Bankruptcy Basics – Preferences

The Bankruptcy Code permits a trustee to recover from creditors payments made shortly before the bankruptcy filing, where the payment gave the creditor more than other creditors in a similar position would get through the bankruptcy process.

The policy behind the statute is to reduce the advantages that a creditor might get by suing or by collection activities that force the debtor into bankruptcy. That is accomplished by making payments received in the 90 days before the filing recoverable in bankruptcy by the trustee.

It is neither wrong for the debtor to make a preferential payment, nor is it wrong for a creditor to accept such payment. The preference statutes are simply an attempt to achieve equity between creditors.

Bankruptcy Code §547 defines a preference as:

  1. Payment on an antecedent (as opposed to current) debt;
  2. Made while the debtor was insolvent;
  3. To a non-insider creditor, within 90 days of the filing of the bankruptcy;
  4. That allows the creditor to receive more on its claim than it would have, had the payment not been made and the claim paid through the bankruptcy proceeding.

Any payments to a fully secured creditor are not usually preferences, because the creditor would not get more than he would have in bankruptcy, where the creditor would get the value of the collateral.

While the look back period for preferences is usually 90 days, the bankruptcy code also permits the recovery of payments on claims owed to insiders, such as relatives, friends, corporate officers or directors, or related entities, made within 1 year of the bankruptcy filing. This provision attempts to prevent the debtor from paying relatives, friends and business decision makers at the expense of other creditors.

Preference recovery is generally a matter between the trustee and a creditor. When the creditor is a third party, the debtor may not care very much. When the creditor in question is a relative or a friend, however, most debtors are very concerned. If a bankruptcy case is filed within a year of these payments to relatives and friends, the trustee may take the money from the friend or relative the debtor paid, and redistribute it to creditors in accordance with the bankruptcy laws.

There are some procedural issues that apply to preferences. For example, a payment made by check is effective as of the date the check cleared, not the date on the check or the date it was mailed. There are also some defenses to preferences, usually available in a business rather than a consumer setting. Preferences can be voluntary payments, like a check sent in payment of an invoice, or involuntary, like attaching a bank account.

A debtor needs someone with knowledge and experience in these issue on his side. One of the most valuable things an experienced bankruptcy attorney can do is prevent problems for you, and unintended consequences for your family members or business partners. It is also best to seek such advice before you make that payment, or transfer that asset. Lawyers can control damage in most situations, but we prefer to prevent a problem arising in the first place and this can be accomplished in most situation with pre-bankruptcy planning.

If you are dealing with debt problems in Rochester, New York; Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Bankruptcy Basics – Credit Counseling and Financial Education Requirements

Under the BAPCPA, debtors planning to file for bankruptcy, under either Chapter 7 or Chapter 13, must complete a consumer credit counseling course before they will be allowed to file a bankruptcy petition. Such credit counseling program needs to be completed within 180 days prior to the filing.

A pre-bankruptcy counseling session with an approved credit counseling organization usually includes an evaluation of the debtor’s personal financial situation, a discussion of alternatives to bankruptcy, and a personal budget plan. A typical counseling course lasts about 60 to 90 minutes, and can take place in person, on the phone, or on internet. The counseling organization is required to provide the counseling free of charge for those consumers who cannot afford to pay. If you cannot afford to pay a fee for credit counseling, you should request a fee waiver from the counseling organization before the session begins. Otherwise, you may be charged a fee for the counseling, which will generally be about $50, depending on where you live, the types of services you receive, and other factors. The counseling organization is required to discuss any fees with you before starting the counseling session.

Once you have completed the required counseling, you must get a certificate as proof. You can check if the organization providing the course is approved in the judicial district where you are filing bankruptcy by going to the U.S Trustee’s web site.  Once the course is completed, you will receive the certificate.  Credit counseling organizations may not charge an extra fee for the certificate.

In addition, once the bankruptcy is filed, debtor must obtain debt management counseling before being allowed to complete the bankruptcy process.  A debtor education course by an approved provider usually includes information on developing a budget, managing money, using credit wisely, and other resources. Like pre-filing counseling, debtor education may be provided in person, on the phone, or online. The debtor education session might last longer than the pre-filing counseling – about two hours – and the typical fee is between $50 and $100. As with pre-filing counseling, if you are unable to pay the session fee, you should seek a fee waiver from the debtor education provider. Make sure that you received the certificate from a debtor education provider that is approved in the judicial district where you filed bankruptcy. Check the list of approved debtor education providers at the U.S. Trustee’s web site.

There are three main objectives of the Personal Financial Management course:

  1. The help the debtor understand the benefits of creating short-term and long-term financial goals.
  2. To teach the debtor how to create a budget.
  3. To teach the debtor how to balance a checkbook and reconcile bank statements.

