Bankruptcy and Bankruptcy Law FAQs

General Questions

Exactly what is bankruptcy?

Bankruptcy is a legal proceeding provided by federal law that allows those who are unable to pay their bills to obtain a fresh start. Included in the U.S. Bankruptcy Code are two options for individuals in financial trouble. Chapter 7, also called straight bankruptcy, and Chapter 13, the Wage Earner Plan, are ways you can regain financial stability.

How does Credit Counseling work?

In order to file bankruptcy, you must attend a credit briefing from an agency such as Consumer Credit Counseling. This briefing must take place within 180 days before you file bankruptcy. Then after you file there is a short credit class that you must also attend. The two credit counseling components of the law are a requirement to file and get a discharge.

My spouse has a pile of medical bills – will bankruptcy help?

Chapter 7 or Chapter 13 will wipe out medical bills. We would need to review your income and the value of your assets to determine what the best option for your family might be.

I make $25,000 per year, and we have $20,000 in credit card debt. I cannot get caught up, and my wages are being garnished. Will bankruptcy help me?

You qualify for a Chapter 7 or a Chapter 13. Either Chapter will help you deal with your creditors.

I only earn $28,000 per year, and I have $32,000 in credit card debt. What should I do?

Your income is under the New York State median income. You probably could file either a Chapter 7 or 13. We would need to review the value of your assets and then give you advice.

I am behind on my mortgage. What can I do?

You can take all the payments you have missed and file a Chapter 13. Chapter 13 will help clients who have delinquent mortgage payments to keep their homes.

What does bankruptcy accomplish?

The outcome of filing bankruptcy largely depends on which type of bankruptcy you file.  That said, in general bankruptcy can:

  • Stop wage garnishment and collection harassment
  • Cancel out all or some of your debts
  • Stop repossession of property
  • Stop mortgage foreclosure

Is a court appearance required?

You will have to go to a 341 meeting, also called the “meeting of creditors” to meet with the bankruptcy trustee and any of your creditors who choose to come. Most of the time, the meeting is simple and short. You will be asked a few questions about your case. In most cases creditors do not attend the meeting.  Some cases can be resolved with this meeting, while others do require a court appearance.

About Chapter 7

What is a Chapter 7 Bankruptcy?

Chapter 7 or Straight Bankruptcy allows an honest debtor to have the court “discharge” or cancel most of his or her debts in order to obtain a fresh start.  For more detailed information about Chapter 7 click here.

What if I earn a lot of money after I file? Will I have to repay the bills?

No, you won’t. The court cannot order you to pay bills out of future income, wages, commissions, or profits that you may receive.

What happens if I bought a car financed by a bank, credit union, auto finance company, or other creditor?

You will be able to keep your car. However, you must continue to make the monthly payments on time, and you must sign a reaffirmation agreement in which you promise to make those payments.

What kinds of bills are discharged in Chapter 7?

These bills will be discharged:

  • Medical bills, including hospital and doctor fees
  • Back rent, telephone, and utility charges that are in arrears
  • Bank, credit union, signature loans, veterans’ assistance loans, and finance company loans
  • Revolving credit such as MasterCard, Visa, American Express, and oil company credit cards
  • Attorneys, legal, and court fees
  • Overdrafts or deficiency balances on bank accounts
  • CD, DVD, or book clubs
  • Storage fees, leases, and rentals
  • Most debts owed due to a car accident
  • Most business debts

Why can’t I include my student loan in my Chapter 7 filing?

Students loans are what’s considered a “nondischaregable” loan so they aren’t automatically included as part of your bankruptcy.  That said, there may be ways to reduce your payment or amount you owe by negotiating with creditors.

Are there any time limits on the bills that I want to have discharged?

You can include bills you haven’t paid for five, 10 or more years, and those that are only a week old. However, if you have incurred a large bill shortly before filing, that bill might not be discharged. This rule usually applies to a consumer debt of more than $500 owed for a luxury item to a single creditor for purchases made within 90 days of filing, or for cash advances of more than $750, which have been incurred within 70 days of filing.

Do I ever have to repay the bills that I list on my bankruptcy petition?

No, unless you choose to do so.

Is there any alternative to filing Chapter 7?

Yes. You can file under Chapter 13. A large proportion of those who file bankruptcy could pay all or some of their bills through Chapter 13 if they knew more about it.

How soon after I file Chapter 7 bankruptcy can I file Chapter 7 again?

Eight years.

What are the advantages of choosing a Chapter 7?

The main advantage is that you typically get all your debts discharged, meaning you don’t have to pay them.  Aside from that, all collection and garnishment attempts will stop.

About Chapter 13

Exactly how does Chapter 13 work?

A Chapter 13 plan permits individuals who have a steady source of income to pay part or all of their debts under protection of the bankruptcy court.  Chapter 13 is also considered a debt reorganization strategy.

Who can file a Chapter 13 plan?

