wayne – Page 12 – Rochester Bankruptcy and Debt Relief

Debt Settlement – Does It Work?

Recently, I read a New York Times article, “Debt Settlers Offer Promises But Little Help“, that confirmed something that I already knew – debt settlement, in most cases, does not work and usually costs a lot more than a Chapter 7 or a Chapter 13 bankruptcy. Also, most people working with debt settlement companies are likely to find themselves in the worse financial situation after entering debt settlement. One quote summarizes how debt settlement industry does business:

Consumers who turn to these companies sometimes get help from them, personal finance experts say, but that is not the typical experience. More often, they say, a settlement company collects a large fee, often 15 percent of the total debt, and accomplishes little or nothing on the consumer’s behalf.

While I appreciate the fact that most debtors want to avoid filing bankruptcy, in my opinion, bankruptcy represents an opportunity for a fresh start for most people. The critical difference between a bankruptcy and a debt settlement, despite what a debt settlement company may claim, is that the creditor does not have to agree to a debt settlement arrangement. In a bankruptcy, under either Chapter 7 or Chapter 13, the creditor is obligated to follow the Chapter 13 repayment plan or accept results of the Chapter 7 discharge.

At the same time, if a debtor has a only a few debts, may have other alternatives to either filing a bankruptcy or working with a debt settlement company.

I have experience with “workouts” which is a term used to describe a non-bankruptcy negotiated modification of debt. A workout is an out-of-court agreement between a debtor and his or her creditors for repayment of the debts between them, which is negotiated without all the procedural complications — and perhaps the stigma — of the bankruptcy process. A typical workout takes form of either “composition”, which is a contract between the debtor and two or more creditors in which the creditors agree to take a partial payment in full satisfaction of their claims. Another option is an “extension”, which is a contract between the debtor and two or more creditors in which the creditors agree to extend the time for payment of their claims. An agreement may be both a composition and an extension, i.e., an agreement to accept less money over a longer period of time.

There is no requirement that all of the debtor’s creditors agree to a composition or extension, but most of them must voluntarily support it for it to work. Creditors that do not agree to the workout are not affected by it and remain entitled to pursue other remedies to collect the debts owed to them. My role in this process is to negotiate such agreements on behalf of the debtor.

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.

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.

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.

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.

Bankruptcy Basics – The Process of Filing and Completing Chapter 13 Bankruptcy

Chapter 13 has helped many to resolve their debts and save their homes from foreclosure. The following is a short description of a typical process that someone filing Chapter 13 bankruptcy goes through, from the initial meeting and until a discharge is received.

The initial stage of a Chapter 13 bankruptcy usually involves meeting with your bankruptcy attorney and discussing the case. The attorney will typically ask you to prepare a bankruptcy questionnaire, in which you will be asked to list your income and expenses, assets and liabilities, and describe your financial dealings over the past few years. Once the questionnaire is completed, your bankruptcy lawyer will be able to review and identify various exemptions applicable to your assets, determine whether certain of your debts are dischargeable or not, and will try to do bankruptcy planning to preserve as many of your assets as possible.

Your next step will be taking the credit counseling course. Under the bankruptcy law, you must complete the course before your bankruptcy petition can be filed with the bankruptcy court. The course must be taken from an authorized provider and can be done in person, over the telephone or internet. You will also have to provide your bankruptcy attorney with copies of your pay stubs for 60 days preceding the filing, and a copy of your most recent tax return.

Once the above steps are completed, your petition will be prepared and filed with the bankruptcy court. Concurrently with the petition, a copy of your credit counseling certificate and copies of your paystubs will be filed. Once the bankruptcy petition is filed, the automatic stay begins and protects you from all collection activities by your creditors. The automatic stay will last until the end of your bankruptcy case, unless it is lifted by the bankruptcy court. Your petition will include a repayment plan pursuant to which your disposable income will be used to repay creditors.

