Debt Relief for a Fresh Start

There are some words that scare people just by hearing them. Bankruptcy is one of them.

People will try to delay declaring bankruptcy as much as possible to save their dignity and self-respect. However, there is nothing to be ashamed of. Bankruptcy is just another way of dealing with life’s curveballs.

Life can be unpredictable. Unexpected events can shock your finances. Unpaid bills can start piling up, no matter how hard you try. No one expected the Covid-19 pandemic, but many people were left to face unemployment, overdue mortgages, and shattered finances as a result of this black swan event.

Nor is bankruptcy something new. The original Constitution, ratified in 1788, said that there will be a bankruptcy court to protect people from the English system, where people who could not pay their bills were sent to debtors’ prisons, including Australia and the colony of Georgia.  From famous historical figures like President Abraham Lincoln, Henry Ford (twice!), and Walt Disney to Brooklyn natives Lorraine Bracco (of “The Sopranos” fame) and Lil’ Kim (Kimberly Jones) and Jamaica’s 50 Cent (Curtis Jackson), many people have used the bankruptcy process to fix their finances and get their lives back.

What Is Chapter 7 Bankruptcy?

Chapter 7 of the United States Bankruptcy Code is a provision under Federal law designed to assist those who can’t repay their debts.

Instead of having to deal with the results of spiraling debt, which may include depression, relationship trouble, and anxiety, you acknowledge your situation and ask the judicial system to help you with your debts.

Once you declare Chapter 7 bankruptcy, something called an “automatic stay” comes into play. This is one of the most powerful tools when filing for bankruptcy as it prevents your creditors from garnishing your wages, repossessing your car, foreclosing on your house, or seizing your property without the court reviewing your situation.

When you file for bankruptcy, you ask for unpaid debts such as credit card debts, loans, and medical bills, to be wiped clean—or “discharged.”

Certain non-dischargeable, aka “priority” debts, such as tax debts, student loans, and child support, still have to be paid. When you successfully file for Chapter 7 bankruptcy, you may be able to retain all property characterized by the court as exempt.

Should I File for Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy DocumentsAn easy way to tell if you should file for Chapter 7 is by examining the ratio between your debt payments and your disposable income. If your “disposable income”—the money left after you cover your basic necessities—is low, yet your debt is piling up, then a Chapter 7 filing could help you make a fresh start.

At the end of the day, if half of your disposable income goes to pay credit card bills, Chapter 7 might be right for you.

High debt and the inability to pay it off can create anguish and myriad personal, marital, and mental problems. If you can’t sleep at night or your life is filled with panic attacks and anxiety about your finances, you should contact a Chapter 7 bankruptcy lawyer to discuss your options and see if you can rebuild your finances.

While the process is relatively straightforward, the assistance of a bankruptcy attorney will make sure you get the most out of your case. They will review your finances, explain which Chapter is best for you, assist you with filing, claim the proper exemptions to protect your property, and give you the peace of mind of having an experienced bankruptcy attorney help you through the process.

Once you and your lawyer have decided on Chapter 7, the next steps are to take a credit counseling course and file for Chapter 7 bankruptcy.

Credit Counseling Course

Once your eligibility for Chapter 7 has been determined, the very first step is to take a credit counseling course. Credit counseling must take place before you file for bankruptcy and a certificate of completion is required before any of your debts can be discharged.

The aim of such a course is to help you manage your finances better in the future. The bankruptcy court where you will file has a list of approved organizations that run these programs and Roemerman Law usually works with Debtor CC/EDU.

A credit counseling course is not a mere formality. The court’s goal is for you to balance your finances. They don’t want you finding yourself in the same position in a few years’ time. By helping you understand income, expenses, taxes, fees, interest rates, and credit cards, they are handing you powerful tools—the very tools you need to help yourself in the future.

Filing for Chapter 7

When you file for Chapter 7 bankruptcy, your creditors will have to stop trying to seize your assets and income during the process. Stressful phone calls and emails will cease, as you have forced all of your creditors to come before the court to resolve your debts in one process.

The filing involves forms that state your income, the amount of your debt, as well as anything that’s in your name (rents, leases, other income, pay stubs, etc.). You must disclose all your sources of income to avoid any unpleasant surprises.

The Court Appoints a Trustee

After you file, the court appoints an impartial trustee to administer your case. The trustee oversees administrative functions, conducts the meeting of creditors (or “341 meeting”), and acts to ensure compliance with applicable laws and procedures.

When the filing is done properly, the work of the bankruptcy trustee is far easier and straightforward. They will see the real state of your finances right away and will be more inclined to help you out.