The purpose of these courses is to help the debtor become financially literate and avoid another bankruptcy.

Once you have completed the required debtor education course, you should receive a certificate as proof. This certificate is a different document from the certificate you received after completing your pre-filing credit counseling. Unless they have disclosed a charge to you before the counseling session begins, debtor education providers may not charge an extra fee for the certificate.

The Personal Financial Management course must be completed within 45 days after filing bankruptcy; but before receiving a discharge through bankruptcy. This is important because if the debtor does not complete this second course after filing for bankruptcy, the Chapter 7 or Chapter 13 bankruptcy may be closed without a discharge.

If you are dealing with debt problems in Rochester, New York; Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Chapter 7 Bankruptcy and Objections to Discharge

You have filed a Chapter 7 bankruptcy.  You and your lawyer went to the meeting of the creditors.  Everything seemed to be in order.  Then your lawyer calls you, and tells you that one of your creditors has filed an adversary proceeding in your Chapter 7 case, objecting to discharge of its debt.  So what exactly is taking place?

If a creditor determines that an objection with respect to discharge of its debt is warranted, the creditor will file an Objection to Discharge of its particular debt.  This filing begins what is known as an adversarial proceeding in the bankruptcy court.  An adversarial proceeding is simply a law suit within the bankruptcy, seeking to declare a particular debt as non-dischargeable.  The debtor responds to the complaint, evidence is gathered and supplied to both sides, and a hearing is held in front of the bankruptcy judge who decides the case.  Here in Rochester, Hon. John C. Ninfo, II, would hear the case.  Typically, neither the bankruptcy trustee nor the U.S. Trustee are involved in the adversarial proceeding.

A creditor may object to the discharge of its debt in a number of different situations.  An unsecured creditor may object using Section 523(a)(2) of the Bankruptcy Code, which contains several different types of non-dischargeable debt.  The debt under that section may not be dischargeable because it is: (1) $500 owing to a single creditor for the purchase of “luxury” goods within 90 days prior to filing of the bankruptcy; (2) $750 owing to a single creditor for a cash advance (i.e. balance transfers are cash advances) obtained within 70 days prior to filing of the bankruptcy; or (3) for money obtained under false pretenses, false representation, or actual fraud.  There are also additional reasons to declare a debt non-dischargeable.

With respect to situations (1) and (2), the applicable rules are known as  as the per-se rules.  That means that the creditor need not prove debtor’s intent (i.e. fraud), and needs to show only that the transactions meet the criteria stated.  Situation (3) means that the debtor made the charges/cash advances knowing that he/she was going to file bankruptcy, or made the charges/cash advances while insolvent and/or could not have had a reasonable expectation to pay back the debt, or made false representations in obtaining credit resulting in the debt he/she is trying to discharge at this time.

If the creditor is successful in having a debt declared non-dischargeable, the debtor will owe that debt until it is paid, with all accumulating interest,  and the debtor can never discharge that debt.

The following is a brief description of procedural issues applicable to the objections.  The complaint must be filed on or before 60 days from the first date set for the creditors meeting (also know as 341 meeting).  Typically, a creditor has less than 90 days after receiving notice of the bankruptcy case to file a complaint.  A creditor must act promptly to determine there are grounds to object to discharge.

Even if a creditor files an objection to discharge of its debt, the rest of the bankruptcy will proceed normally.  The debtor will recieve the discharge on time, and most of the time, the discharge will be received before the hearing in the adversarial proceeding.

Once the adversarial proceeding is filed, the debtor has a number of options with respect to the creditor’s claim.  The debtor can agree to repay all or a portion of the debt by signing a reaffirmation agreement.  A typical reaffirmation agreement results in the debtor paying 50% of the debt over 12-18 months.  The next option is fighting the objection.  The debtor will have to be able to either fight the objection on his/her own or pay an additional retainer to the attorney to fight the claim.

The way that a creditor proves its case, is by showing to the court that the debtor was in financial distress at the time the objectionable transactions were made.  Therefore, the debtor’s financial history will be disclosed through the discovery process, usually for a period of 12 months prior to the challenged transaction, and from the date of the transaction to the date of filing.  Since an adversarial proceeding is a civil matter, both parties may call witnesses, and the debtor may be called to testify by either side.  A creditor’s theory of the case in an adversarial proceeding is usually that no reasonable person could have expected to be able to pay off the debt, at the time that debt was taken out.

If the creditor wins, a judgment is entered, declaring the debt non-dischargable.  This judgment can ultimately be used in New York State court, or elsewhere, to obtain a  money judgment that can then be used to garnish wages, restrain bank accounts or conduct other collection activities.  That judgment will not be dischargeable in any subsequent bankrupcies and can only be extinguished by payment or by New York’s statute of limitations, presently 20 years.  Even if the creditor prevails, the debtor is not responsible for the creditor’s attorney’s fees and costs.

