But first, here are a few examples of situations in which debtors are ineligible for personal bankruptcy:
- Most commonly, debtors who owe money that can’t be easily discharged, e.g. student loans, support payments, or sometimes taxes.
- Debtors whose incomes are above the state’s median for their family size for chapter 7 but owe more debt than the chapter 13 debt limits allow.
- High income debtors who nevertheless can’t pay their priority claims under a chapter 13 plan.
- Debtors who are barred from bankruptcy due to fraud or other illegal activities.
There are a few responses for these debtors (okay, the ones who commit fraud are on their own). One, discharge may be the greatest financial benefit of bankruptcy, but it’s not the only one. Some homeowners file solely to take advantage of the automatic stay to prevent a foreclosure. Consequently, filing might not be a bad idea. Homeowners who are behind on their mortgages can also file chapter 13 to repay their arrearages plus any interest on them, even if they don’t have much need for the discharge. They can use the court’s loss mitigation program to negotiate a modification of the mortgage — as can chapter 7 debtors.
Two, a discharge of some debts can free up income for others that bankruptcy cannot address.
Three, insolvent debtors can always try to settle their debts with their creditors. Often they can get serious discounts from creditors that just want something. Although, beware zombie creditors and those that don’t legitimately own your debts. Payments to them won’t count.
Four, debtors who can’t settle with their creditors can try other debt-management strategies. For example, a popular one is reducing monthly payments to the minimum for each creditor but then dedicating all disposable income to the smallest balances first. As each debt is paid off, the newly freed income is dedicated to the next smallest creditors and then going up the line. Called the “debt-snowball method,” debtors see results quicker, and they supposedly stick to it because it alters their behavior. Debtors can modify this method to focus on priority claims and then file bankruptcy.
Debtors who cannot file bankruptcy will have to adopt alternative strategies to take control of their financial situations. Consulting with an experienced New York bankruptcy lawyer can help you develop those options.
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 lawyer Bruce Weiner for a free initial consultation.