All rights reserved.
 | |  | |  | |  | |  |
Office Hours: Appointments only Monday through Friday 9 am to 5 pm Saturday and Sunday Closed Phone 845-264-5271 Fax 845-231-6080 contact@tmurphylawfirm.com 33 Henry St Suite 4 Beacon, NY 12508 |
| A Chapter 7 is most suitable for people with modest incomes Chapter 7 of the bankruptcy code is usually most appropriate for individuals who have incomes at or below the median income for their household size in their state of residence. As a general rule, if you earn more than your state's median income for the size of your household, filing a chapter 7 petition will be presumed to be an abuse of the bankruptcy court and you will have to file a Chapter 13. Since the changes that were enacted into law in 2005, the Bankruptcy Code is designed to force people with incomes above the median to file a Chapter 13 instead. When trying to decide which chapter to file under, it's important for you to keep in mind the distinction between income and assets - what you earn as opposed to what you own. A Chapter 7 may be suitable for you even if you have significant equity in your home - that is if your home is worth more than you owe on your mortgage - or even if you own certain kinds of other valuable assets because of fairly recent changes in New York State exemption law. (Read about permissible exemptions below.) A Chapter 7 eliminates your unsecured debt Chapter 7 bankruptcy will eliminate most of your unsecured debt, such as medical bills, credit card bills and personal loans. The trade-off is that the Trustee may "liquidate" your non-exempt assets. As a Chapter 7 petitioner, your non-exempt assets may be converted to cash and distributed to your creditors by the Trustee. At the conclusion of the case the court grants you a discharge - this means that creditors cannot seek to collect debts included in the discharge. A creditor who willfully ignores the discharge order can face stiff penalties. A Chapter 7 is a relatively quick procedure We commence a Chapter 7 by electronically filing a petition with the appropriate bankruptcy court on your behalf. The Chapter 7 bankruptcy process usually takes about four (4) to six (6) months to complete. Almost everyone is eligible for a Chapter 7 You are probably eligible for a Chapter 7 bankruptcy unless you have received a Chapter 7 bankruptcy discharge in the last eight years or a discharge through a Chapter 13 bankruptcy in the last six years. If your income is above the state median income, however, filing a Chapter 7 bankruptcy petition may be deemed an "abuse" of the bankruptcy code and you may be forced to choose a Chapter 13 bankruptcy instead. The automatic stay stops all collection activity From the moment we file your bankruptcy petition, an “automatic stay” goes into effect. This is true whether you file a Chapter 7 or a Chapter 13 petition. The automatic stay immediately stops virtually all creditors from taking further steps to collect debts they claim you owe. It halts garnishment of wages, repossession of vehicles, mortgage foreclosure, pending lawsuits/judgments and collection phone calls. If a creditor or a debt collector willfully violates the automatic stay, the court may punish them with significant fines and penalties. The Bankruptcy Trustee reviews your case After your petition has been filed the court appoints a “Trustee” to oversee your case. The Chapter 7 Trustee is an individual responsible for making sure that all creditors are treated fairly in the bankruptcy process and to administer the bankruptcy estate. The Trustee will look over the paperwork we file on your behalf and determine if there is any “nonexempt” property that can be sold to pay your creditors. If there is nonexempt property it becomes part of the bankruptcy estate and the Trustee has the legal power to sell or "liquidate" that property in order to use the money obtained to pay both himself and your unsecured creditors. This means that a Trustee has a financial incentive to locate any property that is part of the bankruptcy estate. Exemptions allow you to keep property In a Chapter 7, you are allowed to claim certain “exemptions” regarding property. Property which is exempt is taken out of the bankruptcy estate and is not available to the Trustee to pay debts owed to unsecured creditors. In other words, this is property you get to keep. HOMESTEAD EXEMPTION: For most people the most important exemption is the one that allows them to keep the home they live in. If you live in the county of Dutchess, Albany, Columbia, Orange, Saratoga or Ulster, you may claim up to $125,000 of equity in real estate which is your primary residence as exempt property. A husband and wife who file jointly can protect as much as $250,000 of equity in their home by each claiming the maximum exemption. (If you live in the counties of Putnam, Rockland, or