If the debtor wins, the debt is discharged, and, under appropriate circumstances, the creditor will have to pay debtor’s attorney’s fees and costs.

Thus, if an adversarial proceeding is brought, the debtor must choose between either settling or fighting.  The cost to defend an adversarial proceding is usually substantial.  Therefore, it should be compared to the cost of settling the case.  If the proposed settlement reduces the debt and the payments are affordable, especially if the settlement amount is less than the cost to defend, the debtor should consider settlement.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Bankruptcy Basics – Meeting of the Creditors

The creditors’ meeting, otherwise known as 341 meeting, is a procedural step in every Chapter 7 and Chapter 13 bankruptcy.  In a typical 341 meeting, the debtor will be asked questions under oath by the bankruptcy trustee with respect to his or her financial affairs.  Most debtors are apprehensive of the 341 meeting.  While 341 meeting is also designated as the first meeting of the creditors, creditors seldom come to the first meeting, and there isn’t usually a second meeting.  Most of the time, it is a meeting of the debtor and the trustee appointed in the case.

There are two items that the debtor must have at the 341 creditor’s meeting.  The first one is a state issued photo identification card.  For most people, this is going to be their driver’s license.  The second item is the social security card.  If the debtor does not have these documents at the meeting, the trustee cannot go forward with the creditors’ meeting since the trustee must confirm the debtor’s identity.  Occasionally, trustee may permit the use of a W2 forms, annual social security statements, or a payroll check stub that contains debtor’s social security number.

Take the time to locate these documents before you arrive at the location for your creditor’s meeting.  Here in Rochester, bankruptcy trustees usually tell the debtors to have their identification and proof of social security number ready at the beginning of the meeting.  Most bankruptcy attorneys will ask the clients for those documents so they can be handed t the trustee.  I often have seen people anxiously looking through a purse or wallet for a social security card that they just know they have, only to find out that they don’t have it, or that they are too nervous to find.

The 341 meeting is not a test or a trial.  The trustee won’t be asking any trick questions.  Your lawyer is there for support and to make sure that the record created is truthful and accurate.  In order to have a successful 341 meeting all the debtor has to do is to follow these four steps:  (1) tell the truth; (2) listen to the question; (3) let the trustee finish before you start speaking; and (4) answer in as few words as possible.

It is critical for someone who filed bankruptcy to be honest during 341 hearing.  It is just as critical for the debtor to be honest with his/her attorney prior to the hearing, before the petition is prepared out and filed.  If the debtor’s statements during the 341 hearing contradict the petition, and those contradictions were deliberate on the part of the debtor, that means the debtor may have already committed perjury, which is a federal offense.  When the petition is filed, the debtor, by signing his or her petition, swore that the petition was truthful.

There are a number of questions that a trustee is required to ask the debtor at the meeting of creditors.  They are as follows:

1.   State your name and current address for the record.

2.   Please provide your picture ID and Social Security number card for review.

3.   Did you sign the petition, schedules, statements, and related documents and is the signature your own? Did you read the petition, schedules, statements, and related documents before you signed them?

4.   Are you personally familiar with the information contained in the petition, schedules, statements and related documents? To the best of your knowledge, is the information contained in the petition, schedules, statements, and related documents true and correct? Are there any errors or omissions to bring to my attention at this time?

5.   Are all of your assets identified on the schedules? Have you listed all of your creditors on the schedules?

6.   Have you previously filed bankruptcy? (provide trustee with case number and the discharge information to determine discharge eligibility in this case)

7.   What is the address of your current employer?

8.   Is the copy of the tax return you provided a true copy of the most recent tax return you filed?

9.   Do you have a domestic support obligation? To whom? Please provide the claimant’s address and telephone number, but do not state it on the record. Are you current on your post-petition domestic support obligations?

10.   Have you filed all required tax returns for the past four years?

There are also other questions that a trustee may ask you:

1.   Do you own or have any interest whatsoever in any real estate? If owned: When did you purchase the property? How much did the property cost?  What are the mortgages encumbering it?  How did you arrive at the value of the property?

2.   Have you made any transfers of any property or given any property away within the last one year period?

3.   Does anyone hold property belonging to you? If yes: Who holds the property and what is it? What is its value?

4.   Do you have a claim against anyone or any business? If there are large medical debts, are the medical bills from injury? Are you the plaintiff in any lawsuit? What is the status of each case and who is representing you?

5.   Are you entitled to life insurance proceeds or an inheritance as a result of someone’s death?  If you become a beneficiary of any one’s estate within six months of the date your bankruptcy petition was filed, the trustee must be advised within ten days through your counsel of the nature and extent of the property you will receive.

