The current economic down turn has landed even hardworking, honest and conscientious individuals into financial difficulty. Families were forced to pay their bills via credit cards therefore racking up an abnormal amount of credit card debt. The Law Office of Yan Katsnelson is here to help you wake up from this economic nightmare and start a second financial life.
Meet with an attorney and let us diagnose what chapter of bankruptcy is right for you.
Chapter 7 Bankruptcy
Also known as liquidation, chapter 7 bankruptcy is the most common type of bankruptcy. Chapter 7 allows most of an individual’s debt to be discharged through the sale of a debtor’s assets. A Chapter 7 Trustee collects and sells of any of the non-exempt assets. Although sounding scary the 2005 and 2010 Amendments to the Bankruptcy laws now allow a debtor to keep most if not all of his or her assets (see exemption list below). As a result of the Amendments most of the Chapter 7 cases are considered no-asset cases. In the cases where assets are available, the Trustee will sell the asset, divide the non-exempt portion among the creditors, and give the debtor the exempt amount of the asset. The term “exempt” refers to the type of property and property’s value that the debtor is allowed to keep from the Trustee and the creditors. For example, the first $4,000 in a debtor’s vehicle’s are exempt, however, the debtor’s car is worth $10,000. Here the Chapter 7 Trustee would sell the automobile, split the non-exempt $6,000 among the creditors and give the debtor the exempt $4,000. The following are common NY exemptions for an individual debtor:
|Homestead||House, Co-op or Condominium||Up to $150,000|
|Motor vehicle||Value in any motor vehicle||$4,000 or up to $10,000 if vehicle is equipped for use by disabled person.|
|Tools of the Trade||Office furniture; construction tools||Up to $3,000 per item and $10,000 cumulative|
|Retirement Accounts||401(K)||Most retirement plans are fully exempt.|
* If the debtor is married and files a joint bankruptcy then the value of the cumulative exempt amount doubles.
Not all debts can be discharged in a bankruptcy. There are two main types of debts secure debts and unsecured debts. A secured debt is a debt that is guaranteed by a piece of real or personal property. An example of a secured debt is a mortgage on a house or a car lease. The second type of debt is an unsecured debt. An unsecured debt is not guaranteed by any type of property such as credit card debt. There are two types of unsecured debts, unsecured priority claims and unsecured non-priority claims. Examples of a priority claim are alimony and child support, parking tickets, most types of taxes, and student loans. Unsecured priority debts are not dischargeable in a Chapter 7 Bankruptcy. Secured debts are dischargeable in a Chapter 7 Bankruptcy but the debtor will also have to give up the property that secures the debt. Unsecured non-priority debt such as credit card debt and medical bills is always dischargeable.
Chapter 7 Means Test
In order to prevent people taking advantage and abusing the bankruptcy system Congress set up the “Means Test”. In order to pass the means test a debtor’s income cannot exceed the State median income for a household of equal size. In order to determine the income a debtor must add up his or her income for the previous six month and combine it with any other household income, except social security, for the same six month period. Then multiply that number by two. If that number is exceeds the State median for a household of equal size then you must proceed to step two.
|Household Size||NY Median Income||NJ Median Income|
|1 person||$46,295||$59,060||2 people||$57,777||$70,680||3 people||$68,396||$85,573||4 people||$83,942||$101,106||5 people||$91,441||$108,606|
Step two includes subtracting expenses such as mortgage and utility payments, out-of-pocket health care expenses, automobile payments and travel expenses. If after subtracting these payments and some other expenses the debtor is below the income threshold, then he or she qualifies for a Chapter 7 Bankruptcy. However, if the debtor is still above the threshold, then the debtor does not qualify for a Chapter 7 Bankruptcy and must think about filling for Chapter 13 Bankruptcy.
During the free consultation you will meet with an attorney who will review your financial situation and the options available to you. The attorney will examine the type and the amount of the debts, the type and amount of creditors, the assets and the property that can be exempt, the debtor’s income and the overall household income.
After the debtor has decided to retain the office and has paid the fee, the debtor will be given instructions on taking the first of two credit counseling courses. Once the first credit counseling course has been completed by the debtor the Voluntary Bankruptcy Petition will be filed with the bankruptcy court. A couple of weeks after the petition is filed the debtor will have to appear before the Bankruptcy Trustee for the Meeting of the Creditors. Depending on the circumstances of the case, the Trustee might close the meeting or hold it over for further review or negotiations. After the meeting, the debtor must take the second credit counseling class. Once the second class has been taken and the Trustee has closed the meeting of the creditors, the debtor will receive the discharge.
Chapter 13 Bankruptcy is an option when Chapter 7 is not available. Unlike a Chapter 7 Bankruptcy, in which a debtor may eliminate most or all of the debt incurred, in a Chapter 13 Bankruptcy, a debtor may pay some or all of the debts over a period of up to five years.
A Chapter 13 debtor must have a regular source of income in order to pay the regular expenses and some disposable income to in order to be able to make payments under the Chapter 13 plan. In a Chapter 13 Bankruptcy, a debtor’s creditors must fair no worse than they would have if the debtor had filed a Chapter 7 Bankruptcy. For example, if the creditors would have received $25,000 from the liquidation of the assets, then the creditors must receive at least $25,000 in a chapter 13 Bankruptcy.
Secured loans, such as a mortgage on a house or a note on a car, must be brought current and paid on time during the payment plan. In addition, the debtor must pay unsecured loans, such as credit card bill or medical bill, either in full or in part. The amount of an unsecured loan that must be repaid depends on an individual debtor’s basis.
In a Chapter 13 Bankruptcy, a payment plan is made for payments over a period of time, which may be as long as five years. Debts that are not dischargeable may still be paid under the plan. This may help with debts that cannot be eliminated in a Chapter 7 Bankruptcy, such as taxes and student loans.
There is a limit to the amount of debt that can be processed in a Chapter 13 Bankruptcy. Currently, the total amount of unsecured debts, such as credit card debts and personal loans, may not exceed $336,900, and the total amount of secured debts, such as mortgages and auto loans, may not exceed $1,010,650. These amounts are periodically increased. If your debts exceed these amounts, you may be able to file a Chapter 11 Bankruptcy.
For how long will a Bankruptcy affect my credit?
A bankruptcy will stay on your Credit Report for approximately 7 years, however, clients typically will start receiving credit card offers in the mail with-in 2-3 weeks after a bankruptcy discharge. The offers are for five hundred dollar limits. I advise clients to take such offers as long as they pay the full monthly balance, doing so will rebuild the client’s credit within a couple of years.
How long does the procedure take?
Once a bankruptcy petition is filed the whole process should take approximately 4-6 weeks.
Will a bankruptcy help me with a foreclosure?
Although a bankruptcy cannot prevent a foreclosure it can delay it. Once a bankruptcy petition is filed all collection efforts must stop, that includes a foreclosure. Recent changes in the Bankruptcy law give more leeway to the federal courts in working out a mortgage modification between the lender and the home owner.