Bankruptcy Law

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Personal Bankruptcy Chapter 7

A Chapter 7 Bankruptcy filing may provide you with the opportunity to legally relieve yourself from your unsecured debts. Unsecured debt is usually things like credit card debts, medical debts, personal loans or certain bank loans. In most cases, you can keep your home, car, and other personal belongings. You may also be able to keep your 401K, IRA and other retirement funds.

If you are being harassed by creditors, the filing of a Chapter 7 or Chapter 13 Petition in Bankruptcy (Automatic Stay Provisions) will, in almost every case, immediately STOP the creditors from calling you, harassing you, suing you, garnishing your wages, invading your bank account or even communicating with you. The Automatic Stay provision can also suspend a foreclosure proceeding against your home as well as any pending law suits.

What property is “exempt”?
Although bankruptcy is governed by Federal law, in New York State, the determination of which of your property is “exempt” is controlled by New York State law. The following items are considered “exempt” property for Chapter 7 bankruptcies:

• Real property owned and used as a primary residence, including a house, land, a condominium, cooperative apartment or motor home, up to $50,000 of equity. (Equity is the current value of the property less the monies owed on all mortgages and judgment liens against that property.)
• A cemetery plot.
• Cash, totaling up to $2,500, unless an exemption for real property is claimed. This includes U.S. currency, savings accounts, checking accounts, credit union shares, U.S. savings bonds and the right to receive a federal or state income tax refund.
• Clothing and household goods, such as household furniture, a stove, refrigerator, radio, television, cookware, tableware, sewing machine, books, pets worth up to $450, a family bible, pictures and schoolbooks, other books up to $50, a wedding ring, a watch up to $35 and work tools up to $600.
• Security deposits for rent and utilities.
• A motor vehicle, up to $2,400 of equity over any secured amount owed for the vehicle.
• Proceeds of a life insurance policy, if someone other than the debtor in bankruptcy is the beneficiary. Also, proceeds of a life insurance policy, if the person receiving the proceeds is the debtor in bankruptcy and the policy was taken out on the life of the spouse of the person filing for bankruptcy.
• The right to receive certain awards and benefits: social security, unemployment compensation, public assistance, veteran’s benefits, disability benefits, crime victim’s awards and personal injury awards (up to $7,500 not including pain and suffering and actual monetary loss).
• Property needed for future support, such as alimony and support and wrongful death awards to dependents.
• 90% of wages earned within 60 days of the filing of a petition.
• Pensions, Keogh and 401(k) retirement plans, IRAs and most annuities.

There is a $5,000 limit on the exemptions which may be claimed for the total of cash, household goods, clothing and certain annuities.

If you are filing a joint petition with your spouse, each of you can claim these exemptions. In other words, the amounts of the exemptions are doubled when a married couple files together.

What debt is “dischargeable” in a Chapter 7 bankruptcy?
Most consumer debt is dischargeable in a Chapter 7 bankruptcy, with certain exceptions. Bankruptcy will not normally eliminate the following types of debt:

• money owed for child support or alimony, court-ordered fines, and certain taxes;
• debts not listed on your bankruptcy petition;
• loans you received by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
• debts resulting from “willful and malicious” harm;
• student loans owed to a school or government body, except if the Court determines that payment would constitute an “undue hardship” for you;
• mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor);
• personal injury debts caused by driving while intoxicated or under the influence of drugs;
• debt incurred after you file for Bankruptcy relief; and
• if you have co-signors or co-debtors, your Bankruptcy filing will not eliminate your co-debtor’s or co-signor’s obligation to repay that debt (however, if your co-signor or co-debtor is your spouse, and you and your spouse jointly file for Bankruptcy relief, that debt will be eliminated for both of you).

Chapter 13

In a Chapter 13 Bankruptcy, which is generally the type of petition filed if your house is in foreclosure, the law allows you an interest-free debt repayment plan that will consolidate your debts over a three or five-year period of time. Your creditors will not be allowed to continue to bill you or sue you or attempt to collect their debt with you during the Chapter 13 Plan period, if your Chapter 13 Plan is confirmed. At the end of successful Chapter 13 Plan period, the remaining (unpaid) unsecured debts will be discharged (forgiven). In other words, in many cases, some or most of your unsecured creditors will be legally forgiven after your plan is completed, depending on the amount of equity in your home. As always, you should only rely on your Attorney’s advice after a consultation.

There are several chapters of the Bankruptcy Code.

Chapters 1, 3 and 5

apply to all forms of bankruptcy. Chapter 1 has general provisions, Chapter 3 concerns case administration and Chapter 5 has provisions dealing with creditors, the debtor and the case under all of the forms of bankruptcy.

Chapter 7

is often called “straight” bankruptcy, because in a Chapter 7 Bankruptcy filing, none of the debts are paid back. A debtor files the appropriate papers, listing assets and liabilities, and providing other required information. If they meet certain criteria, after the court appearance, the debts are discharged and the debtor gets a fresh start.

Chapter 9

is for the reorganization of the debts of a municipality.

Chapter 11

is for reorganizations, and is the chapter businesses and corporations file under. Several airlines, Macy’s, casinos, Enron and many other companies, large and small, have filed under this chapter.

Chapter 12

is for the reorganization of the debts of a family farmer or a family fisherman.

Chapter 13

is for the reorganization of debts of individuals. If you earn to much money to file a Chapter 7 or you have substantial assets, you may not qualify to file a Chapter 7 and completely discharge your debts. The bankruptcy Trustee may make you reorganize your debts and pay back a portion of what you owe.

Chapter 15

is reserved for multinational companies.

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