6.   Does anyone owe you money?  Who owes the money and where are they?

7.   Have you made any large payments, over $600, to anyone in the past year?

8.   Were federal income tax returns filed on a timely basis? When was the last return filed? Do you have copies of the federal income tax returns?  At the time of the filing of your petition, were you entitled to a tax refund from the federal or state government ?

9.   Do you have a bank account, either checking or savings? If yes: In what banks and what were the balances as of the date you filed your petition?

10.   When you filed your petition, did you have:

a. any cash on hand?
b. any U.S. savings bonds?
c. any other stocks or bonds?
d. any certificates of deposit?
e. a safe deposit box in your name or in anyone else’s name?

11.   Do you own an automobile? If yes: What is the year, make, and value? Do you owe any money on it? Is it insured?

12.   Are you the owner of any cash value life insurance policies? If yes: State the name of the company, face amount of the policy, cash surrender value, if any, and the beneficiaries.

13.   Do you anticipate that you might realize any property, cash or otherwise, as a result of a divorce or separation proceeding?

14.   Have you been engaged in any business during the last six years? If yes: Where and when? What happened to the assets of the business?

As log as you and your bankruptcy lawyer are prepared, your 341 hearing is likely to be completed quickly.  If you are missing documents or if trustee requires additional information, your hearing may be rescheduled to a later date.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Bankruptcy Basics – Domestic Support Obligations

On occasion, a divorce may result in one or both of the parties filing for bankruptcy, often without an adequate understanding of the limited relief available in the bankruptcy court. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (”BAPCPA”) directly addressed issues related to the dischargeability of marital debt and support obligations, as well as to the effect of the automatic stay on collection and enforcement proceedings out of divorce and family law litigation.  Under BAPCPA, domestic support obligations (usually alimony, child support and property distribution) are given priority over almost every other creditor.

Under bankruptcy law, a “domestic support obligation” is any debt incurred before or after a bankruptcy filing that is owed to or recoverable by a spouse, former spouse, child or governmental unit; in the nature of alimony, maintenance or support; and established pursuant to the terms of a divorce decree, separation agreement, property settlement agreement, court order or administrative determination.

In Chapter 7 bankruptcy, essentially all marital and domestic relations obligations are not dischargeable, regardless of whether they are support in nature, property divisions or “hold harmless” agreements, provided they were incurred by the debtor in the course of a matrimonial proceeding or a divorce action which resulted in a separation agreement, divorce decree, court order or administrative determination.

A debtor’s obligation to pay marital debts directly to a third party ( ie., pay the mortgage on former marital residence) and to hold the former spouse harmless on said debts is also deemed to be non-dischargeable if the obligation has the effect of providing support to the former spouse. A debtor’s duty to pay the following expenses are usually deemed to be in the nature of support and not dischargeable: educational expenses of a minor child; medical insurance coverage for a minor child; and life insurance, with the minor children as beneficiaries.

Attorney’s fees owed by debtor to his own lawyer are clearly dischargeable in bankruptcy, but as a general rule, attorney’s fees owed by debtor to a former spouse’s attorney are not dischargeable, if the underlying legal proceeding resulted in the entry of an order or judgment directing payment of maintenance or spousal support to the former spouse.

The division of a debtor’s pension benefits during the divorce action is usually accomplished by entering a Qualified Domestic Relations Order (”QDRO”). Since division of a pension is considered to be a transfer by debtor of a present interest in his pension, and as such, it is not a debt that can be discharged in bankruptcy.

If there are assets in a Chapter 7 bankruptcy, and you owe any domestic support obligations (alimony, child support, that sort of thing) to your spouse, former spouse or child, the trustee will pay that first.  Next, the trustee will pay any domestic support obligation owed to a governmental unit.

In Chapter 13 bankruptcy, past due domestic support obligations owed by a debtor are not dischargeable, unless they are paid in full over the life of the Chapter 13 plan. However, if a debt created by a separation agreement or judgment of divorce is not in the nature of support, it sometimes can be discharged in Chapter 13 without being paid in full.

For a Chapter 13 Plan to be confirmed by the Bankruptcy Court, it must: pay in full to the former spouse all domestic support obligations owed by debtor at the time of the bankruptcy filing, and the debtor must be current on all domestic support obligations incurred after the bankruptcy filing.  Past due support obligations are generally required to be paid in full through the debtor’s plan but an exception can be made if the creditor agrees.  Support debts have a first priority, meaning they are paid before other kinds of priority debts, like taxes.

A Chapter 13 Plan, even if confirmed by the bankruptcy court, is subject to dismissal if the debtor fails to pay any post-petition or post-confirmation domestic support obligations, and a Chapter 13 discharge will not be entered by the bankruptcy court unless and until a debtor certifies that all domestic support obligations have been paid and that the debtor is current on such obligations.