Within 45 days of your filing, a meeting of the creditors, also known as 341 hearing, will take place. You will have to come to the bankruptcy court in Rochester, if you reside in Monroe County, and answer the questions posed to you by the bankruptcy trustee. The trustee will typically ask you questions about your financial affairs, your income, expenses, assets and liabilities. You also may have to answer questions from your creditors who have the right to appear at the hearing. You will have to swear under oath that the information you provided in your petition is complete and accurate. After the hearing the trustee will issue a report to the bankruptcy court stating whether he recommends that your repayment plan be confirmed.

A typical Chapter 13 plan involves using your disposable income to repay all or a portion of your debts to the creditors over the next three to five years. The plan provides a repayment schedule that you’ll comply with to catch up on your past-due balances while staying current with other payments. Filing of a Chapter 13 bankruptcy can stop foreclosure and allow you to repay any mortgage arrears over the duration of your plan. Your plan can include such debts as mortgage and other secured and unsecured loan arrears and any other debts. You must make your first payment (as part of the repayment plan) within 30 days of filing your petition. If such payment is not made, the court may dismiss your case.

Within 45 days after the meeting of the creditors, you will have to complete the financial management course. If you will not complete it, you will not become eligible for discharge. The course is designed to help you make the most of your bankruptcy and includes tips on saving, managing money and handling credit.

Within 30 days after the 341 hearing, your confirmation hearing will be scheduled. On that date, you will appear with your attorney before Hon. John C. Ninfo, United States Bankruptcy Judge for the Western District of New York, who will make the ultimate decision whether to approve your Chapter 13 bankruptcy.

Once the plan has been approved, the trustee will typically enter a wage deduction order pursuant to which, all or a portion of your plan payments will be taken out of your wages and paid directly to the bankruptcy trustee. The trustee, in turn, will be making the payments to your creditors. You are required to make your final payment under the plan within five years of filing your petition. After doing so, you will receive your bankruptcy discharge and officially be out of Chapter 13 bankruptcy.

You will not be eligible for Chapter 13 bankruptcy protection if you had filed for bankruptcy in the past four years, so make sure you tell your bankruptcy lawyer whether you had past bankruptcy filings.

Bankruptcy Basics – The Process of Filing and Completing Chapter 7 Bankruptcy

The following is a short description of a typical process that someone filing Chapter 7 bankruptcy goes through, from the initial meeting, until a discharge is received.

The initial stage of a Chapter 7 bankruptcy usually involves meeting with your bankruptcy attorney and discussing the case. The attorney will typically ask you to prepare a bankruptcy questionnaire, in which you will be asked to list your income and expenses, assets and liabilities, and describe your financial dealings over the past few years. Once the questionnaire is completed, your bankruptcy lawyer will be able to review and identify various exemptions applicable to your assets, determine whether certain of your debts are dischargeable or not, and will try to do bankruptcy planning to preserve as many of your assets as possible.

Your bankruptcy case will likely last between four and six months, during which time, the following events are likely to take place.

If the bankruptcy trustee is satisfied with your information, this is likely to be the only trip you will have to make to the bankruptcy court. If your petition is incomplete, and trustee has additional questions or needs additional documents, your hearing may be postponed to another date.

If the bankruptcy trustee identifies any non-exempt assets, he can sell them to raise money to pay your creditors. In many Chapter 7 cases, filers do not have any non-exempt assets. If such non-exempt assets are identified, you have the option of either letting the trustee take those assets or paying trustee the value of those assets in order to keep them.

If you have such assets as a home or a car, and you still owe money on either a mortgage or a car loan, you will have an opportunity to sign a reaffirmation agreement in order to keep those assets. A reaffirmation agreement is an agreement renewing your liability on the debt with the lender. You will agree to continue making payments so you will keep whatever property you don’t want to give up. You will have to be current on any such debts or will have to make them current in order for a creditor to let you sign a reaffirmation agreement.

Typically within 2 months of the meeting of creditors, you will receive the bankruptcy discharge. The discharge is basically an order of the bankruptcy court relieving you of your responsibility to pay debts that were discharged in the bankruptcy. After you receive your discharge, your bankruptcy is completed.

Once you complete a Chapter 7 bankruptcy, you cannot file a Chapter 7 again for the next eight years.

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.

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.