Debts That Can And Cant Be Discharged In Chapter 7 Bankruptcy
Chapter 7 should dismiss most of the debts you owe, but there are some hard-and-fast debts that cant be discharged in Chapter 7.
The list of non-dischargeable debts includes:
- Child support
- Student loans must prove undue hardship
- HOA fees if you surrender your home or condo
- Any other form of unsecured debt.
How Does The New Subchapter 5 Work
Here is the main thing to know: Like all bankruptcies, it has a magic power called the automatic stay. Filing for bankruptcy stops creditors from collecting from you.
It buys you time, Mr. Keach said.
And time is everything. For example, take a restaurant that was having its best year before the pandemic, but then its revenue disappeared. A Subchapter 5 bankruptcy could help the company by halting creditor collections and allowing owners to renegotiate terms.
What it might allow is, with a couple of exceptions, a built-in moratorium on rent, Mr. Keach said. You could propose a plan where you could literally not pay anything toward old debt for four to six months as long as your projections show that you have positive projected income after that.
In exchange, business owners will need to use their net operating income whats left after the usual expenses like rent, payroll, cost of goods to pay creditors for the next three to five years.
New York Bankruptcy Law
Bankruptcy cases take place in federal courts and are governed by the U.S. Bankruptcy Code. However, the Code lets states make some of their own rules about which property is exempt from bankruptcy and protected from creditor claims. In other words, exempt property is the property you can keep to help you restart your life after bankruptcy.
New York has created its own exemption rules but also lets you choose the exemptions included in the U.S. Bankruptcy Code if those are more helpful to you. This does not mean you can pick and choose between the New York and federal bankruptcy exemptions for your property. You must pick either the state or federal exemptions for all of your assets.
To understand how the exemption process works in bankruptcy, it is helpful to know there are two kinds of personal bankruptcy:
One important benefit offered by both types of bankruptcy is the automatic stay that will be issued when you file. The stay will stop collection by your creditors, including court cases and foreclosures. The stay gives you some time so that you can resolve your debt problems through the bankruptcy process without worrying about being harassed by your creditors.
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New York Bankruptcy Lawyers Estimated Cost
Upsolve believes hiring an attorney is an excellent investment if you can afford it. And New York lawyers are some of the finest in the country. In fact, every day, lawyers help Upsolve give low-income individuals who otherwise could not afford it, access to our nationâs Bankruptcy Courts. But the cost of a bankruptcy lawyer in New York averages between $965 and $1,550 for a simple Chapter 7 case. That range considers the discounted rates many New York lawyers give to low-income individuals seeking to file a Chapter 7 bankruptcy in New York. Still, if you are in a situation similar to that described by one of our users who said âIâm getting paid, my money is going out. Iâm getting paid, my money is going out.â Trying to save up $1,500 to hire an attorney is very near impossible. But, you donât need to hire an attorney to file a Chapter 7 bankruptcy in New York. The Legal Aid Society of New York City Civil Practice division offers essential civil legal services to families and individuals with nowhere else to turn. And even if you donât qualify for free legal aid, you can still file a Chapter 7 bankruptcy in New York on your own, without an attorney, for free. And,using the content in this guide, Upsolve is here to help you every step of the way.
Worst Case Scenario: Foreclosure
Foreclosure is the worst thing that can happen when a co-op files for bankruptcy. A foreclosure is a lawsuit started by the lender to obtain legal title to the building. Stuart M. Saft, a Partner at Dewey & LeBoeuf LLP, says that in New York, a foreclosure can take several years but in the end unless the co-op has a legitimate defense, a referee will hold an auction to sell the building, and the shareholders will revert back to being rental tenants and no longer “own” their apartments.
In the event that a co-op files for bankruptcy as a result of defaulting on its mortgage, the lender has the power to foreclose on the building and evict the shareholders. Bailey adds, “The lender of the underlying mortgage cannot go after each apartment shareholder because the building’s mortgage is not a personal guarantee by shareholders.” In a bankruptcy, the co-op’s bank will get paid before the shareholders.
So, any proceeds from the foreclosure sale of a bankruptcy will go to pay the bank. Shareholders who have obtained personal mortgages will be responsible for those payments even if they’ve lost ownership of the apartment shares.
In this scenario, shareholders don’t have many options. If the co-op chooses to file a Chapter 11 , the co-op mortgagee can move to convert it to a Chapter 7, which is liquidation, where the building is sold immediately.
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Exemptions For Pensions And Benefits
The following types of pensions and benefits are exempt from bankruptcy in New York:
- Traditional, simple, and Roth IRAs, as well as Keogh or other qualified retirement plans
- Social Security, disability, unemployment, public assistance, and workers’ compensation
- Benefits paid as reparations to a crime victim, wrongful death payments, and up to $8,550 in personal injury payments
- Crime victim’s compensation, local public assistance, and home relief
Will I Lose My Belongings If I File Chapter 7 Bankruptcy Understand New York Bankruptcy Exemptions
Bankruptcy exemptions protect the equity in your property in a bankruptcy case. Likewise, property not protected by bankruptcy exemptions may be sold in a Chapter 7 liquidation case. Note also that for Chapter 13 cases, non-exempt equity in the property can increase the bankruptcy plan payment.