The automatic stay created by a bankruptcy filing bars the commencement or continuation of most legal proceedings, but it has no effect on a proceeding to establish paternity; to establish or modify a child support order, determine child custody or visitation issues, or dissolve a marriage, except to the extent that such proceeding may seek to determine a division of marital property in which the bankruptcy estate also has an interest. In those situations, the divorce can be granted without first obtaining relief from the automatic stay, but the marital property cannot be divided without obtaining such relief.

The automatic stay also does not prevent the post-petition collection of domestic support obligations such as alimony or child support from any property belonging to the debtor, providing that the bankruptcy estate does not also have an interest in the same property; from automatic wage deduction orders created by a statute or judicial or administrative order; from the interception of debtor’s federal or state income tax refunds, or
from the withholding, suspension or restriction of a debtor’s driver’s license or professional or occupational license. Therefore, Bankruptcy Court does not offer much protection for someone seeking to avoid the domestic support obligations.

The above rules will apply to the proceedings in New York State courts. In Ross v. Sperow, 57 A.D.3d 1255 (3rd Dept. 2008), the Appellate Division had to address a situation where one of the parties was seeking to enforce a counsel fee award after the other party filed for bankruptcy. In Ross, multiple violation petitions had been filed by the parties over the course of several years. In August 2006, Family Court upheld mother’s motion for attorneys fees and directed father to pay $5,000 of the mother’s attorneys fees. Father filed for a Chapter 7 bankruptcy thereafter, and listed the award of attorneys fees as an unsecured debt. Father’s bankruptcy was discharged in January 2007. Mother brought a violation petition which alleged that father failed to pay the attorneys fees.  Father moved to dismiss petition on ground that he discharged counsel fee award in bankruptcy. The Appellate Division stated that state and federal courts have concurrent jurisdiction over issue of dischargabilityof a particular debt and held that domestic support obligations in the nature of support are exempt from discharge in bankruptcy. While father contended that counsel fees incurred were for custody and visitation proceeding, the record reveals that mother’s initial petition commencing the proceeding raised issues of financial need and hardship.  According to the Appellate Division, term “in the nature of support” is broadly interpreted in the context of discharge of debt obligations in bankruptcy and held that the award of counsel fees was in part in the nature of support, and as such, exempt from discharge in bankruptcy.

It is very important for your bankruptcy lawyer to be aware of any outstanding domestic support obligations if you are filing for bankruptcy.  Here in Rochester, bankruptcy trustees routinely ask during the meeting of creditors (also known as 341 meeting), if the debtor has a domestic support obligation.  If there is a domestic support obligation, the bankruptcy trustee will want to know to whom such obligation is payable, will ask the debtor to provide the claimant’s address and telephone number, and will inquire if the debtor is current on his or her post-petition domestic support obligations.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Car Ownership and Bankruptcy

I am often asked what happens to the debtor’s car if he or she is forced to file for bankruptcy.  The answer to that questions depends on whether the car is owned by the debtor outright, is being financed, or is leased.

If the car is owned outright, and its value is less than the value of New York’s vehicle exemption, currently limited to $2,400, then the debtor can keep the car without any bankruptcy related consequences.  This is true for the debtor filing either a Chapter 7 or a Chapter 13 bankruptcy.   If the value of the car is greater than the allowed exemption, in a Chapter 7 case,  the bankruptcy trustee can demand that the debtor turn the car to the trustee.  Subsequently, the trustee would have the vehicle sold at an auction, and the debtor would be repaid the value of his or her exemption, and the rest of the money would be paid to the creditors.   If a car is jointly owned by a debtor and someone else (such as a spouse), then the debtor will only be entitled to 1/2 of the equity.  If debtor and a spouse file a joint bankruptcy petition, they can “double up” or stack their exemptions (i.e., $4,800 in one vehicle owned by them jointly, or $2,400 in two vehicles total).  If the car is financed, the relevant value is the value of the equity in the vehicle, that is the difference between the market value of the vehicle and the amount owed to the lender.

When filing Chapter 7 bankruptcy, you have three options for handling a car loan.  You can reaffirm your loan with the lender.  That means that you agree to continue making regular payments on your car.  In exchange, as long as your are making payments on the loan, your lender will not repossess the car.  Whether you sign a reaffirmation agreement is strictly voluntary.  Another option, although rather rare, is redemption.  The debtor agrees to make one lump payment to the lender representing the car’s fair market value, regardless of what is owed on the loan.   Any amount owed on the car in excess of its current value can be discharged as part of the bankruptcy.  The final option is to surrender the car if you cannot afford to continue making payments.  Any debts associated with the car will be discharged.

