 Bankruptcy is essentially the same as ever—the preference by society to give insolvents a "fresh start" rather than "debtors prison". Recent laws have brought changes--some favorable some not. Principal changes: Big increase in the protection of your house--a couple is now allowed more than $100,000 of equity in their house. This also means lower chapter 13 payments to creditors. No luxury spending. If your income is better than half the population, you are only allowed IRS spending guidelines in showing your expenses. A special test is now used ("Form 22.") If a chapter 7 "fails" this test, you may have to file a chapter 13 and pay a minimum of ten cents on the dollar to your creditors. Documentation and proof--tax returns, pay stubs etc. become crucial. Special duties. You must attend credit couselling before filing and after (cost : $50 each, can be done by 800 tel. # or internet--takes an hour or less.) You must also state your intention to reaffirm secured debt such as a car loan or mortgage. This means promising to pay them in full. Whether you actually do so or rescind your promise is a decision you should carefully consider with your attorney. Repeated Chapter 13 filings--If there have been one or more bankruptcies in the prior year you may find a new Chapter 13 bankruptcy does not stop the foreclosure on your house. * |
| Here are the most commonly asked questions.
I. What are the different Chapters and which one is right for me?
2. What are the advantages of filing for bankruptcy in most cases?
3. What are the different Chapters and which one is right for me? Chapter 7 is the most frequently used to get rid of all unsecured debt like credit card, medical, and loan debt. But any high value assests risk being sold by your court-appointed trustee for creditors. Usually howeve can protect your house, car and household possessions by using special "exemptions" (see 4 through 6 below.) Chapter 13 is used when you have enough future earnings to create a plan to pay off your creditors to a reasonable extent. This may be the only way to save your house or business , for example. Sometimes, if you are too rich to file Chapter 7, Chapter 13 can be a safe harbour provided you pay at least ten percent to unsecured creditors like credit card balances. (Another advantage: Interest and fees stop.) Chapter 11* typically enables you to continue running your business. After about a year or more, you should begin paying out your creditors according to a "plan" confirmed by the court and voted on by the creditors. Chapters 9 (Government Entities), 12 (Family Farmers) and 10 (Railroads) are rarely used. * Chapter 11 is not covered here. Contact Simon Haysom directly for business bankruptcy options. 4. What about the disadvantages?
5. Can I keep my home? In most cases, YES. The trustee of your bankruptcy estate has to decide whether to sell your assets to sell. By the time the trustee has sold your house and paid off the mortgage, paid the commissions, selling costs and your exemptions, there is usually nothing left. So, in most cases, the trustee abandons the house to you provided you agree to keep current with the mortgage payments. The homestead option protects $50,000 of the equity in your home, or $100,000 if both spouses own the house. If you have substantially more equity in your home, you'll need to consider Chapter 13. 6. Can I keep my car? In most cases, YES. As with the house, the trustee will only sell your car if this results in money for creditors. The exemption for cars in New York is $2,400 per person. If you have a late model Mercedes Benz for which you paid cash, the trustee will have to sell it for the creditors. Under recent law you may have to consider reaffirming the car loan. 7. Will they come in and take my possessions? In most cases, NO. Personal possessions such as clothing, appliances and furniture are the least economically valuable parts of the bankruptcy estate. Again, New York Law protects you with exemptions on most personal property. But, if you have five race horses, expensive jewelry or Chippendale furniture, you can be sure that the trustee will want to sell these assets for your unpaid creditors. 8. Will I lose my bank account, cash or investments? Up to $2,500 in cash is protected by an exemption if you do not use the homestead exemption. You are entitled to up to $2,500 in cash/bank accounts or income tax refunds. This allowance, to the extent used, is deducted from your personal possession allowance. Pensions, IRA's, Annuities, 401 K's, insurance etc. are usually 100% protected. Ordinary stocks and bonds will be forfeited. 9. Who Will Know? Will they tell my employer? Will my neighbors know? Not usually. The court does not provide anyone except the creditors with notice. The petition is open for public inspection, but there is not a great interest in the record numbers of individuals filing. 10. What happens to my credit rating? It is marked for up to ten years with most credit rating agencies. But all is not lost. While we cannot guarantee how any one creditor will behave, the FNMA will underwrite home loans if you can show 24 months of perfect payments after bankruptcy. And car loans are surprisingly easy: The lender knows you cannot refile for bankruptcy for 8 years, and that you have substantially reduced your debt load. You can get a secured credit card. Also, the law prohibits discrimination against you by employers, the government and student loan programs. Chapter 13 is viewed more favorably than Chapter 7 by the big credit agencies. You may wish to clean up any inaccuracies on your record. Speak to your attorney. You can even place a statement on your record if a dispute is unresolved. The typical process for a Chapter 7 case is as follows:
12. How much does it cost? Court filing fees, which increase occasionally, were at time of publishing:
13. Can anything go wrong? Yes, and this is why it is important that you work with an experienced bankruptcy attorney. You will be granted a discharge unless there is abuse. Sometimes "abuse" consists of a continuing lavish lifestyle. Another problem is that you transferred cash or assets to a "preferred" person, or you loaded up your credit cards before filing. Although uncommon, these are complicated issues and you should talk to an experienced attorney about it. Your attorney will also advise you on protecting against unnecessary loss of assets in bankruptcy. If you are not truthful about your assets and liabilities, the entire bankruptcy can be set aside and you may even be charged with a crime. |
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