Filing bankruptcy in New York is a decision that shouldn’t be made lightly. That’s common sense. Problems can arise though, particularly when debtors make mistakes in their petitions that might result in them losing otherwise exempt property to the Trustee to be resold to creditors. The question then becomes, can debtors withdraw their bankruptcy petitions if a problem arises, or are they stuck? The answer depends on the chapter they file in.
Once a Chapter 7 bankruptcy is filed, the debtor can’t voluntarily withdraw his or her petition. Amending the petition might be an option, but once it’s filed, it’s filed.
Chapter 13, however, is a different story, which is why there are some situations in which it’s a more flexible chapter to use. If a petitioner has an asset that the Trustee believes wasn’t properly exempted, or the debtor doesn’t know how the bankruptcy judge will rule on whether the asset actually is exempt, or even if the debtor chose to use state exemptions rather than federal or vice versa, the Chapter 13 debtor has a powerful option to deploy: voluntary dismissal.
To effect this, the debtor need only file the appropriate motion, and that’s it. Although, there are consequences. For instance, once the petition is withdrawn, the automatic stay is lifted, so any pending collections or foreclosures can resume. On the other hand, there is some freedom to act after withdrawing. Debtors can decide to resume payment on some debts and possibly refile later. Alternatively, they can ensure that a piece of property they thought was exempt or sold was properly exempt or sold. An even more beneficial option is to file a new petition in Chapter 7, which can help in circumstances in which a Chapter 13 debtor loses his or her income necessary to complete the repayment plan after already withdrawing the petition but before refiling. One caveat, though, is that petitioners who refile within one year of a withdrawn petition only benefit from a 30-day automatic stay, but this time limit can be extended by filing a motion with the bankruptcy court.
Bankruptcy requires sound knowledge of how the code works, and skilled legal counsel can help debtors steer through it safely. It’s also important to be adaptable to ensure that mistakes that can be corrected are.
For 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 Law Firm Bruce Weiner for a free initial consultation.