In Chapter 13, a debtor can keep his or her car even if the equity is greater than the allowed exemption amount, as long as the value of equity in excess of the exemption is distributed to creditors through the chapter 13 plan, i.e., satisfying the good-faith test.  Chapter 13 bankruptcy can effectively halt car repossession and will allow the debtor to repay any arrears on the loan over the life of the Chapter 13 plan.  In addition, in a Chapter 13, the amount the debtor will pay may depends on how long ago the car was purchased.  If the  car was purchased in the last 910 days (30 months), the debtor must usually pay the full amount owed, regardless of the car’s current value.   However, under appropriate circumstances, the interest rate on the loan may be reduced by the bankruptcy court.  If the car was purchased more than 30 months ago, the debtor is likely to have to pay the lender the amount representing the car’s present value over the life of the repayment plan.  The amount representing the car’s value is treated as secured debt, and the remainder of the debt is treated as unsecured.  This is particularly significant where the car is upside down, i.e., the amount owed significantly exceeds the car’s value.  Those situations may result in significant savings to the debtor.

If the debtor is leasing a car, he or she has two options.  The debtor can reaffirm the lease and keep the car, while continuing to make payments.  Alternatively , the debtor can reject the lease, return the car, and discharge any debt associated with the lease.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Rebuilding Your Credit After Bankruptcy

If you were in a difficult financial situation, and were forced to file bankruptcy, you should view your bankruptcy filing as an opportunity for a fresh start in your financial affairs and the first step toward rebuilding your credit. After the bankruptcy, you will be able to rebuild your credit and work toward reestablishing your financial future. After the bankruptcy, many debtors are tired of dealing with credit and debt issues that they delay reestablishing their credit. If you received a discharge in your bankruptcy, or are currently making payments pursuant to a Chapter 13 plan, you can start rebuilding your credit. The first step in doing so is obtaining your credit report and challenging any inaccurate information contained in it. If you eliminate any inaccuracies in your credit report, this is likely to improve your credit score. The next step in reestablishing your credit is to obtain a credit card, and use it responsibly. You have to make sure that you make at least the minimal charges and try to pay off the balance in full every month. Even if you have to obtain a secured credit card, it will help you establish a history of payments demonstrating your financial responsibility. The same is true with respect to any other bills you may have such as utilities, rent, mortgage, or any other form of credit. The more you demonstrate your financial responsibility, the higher your credit score will rise. If you are meeting your bills, you may begin requesting credit increase after 6 months or payments or trying to switch from a secured credit card to unsecured credit card. Since an increase in your credit limit indicates that the lender trusts you to repay the debt, your credit score will continue to rise.

At the same time, you have to be careful to avoid credit traps that may set back this rebuilding process. As you work your way to financial health, make sure you steer clear of these common post-bankruptcy dangers. One very common danger is a simple failure to plan. You will not have any debt if you receive a Chapter 7 bankruptcy discharge, however, that will stay so as long as your expenses do not exceed your earnings. While it seems obvious, many people forget that their continued financial health depends on persistent awareness of those facts.

Another solution to common post-bankruptcy problems is developing a budget and following it. Since all filers are required to take the financial management course during the bankruptcy, the suggestions given in the course should be followed to stay out of debt.

Avoid over-reliance on credit since it is what pushed you into bankruptcy in the first place. After bankruptcy, you should avoid costly sources of credit and to try to pay off any credit balances every month.

It is also important to avoid credit repair scams that promise to wipe out bad credit, erase your credit history or achieve anything else that seems too good to be true. It takes time to rebuild your credit and if you follow the steps outlined above, your credit will improve. Any quick fixes or schemes will likely cost you money and hurt your credit. Instead, pay off your bills every month, don’t open more credit cards than you need and stick with your budget. Over the course of a couple years, you should see your credit improve.

As you are working on rebuilding your credit, be careful selecting credit card offers. Make sure that you are fully aware of the interest rates and fees. You can visit a site like bestcreditcards.com to see different options available to you.

With some planning, discipline and determination, you will be able to rebuild your credit and even improve your credit score after filing bankruptcy.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Chapter 7, Chapter 13 and Means Test in Bankruptcy

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) included significant changes to the prior bankruptcy law, specifically, a financial test which allowed bankruptcy courts to determine who could qualify for Chapter 7 bankruptcy and who could not. This test is commonly called the “Means Test.” If you fail the Means Test, you may still file for bankruptcy protection, however, you would be limited to filing under Chapter 13 of the Bankruptcy Code, and would have to repay all or a portion of your debt over time.

The Means Test is a two-part test that compares your income and expenses.

The first part of the Means Test compares your current monthly income to the median monthly income in your state for a family the size as yours. For the cases filed after March 15, 2009, this table is found here. If your income is less than the median income, you qualify for a Chapter 7 bankruptcy, and do not need to complete the second part of the Means Test. For New York State, the median income numbers are:

One Earner      Two People          Three People            Four People*

$46,523           $57,006                $67,991                    $83,036

* Add $6,900 for every individual in excess of four.

