Bankrupty - F.A.Q's

1 - What is Bankruptcy?

Bankruptcy is a means for good people in bad situations to legally get a fresh start.  There are certain requirements, but generally, anyone meeting those requirements has a legal right to file bankruptcy.  As soon as a bankruptcy petition is filed, all creditors are prohibited from attempting to collect on all debts listed in the petition until the Court either discharges you from these debts or determines that you are not entitled to such relief.

First, any qualified bankruptcy attorney will probably require you to fill out a questionnaire for them to review.  The purpose of this questionnaire is for the attorney to determine whether or not bankruptcy is right for you.  If bankruptcy is determined to be your best option, the attorney will have to decide under which Chapter you will file.  You will likely meet with the attorney on more than one occasion to answer questions, provide documents and for the attorney to answer any questions you might have.  After the bankruptcy petition (legal papers filed with the bankruptcy court that commences your bankruptcy proceeding) is filed, you will be required to appear in court on at least one occasion, the Meeting of Creditors, for a Chapter 7 filing, and probably more than one appearance if your bankruptcy petition is a Chapter 13 filing (Meeting of Creditors and Confirmation Hearing).

 3 - What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy is a liquidation proceeding under the United States Bankruptcy Code.  In a Chapter 7 proceeding, a trustee appointed by the bankruptcy court will take custody of and sell off any of your non-exempt assets.  The money received from this sale will be used to pay your creditors.  Your debts are then discharged.  This means that creditors are forever prohibited to try and collect on these discharged debts in the future.

Certain debts, like taxes, alimony, child support, student loans, and debts that have not been listed in the Chapter 7 petition (as well as debts which have been incurred as a result of either an intentional tort or the defrauding or misleading of a creditor) are not dischargeable.  This means that after the discharge, you will continue to be liable for these debts.

A Chapter 13 Bankruptcy is designed primarily for residential homeowners, and allows a person or married couple to pay off all, or a portion, of their debts under the supervision and the protection of the U.S. Bankruptcy Court while remaining in their home.  A Chapter 13 Plan is primarily used to repay mortgage arrears, while also addressing all other debts you owe to any other creditors.  Payment of your mortgage other debts are generally spread out over a 3-5 year period.  Chapter 13 is also used as an alternative to credit counseling.  Individuals are permitted to repay their credit card debt over a 3-5 year period without any additional interest charges.  A Chapter 13 filing is designed for those individuals who are currently employed and have steady incomes, yet are still overwhelmed with bills, judgments, lawsuits or other financial obligations.

5 - What types of property are exempt?

Certain types of personal property is classified as exempt under the Bankruptcy Code. This means that you get to keep this property even after your debts are discharged.   In New York, State Law provides for specific exemptions including, among others:(A) cash, checking or savings accounts, U.S. Savings Bond, stocks, and other marketable securities, and tax refunds up to a maximum total of $2,500.00; (B) equity in a motor vehicle up to $2,400.00; (C) basic wearing apparel; (D) $50,000.00 of the equity in your home, co-op or condo; (E) social security benefits; (F) household furnishing and certain appliances; (G) IRA, 401K and other qualified retirement accounts.

A typical Chapter 7 bankruptcy case takes normally 4-6 months. A Chapter 13 bankruptcy case may take anywhere to 3-5 years to complete.

7 - Will I be able to get out of repaying my student loans?

With two exceptions, student loans are not dischargeable in a bankruptcy proceeding. However, the student loan may be discharged if it is neither insured or guaranteed by a governmental unit, nor made under any program funded in whole or in part by a governmental unit or non-profit institution.  Finally, the student loan maybe discharged if paying the loan will “impose an undue hardship on the debtor and debtor’s dependents.” 11 U.S.C. Section 523(a)(8)

A Chapter 13 proceeding is designed to help residential homeowners keep their home while helping them to reclaim their lives and start anew. Chapter 13 filing is permitted for persons that owe less than $250,000.00 in unsecured debt and less than $750,000.00 in secured debt.  Thus, it is possible to file bankruptcy and keep your home.

9 - Is my pension/retirement accounts safe?

Employee contributions to ERISA qualified retirement plans, deferred compensation plans, tax-deferred annuities, and health insurance plans are exempt assets.  Also, Section 522 of the Bankruptcy Code states that an individual can now exempt up to one million dollars in an IRA account.  Interestingly enough, Section 522 specifically excludes SEP IRA’s from such exemption, although this type of IRA may possibly fall under an ERISA plan (anyone self-employed should consult with their attorney and ensure that their SEP IRA is actually exempt before filing).