Westchester the amount of the individual exemption is $150,000.) It follows that if you have less equity in your home than the amount of the available exemption - e.g. less than $125,000 of equity and you live in Dutchess County - the trustee will have no incentive to sell your home to pay your unsecured creditors. This means you probably can keep your home so long as you continue to be current on your mortgage while your other debts are eliminated by the bankruptcy. OTHER EXEMPTIONS: In addition to your homestead exemption, you may claim an exemption up to $10,000 of equity in personal property, and $1,000 in intangible property such as checking or savings accounts. If you claim no homestead exemption and you claim less than $10,000 of equity in personal property, then you may exempt cash in the amount by which $10,000 exceeds your claimed exemption in personal property. There are additional state exemptions that are applicable to certain retirement accounts. You may read the statutes pertaining to bankruptcy exemptions contained in the law of the State of New York here. An individual debtor may now alternatively choose to exempt property as permitted under federal law. You may read the statute pertaining to bankruptcy exemptions under 11 USC §522 here. You will have to attend a meeting of the creditors A week or two after you file, the bankruptcy court will send you and all your creditors a notice that a "creditors meeting" has been scheduled. Calling this a "creditors meeting" is something of a misnomer, however, because rarely do any creditors appear at the meeting. Instead, the bankruptcy Trustee asks you questions about your petition and the papers that were filed. The Trustee will use the meeting to determine that you have been truthfull and thorough in your petition and if there are any assets that can be sold for the benefit of your creditors. In most Chapter 7 cases, the Trustee determines that there are no assets to liquidate. You will have to pay your secured debts if you want to keep the collateral A Chapter 7 bankruptcy will discharge your personal liability for debt secured by collateral, but it does not terminate a creditor's rights in the collateral. This means that while bankruptcy will eliminate your personal liability, unless you make the payments for collateral as they come due your lender can still eventually repossess or foreclose on the item. If you can't save collateral, like a car, from being repossessed because you just can't afford the payments, you may still want to file for bankruptcy. Your bankruptcy will eliminate your personal liability for the debt. Otherwise you may be liable for the difference between what the collateral is sold for at a repossession auction and what was owed on the property when it was repossessed. A "secured debt" is one that is supported by a lien on your property to ensure the debts repayment. A secured creditor can sell the property to obtain payment if you don’t pay the debt. An example of a "secured debt" is a mortgage on a house or a lien on a car. If you don't pay the debt, eventually the creditor will foreclose on the property. Generally speaking, if you want to keep property that secures a debt out of the hands of a secured creditor, you must become current on the payments on the account. Also, keep in mind that if you have significant equity above the sum of any exemption amount you can claim in the asset together with the amount secured by the asset, the Trustee may have an incentive to take possession of property he can liquidate for the benefit of the unsecured creditors. A creditor may ask you to “reaffirm” a secured debt. A reaffirmation agreement is a document you sign and give to your creditor during the bankruptcy process that re-obligates you to pay the liability. Reaffirmation has to be looked at closely because it may not be in your best interest - and, in fact, may be completely unnecessary even if you choose to keep the collateral. A bankruptcy discharge gives you a fresh start At the end of the bankruptcy process, most of your debts will be wiped out - that is discharged - by the court. Some debts, however, survive a bankruptcy discharge. Examples of debts that usually survive a Chapter 7 Bankruptcy discharge include child support, most recent tax liability, student loans, and debts which were incurred by means of fraud or misrepresentation. |
The information provided on this page
should give you an overview of a
Chapter 7 bankruptcy. It is not intended,
however, to give you legal advice about
your specific situation. You should seek
legal consultation prior making any
decisions about how to proceed.
should give you an overview of a
Chapter 7 bankruptcy. It is not intended,
however, to give you legal advice about
your specific situation. You should seek
legal consultation prior making any
decisions about how to proceed.