If your income is higher than the median income, it doesn’t necessarily mean that you can’t file for Chapter 7 bankruptcy, but it requires you to proceed to the second step in the test which is more complex.

The second part of the Means Test contains two-parts. First, you subtract your allowed monthly living expenses (determined by IRS guidelines) from your monthly income to come up with your monthly “disposable income.” If your projected disposable income over the next five years totals less than $6,000 ($100/month), you pass the Means Test and can file under Chapter 7.

If your projected disposable income over the next five years is greater than $10,000, you fail the Means Test and will not be allowed to file Chapter 7.

If your projected disposable income is between $6,000 and $10,000, yet another calculation is required. This calculation compares your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible. If your disposable income over that five years is greater than 25% of your unsecured, non-priority debts, you fail the Means Test and cannot file under Chapter 7. If your disposable income over a five year period is less than 25% of your unsecured, non-priority debts, you pass the Means Test and can filed Chapter 7 bankruptcy.

If you qualify under the Means Test, it does not require you to file under Chapter 7. There may additional reasons why you should not file under Chapter 7, and instead choose to file under Chapter 13. Any decision to file for Chapter 7 bankruptcy should be made only after considering alternatives and consulting with a knowledgeable bankruptcy lawyer.

If you don’t pass the Means Test, you may still file bankruptcy but are limited to using Chapter 13 bankruptcy which is a 3 to 5 year debt repayment plan. In a Chapter 13 bankruptcy, your payment plan is based upon what you can afford to pay your creditors, not on what your creditors want you to pay.

The above is a short summary of the Means Test. There are other factors that may have an effect on the Means Test.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

New York Bankruptcy Exemptions

If you are filing Chapter 7 bankruptcy in New York, your property becomes a part of bankruptcy estate, which will be administered by the bankruptcy court. In Chapter 7, certain property is exempt and you can keep it. Federal bankruptcy exemptions are not available in the State of New York.

Under New York law, you can exempt or protect certain property from creditors when you file bankruptcy. After filing for bankruptcy, this property is safe. There are some limits on certain exemptions such as equity that you have in a home or in a vehicle. The difference between the cost of the item and the amount owed on the item is the definition of equity. If the item, such as home or vehicle, secured by a loan and payments made on time, the equity is protected by your exemptions. A debtor must generally pay the trustee the value of the non-exempt property to keep the property. If you choose to keep the property, continual timely payments ensure protection of the property through bankruptcy.

The following lists most important New York exemptions applicable in Chapter 7 Bankruptcy cases:

Homestead

Real property, including mobile home, condominium, or co-op, up to $50,000 per filer.

Personal Property

Clothing, furniture, refrigerator, TV, radio, sewing machine, security deposits with landlord or utility company, tableware, cooking utensils and crockery, stoves with fuel to last 60 days, health aids (including service animals with food), church pew or seat, wedding ring, bible, schoolbooks, pictures; books up to $50; domestic animals with food to last 60 days and up to $450; watch to $35; spendthrift trust fund principal; 90% of trust fund income if not created by debtor; college tuition savings program trust fund; recovery for injury to exempt property up to 1 year after receiving. Exemptions cannot exceed a total of $5,000 including tools of trade and limited annuity.

Burial plot up to 1/4 acre without a structure on it.

Savings and loan savings up to $600.

Motor vehicle up to $2,400; lost future earnings recoveries needed for support; personal injury recoveries up to 1 year after receipt; wrongful death recoveries for a person you depended upon for support.

IN LIEU OF Homestead exemption, the lesser of the following: up to $2,500 cash or up to $5,000 after exemptions for personal property taken

Wages

90% of earned but unpaid wages received within 60 days of filing for bankruptcy; 90% of earnings from milk sales to milk dealers; 100% for a noncommissioned private, officer or musician in the U.S. or N.Y. state armed forces.

Pensions

Tax exempt retirement accounts; Traditional and Roth IRAs up to $1,095,000 per person.

ERISA-qualified plans, Keoghs and IRAs needed for support.

Public Benefits

Unemployment benefits; veterans’ benefits; Social Security; aid to blind, aged, and disabled; crime victims’ compensation; home relief, local public assistance; public assistance; worker’s compensation.

Tools of Trade

Professional furniture, books, instruments, farm machinery, team and food for 60 days, up to $600 total; arms, swords, uniforms, equipment, horse, emblem and medal of a military member.

Alimony and Child Support

Alimony and child support.

Insurance

Annuity contract benefits due to the debtor if he or she paid for the contract up to $5,000, if purchased within 6 months of filing for bankruptcy and not tax-deferred.