Badly filed paperwork and undisclosed income sources, however, can leave you in a worse position than you were in before filing. An experienced Chapter 7 bankruptcy attorney can translate your financial picture into the proper forms and schedules to make the trustee’s job easier and ensure that the process goes smoothly.

The “Meeting of Creditors,” aka the “341 Meeting”

A major part of filing a Chapter 7 bankruptcy is the “Meeting of Creditors” or the “341 Meeting.” Roughly 30 days after you file your petition, provided you filed it correctly and included everything necessary, the court will schedule this meeting with the trustee. While creditors are welcome to attend, in our experience, they almost never do. In fact, we usually call it “the meeting with the trustee,” since that is more accurate than a meeting with creditors who usually don’t show and less confusing than a reference to Section 341 of the Bankruptcy Code.

During this meeting, the trustee will ask questions confirming your identity, ensuring that you understand what you are doing in filing for bankruptcy, and ensuring that the information you provided on your petition (initial bankruptcy filing) is accurate.

We understand that appearing before a U.S. Trustee in federal court, especially if it’s your first and only time, can be an intimidating experience. That’s where having New York’s most helpful bankruptcy law firm comes in. We attend every one of these meetings with our clients and know the ropes. We aim to give all our clients the peace of mind of walking or calling in to this meeting with someone who has been there before and can guide you through it. If you are honest and open with us and in your petition, the Q&A with the trustee is seldom a long or nerve-wracking process – we’ll be right there with you.

Your Exempt Assets

When filing a bankruptcy petition in New York, an experienced bankruptcy lawyer will advise you on whether to choose the New York State exemptions or the Federal exemptions. We will then list the assets you wish to claim as exempt, protecting them from being seized and sold to pay your creditors. If there is no money to be had, above and beyond the exemption amount, the trustee will simply “abandon” the asset, meaning the trustee will not attempt to seize and sell the exempted property and you can keep your things, so to speak.

Also, you can often keep contracts where you are current on your payments, such as a car loan, an apartment lease, or a mortgage that has not fallen behind, in a process known as “reaffirmation,” where you reaffirm your commitment to continue making timely payments and retain your rights under the lease or mortgage. This is, of course, decided on a case-by-case basis, but the vast majority of our Chapter 7 cases end up being “no distribution” cases, where none of our client’s assets are seized and sold and there is nothing to “distribute” to creditors. It is our opinion that asset protection is one of the most valuable things an experienced bankruptcy attorney offers to someone filing for bankruptcy.

The Final Decision

The court will decide which of your debts will be discharged and how many, if any, of your assets or belongings will be “liquidated,” or seized and sold. Once this is done, the court issues a “Chapter 7 discharge and final decree”, and your case is closed.

The whole process from filing to final decision usually takes less than six months. With the assistance of an experienced Chapter 7 bankruptcy lawyer, you could be debt-free and able to restart your life within a few months.

Do I Qualify for Chapter 7 Bankruptcy in New York?

In order to qualify for Chapter 7 in New York, you need to meet certain requirements.

In general terms, Chapter 7 is a good choice if you have a moderate to low income, few real estate assets, and a debt that cannot be serviced, or paid, by your current disposable income. A debt that reaches half of your disposable income, or the amount you have left after paying for basics like rent and food, is often perceived as unsustainable.

The criteria for your income also depend on how many people are included in your household as well as the various income sources you have.

The means test determines whether you qualify for Chapter 7 bankruptcy or not.

Chapter 7 Means Test in New York

Put simply, “the Means Test” is a calculation that looks at your income and your expenses and determines whether you are eligible to file for Chapter 7 or if you have to file a Chapter 13, where you will end up repaying more than you would in a Chapter 7. The calculation can be complex, involving a nine-page form.

A New York means test determines your eligibility to file a Chapter 7 bankruptcy by examining your monthly income based on your most recent 6-month average. If that number is less than the median income for your family size in New York, then you may file for Chapter 7 bankruptcy.

There are some exemptions to this. For example, if your debts are not primarily consumer debts, then you are exempt from the means test. Disabled veterans who incurred their debt primarily during active duty or performing a homeland defense activity are also exempt.

It is also good to remember that your income can vary. You may want to delay filing for Chapter 7 until your income in the last six months falls below the median income threshold and your case can stand in court.

Your bankruptcy lawyer will explain what can help with the success of your case. They will sit down with you, calculate your income, and confirm that it falls below the required median threshold. Otherwise, they will provide you with alternative solutions.

Get Rid of Credit Card Debt for Good

There are three kinds of debt under the Bankruptcy Code: “secured debt,” which is backed by an asset like a car or a house, “unsecured, priority debt,” such as taxes, alimony, child support, and student loans, and “unsecured, non-priority debt,” like credit cards, personal loans, and unpaid bills from friends, family, or customers.