Only an individual or a married couple, not a corporation or partnership, can file a Chapter 13.

How long will a Chapter 13 filing be listed on my credit report?

7 years.

Do you have to be employed to file for Chapter 13?

Generally, yes, but if you have regular income from self-employment, a pension, Social Security, unemployment insurance, welfare, union benefits, Disability insurance, alimony, odd jobs, income from family members, or child support, a Chapter 13 plan still can be used. Many small businesses–those owed by individuals–can file and obtain the benefits of Chapter 13.

How are new bills handled after you file Chapter 13?

Chapter 13 mainly deals with your old bills. Your usual living expenses for rent or mortgage, food, clothing, insurance, and utilities will come out of your remaining income after your Chapter 13 payment is made.

Is it true that under Chapter 13 cosigners on consumer debts are also protected?

Those who cosigned for you on various loans or purchases will not be affected by your Chapter 13 plan as long as you pay 100 percent of the debt they have cosigned, including interest required in the loan agreement. If not, creditors can approach cosigners for the balance of the debt immediately. Keep in mind that you can choose to pay 100 percent of a cosigned debt yet only pay a small portion of your other debts.

Is the cosigner’s record affected?

The cosigner’s credit record may already be marked with slow pay if you were late with payments prior to filing. The Chapter 13 plan may also cause the cosigner’s record to be marked slow pay.

Can I consolidate all my bills?

Yes, except your post-petition mortgage payments. Unless special circumstances exist, your post-petition mortgage payments will be paid on your own, outside the Chapter 13 plan. Any mortgage payments that you missed prior to filing your plan (pre-petition payments) will be included in the plan.

Can my creditors stop me from filing a Chapter 13 plan?

No, creditors cannot stop you from exercising your right to file under Chapter 13. Creditors will sometimes tell you that they “will not accept the filing” or that they “will prevent the court from accepting the filing.” Don’t believe these statements. Let your attorney know that they have made these claims and we can help you address them.

How long does a Chapter 13 plan last?

The usual time frame is 36-60 months. However, you can pay off your plan sooner if you wish, and with special court permission you can extend your plan to 48-60 months.

What are the usual costs involved in filing Chapter 13?

Costs, including disbursements, may vary depending on your case. The attorney’s fee and disbursements must be approved by the court. In many cases a substantial part of the fee and disbursements can be included in the plan with the rest of your bills. If your case is more complex or involves a business, a higher fee will be required.

Is it true that if you filed bankruptcy in the past six years, you can still file a Chapter 13 plan?

Yes. You cannot file a second bankruptcy (Chapter 7) within 8 years of the first, but you can file a Chapter 13.

What happens to my Chapter 13 plan if I cannot work for a while because I am ill, injured, or have lost my job?

The court and the Chapter 13 trustee will give you an opportunity to explain your situation and will keep your Chapter 13 plan in place if your Disability is temporary or your lack of work is not too prolonged.

Do I need permission from my spouse to file?

No. Any person who is employed or has a regular income can file at any time.

To whom will I make my Chapter 13 payments?

Usually payments are deducted from your paycheck and sent to the office of the Chapter 13 trustee for distribution to your creditors.

May I file a Chapter 13 if I am self-employed or own a small business?

Yes. The Bankruptcy Code allows for those who are self-employed and those who are in a sole proprietorship to file Chapter 13.

Will Chapter 13 stop mortgage foreclosures, late charges, and added interest on past-due bills?

Generally speaking, yes. If your plan calls for it, the court may approve a plan in which you are given an extension period to catch up on back payments on your mortgage.

Can I file if my income is from SSI, Social Security Disability, veterans assistance, or other monetary assistance?

As long as these payments allow you to pay rent, food and other necessities of life together with your Chapter 13 payment, your petition will probably be approved by the court.

Do I need a cosigner of any kind to file Chapter 13?

No.

About Foreclosure and Car Repossessions

I received a letter that I’ve missed a mortgage payment.  Do I have to reply?

Yes! Please don’t ignore any communications from your lender.  If you receive a letter stating you’ve missed a payment, contact them and explain why you’ve missed the payment.  Document this call.  If you continue to miss payments and you need to negotiate new terms with them, being proactive will be helpful.

I got a call from someone offering to help me avoid foreclosure.  Should I work with them?

Be careful.  There are a number of scams in the foreclosure world.  In general, if someone contacts you and their solution seems too good to be true, or it seems like an “easy out”, it’s probably is a scam.  If you need guidance, it’s best to work with an experienced attorney.

Can I get my personal belongings from my car that was repossessed?

Yes.  Even if your car was repossessed, the creditor can’t keep or sell personal belongings that were in the vehicle.

What is the deficiency?

If your car is repossessed and sold at auction, you may still be responsible for a portion of the loan.  For example, if your car loan was for $20,000 and the lender sold it at auction for $15,000, there is a “deficiency” of $5,000.  Your creditor may be able to come after you for the amount of your deficiency.

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