Life insurance proceeds left at death if policy prohibits use to pay creditors.

Disability or illness benefits up to $400 per month; life insurance proceeds, dividends, interest, loan, cash, or surrender value if beneficiary is not the debtor or if the debtor’s spouse has taken out the policy.

Miscellaneous

Business partnership property.

To keep non-exempt property, a debtor must generally pay the trustee the value of the non-exempt property.

The exemptions are also relevant if you are filing a Chapter 13 bankruptcy since your bankruptcy has to pass the “good faith” test. The good faith test involves making sure that unsecured creditors will be paid at least as much under Chapter 13 bankruptcy, as if a Chapter 7 bankruptcy had been filed. Generally, this involves valuing of all the nonexempt property the debtor owns.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Bankruptcy Basics – A Brief Summary

Under Title 11 of the United States Bankruptcy Code, an individual, corporation or partnership, can obtain relief from certain debts under the law.

When filing for bankruptcy, your property becomes a part of bankruptcy estate, which will be administered by the bankruptcy court. In Chapter 7, certain property is exempt and you can keep it. The New York bankruptcy exemptions are discussed in this post. In Chapter 13, you can keep your property, subject to passing the “good faith” test. When filing, you will be required to list all the property that you own, regardless where that property is located. If you fail to disclose the property, there may be serious consequences, including criminal charges.

Exemptions are used to protect your property. There is always a chance that you may lose some of your property in a Chapter 7, because it is a liquidation type of Bankruptcy. In a Chapter 7 bankruptcy, the trustee (who is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors) can sell your non-protected property to pay your debts. In a Chapter 13 bankruptcy, you will have to pay a portion of your income to the trustee in order to keep your non-exempt property. If you are thinking about filing for bankruptcy, it is critical that you discuss these issues with a bankruptcy attorney in advance so that you protect your assets.

As a part of your bankruptcy petition, you will be required to list all your creditors. If a creditor is not listed, you will take a chance of either not having your debt not discharged or having your entire case being dismissed.

Chapter 7 is the liquidation chapter of the Bankruptcy Code and those cases are commonly referred to as “liquidation” cases. Under Chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain exempt property. Upon the completion of the bankruptcy, the debtor will receive a discharge of the debts. If you are filing bankruptcy for your corporation or partnership, the debts of that entity are discharged, but you may still be personally liable for the debt. It is possible that you may have to file a personal bankruptcy to protect yourself.

Chapter 11 is called the reorganization chapter for either businesses or individuals who have too much debt to file a Chapter 13. The creditors get to vote as to whether or not they will accept the plan to reorganize. It is very costly to file a Chapter 11 and it is very complex.

Chapter 12 is used by individuals, corporations or partnerships who derive their income from family farming. There are certain debt limits that apply. The plan must be proposed to repay the creditors over time and it must be approved by the Court.

Chapter 13 is the debt repayment bankruptcy for individuals but those who are sole proprietors can use this chapter also. It is usually considered if the filer has regular income to fund the plan and if the debt is less than $336,900 in unsecured debts and $1,010,650 unsecured debts. Your plan can only last 60 months.

Almost without any exception, the bankruptcy under Chapter 7 or 13 will stop garnishment or any other collection activities by your creditors.

If you have been sued on a consumer debt, like a credit card or a personal loan, I can usually stop the garnishment with a bankruptcy filing. Creditors have to obey the automatic stay imposed by a bankruptcy filing.

The automatic stay gives the debtor protection from his creditors, subject to the oversight of the bankruptcy judge. The automatic stay prohibits beginning or continuing law suits, collection calls, repossessions, foreclosure sales, and garnishment or levies. The automatic stay remains in effect until a judge lifts the stay at the request of a creditor; the debtor gets a discharge; or the item of property is no longer property of the estate. Anyone who willfully violates the stay, in the case of an individual is liable for actual damages caused by the violation, and sometimes for punitive damages. Some courts confine the right to damages to individual debtors and deny damages for stay violations as to corporate debtors.

There are some limited exceptions. You can’t stop deductions for a child support payments. Child support payments are not dischargeable in bankruptcy, but under some circumstances, a bankruptcy filing may be used to stop the additional payment for overdue support payments but it will not eliminate them altogether. In most cases, you will typically need to file under Chapter 13 in order to address overdue support payments owed through a payment plan. If the debt can’t be discharged (such as child support, maintenance, or other domestic support obligations, or most student loans) the garnishment could resume after your case is concluded, or if the automatic stay is lifted.

For most people, garnishments and executions come as a result of old consumer debts. Creditors’ actions in enforcing such debts tend to make consumers fall behind on their rent or mortgage and car payments. Bankruptcy will allow you to change the order of payments — to allow you to decide who gets paid and who does not.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.