While each case is different, as a general rule, unsecured, non-priority debt is fully discharged in bankruptcy, meaning you will not have to repay it. Most people who file Chapter 7 bankruptcy wipe out most or all of their credit card debt, as well as their medical debt. Priority debts are generally non-dischargeable, though you can discharge tax obligations and student loan debt in some instances. Secured debt is treated differently, depending on whether you are current on the payments and whether you elect to keep the underlying asset or not. All of these different debt classes, the rules on what is discharged and how, as well as what to expect are excellent reasons to consult with an experienced New York bankruptcy lawyer before filing for bankruptcy.

The Differences between Chapter 7 and Chapter 13 Bankruptcy in NY

We are often asked about the differences between Chapter 7 and Chapter 13 bankruptcy in New York. There are many factors to consider, including how each chapter will apply to your particular financial situation. If you work with Roemerman Law, an experienced bankruptcy attorney will review your position and advise you on your choices and which type of legal arrangement best suits your situation. Below are a few of the basic differences between Chapter 7 and Chapter 13.

Liquidation vs. Reorganization

Often called a “liquidation” or “straight bankruptcy,” Chapter 7 bankruptcy is used by individuals and companies, or “debtors,” to “wipe the slate clean” and start fresh. Any assets that are not “exempt” under the Bankruptcy Code are seized and sold, or “liquidated.” The proceeds are then distributed to the creditors. At this point, an individual usually has most of their debts discharged and starts fresh, while a company is unwound and closed. While a company filing for Chapter 7 often has assets liquidated, it is the exception, rather than the rule, in personal Chapter 7 bankruptcies, meaning that most individual debtors keep all of their property.

On the other hand, Chapter 13 is a way for individuals to reorganize their finances. While parts of your debt may be discharged, Chapter 13 is focused on giving you the breathing room you need to pay back your debts over a period of 3 to 5 years.

Chapter 13 bankruptcy is aimed at people with a regular income who are overcome by debts but want to retain major assets and have more power to dictate the repayment terms on those debts. Chapter 13 allows the individual to force all of their creditors to the table, giving the debtor the power to force more favorable terms in many situations. The debtor can, with the approval of the court, choose to keep their secured assets, like a house or car, regardless of whether they are current on payments. The individual can also opt to walk away from underwater assets.  No assets are sold and the individual retains the entirety of their chosen assets and belongings.

While continuing to make their payments under the Chapter 13 plan, the debtor may also make payments on the past due amounts, or “arrearage” on these assets, “catching them up” by the end of the payment plan. Finally, the debtor can choose to keep (“assume”) or reject existing contracts, such as leases. If the court approves the plan, the debtor and their assets will be under the court’s protection while the debtor repays their debts.

Income Level

Chapter 7 is aimed at people with low income. People who have found themselves with little or no income in the last six months can use Chapter 7 to discharge part or all of their personal debt.

Conversely, Chapter 13 has an income threshold that is much higher than Chapter 7. In fact, Chapter 13 puts an upper threshold on the overall debt rather than the disposable income. Too high an income can make someone ineligible to file Chapter 7 and force them into filing a Chapter 13, while too much debt can force someone from a Chapter 13 into a Chapter 11 – as you may have heard of wealthy celebrities and tycoons doing.

When people cannot qualify for Chapter 7 because their income is above the median, Roemerman Law advises them to choose Chapter 13 instead. This helps them restructure their debt and reorganize their finances in a workable and viable way.

Time Frame for Chapter 7 vs. Chapter 13

In the case of Chapter 7, the court ruling usually occurs within six months.

On the other hand, in Chapter 13, people usually make payments for either 3 or 5 years, depending on whether their income is below or at/above the median household income in New York.

Credit Rating Worthiness

Chapter 7 and Chapter 13 differ when it comes to credit rating.

In the case of Chapter 7, your bankruptcy will stay on your credit record for 10 years while in the case of Chapter 13, the record will stay for 7 years. It is worth noting that bankruptcy does not “destroy your credit,” forever or otherwise. Many companies are willing to lend to people in or shortly out of Chapter 7. In fact, we work with one such company that helps people finance their existing car or a replacement while still in bankruptcy, 722 Redemption, with the requirement that the new financing cost the person less than their existing loan would.

Despite many people’s fears of bankruptcy’s impact on their credit score, some of our clients have actually seen their credit rating increase shortly after they completed their bankruptcy, due to discharging the pile of debt they were buried under. Finally, we enroll all of our clients, at no extra cost, in the 7 Steps to a 720 Credit Score program to help them rebuild their credit quickly.

Our legal team here at Roemerman will help you make use of the most efficient and favorable legal framework that is available to you!

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