The most important asset most people like to protect is their home. See the New York bankruptcy homestead exemption below.
The homestead exemption is often broken down by age and whether you are married.
Single and under 65: Specific By Region
Single is 65 or older: Specific By Region
New York specific homestead bankruptcy exemption text: N.Y. Civ. Prac. L. and R. § 5206. *Real property including co-op, condo, or mobile home, to $165,550 for the counties of Kings, New York, Queens, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester, and Putnam $131,325 for the counties of Dutchess, Albany, Columbia, Orange, Saratoga, and Ulster $82,775 for the remaining counties in the state. Husband and wife may double.
It is important to review additional New York bankruptcy exemptions and choose those exemptions that best protect your assets.
The federal bankruptcy exemptions are detailed in 11 U.S. Code §522. The National Consumer Law Center maintains a list of federal bankruptcy exemptions on its website. New York is a state that allows you to use federal bankruptcy exemptions
Always check that you use the most current information available when analyzing bankruptcy exemptions.
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C New York Debt Management
Debt settlement companies negotiate lower amounts. Debt management companies negotiate lower interest rates. This is the key distinction. Often these programs last 3 or 5 years. This option is often more expensive than debt settlement and some creditors such as personal loan lenders may not work with the debt management company. There may be debt management credit score implications as well.
Who may debt management in New York best for? Debt management may be best for those that have all high-interest credit card debt, and a reduction from 22-30% interest rate to a 10% interest rate would continue to make the debt affordable.
Who Can’t File For Chapter 7 Bankruptcy
Co-Owner at Rosenberg Musso Weiner
Brooklyn bankruptcy lawyers can help you file for bankruptcy in New York. But not everyone is eligible for Chapter 7 under the 2005 bankruptcy laws. An experienced New York Chapter 7 bankruptcy attorney is therefore extremely important in helping you figure out if you are eligible for Chapter 7.
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A Chapter 13 Bankruptcy In New York
For those who make above the income limit for Chapter 7, debt relief can still come through a filing a Chapter 13 bankruptcy. A Chapter 13 Bankruptcy in New York case allows you to restructure your debts into an affordable monthly plan. By restructuring debts, many people can afford to keep their homes and vehicles under Chapter 13.
Chapter 13 stops foreclosures, repossessions, and wage garnishments. Chapter 13 bankruptcy also allows you to pay back mortgage payments, past-due car payments, and tax debt over three to five years through a bankruptcy plan. In addition, New York may also allow you to reduce unpaid child support and alimony. However, you must resume your normal domestic support payments to remain in Chapter 13.
In a Chapter 13 plan, some debtors can lower their car loan payments and erase second mortgages, if they meet certain requirements.
Differences Between Types Of Bankruptcy
Chapter 7 bankruptcy differs from Chapter 13 bankruptcy in important ways. Most notably, in a Chapter 13 bankruptcy the debtor keeps their property with the understanding that they are required to pay back all or a portion of the debts over a three-to-five-year period. Chapter 13 bankruptcy allows the debtor to retain assets and recover from bankruptcy quickly, provided the debtor is able to meet the eligibility requirements, such as earning enough income to repay the debt in a timely fashion.
Chapter 7 bankruptcy can be more devastating to a debtor with a sizable asset base, but it is a preferable option if the debtors asset base is small and the amount of debt is seemingly insurmountable. It can allow debtors to very quickly discharge a large amount of debt. Chapter 7 bankruptcy is usually reserved for people with little income who cannot pay back a portion of their debts.
With a Chapter 7 bankruptcy filing, unsecured debts are wiped clean once the court has approved the filing. This process can take several months. With a Chapter 13 bankruptcy filing, unsecured debts are not wiped clean. Instead, payments have to be made according to a plan mandated by the court. Once you reach the end of the plan and all payments have been made, any remaining debt is wiped clean.
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Should I Take Out A Loan Or File For Bankruptcy
Every business owners situation is different. But a general rule is: If you cant identify enough future revenue to pay off the debt, borrowing may make matters worse. Some business owners no longer have any personal resources to draw on and may not receive federal stimulus funding.
Dont borrow blindly and say, It will all work out, said Ms. Clayson, who is a federal trustee for Subchapter 5 claims. If you are thinking a credit card is how you will open your doors and bridge yourself to the next stage, then you really need to be thinking about how viable your business is.
If you find yourself considering nonbank lenders with high interest rates, its time to call a lawyer, she said.
Whats The Difference Between Chapter 7 And Chapter 13 Bankruptcy
The major difference is time Chapter 7 takes 4-6 months Chapter 13 takes 3-5 years and money. You can have most, or all your unsecured debt discharged in Chapter 7 bankruptcy. In Chapter 13, some of your debt is forgiven, but only if you meet the conditions approved by the trustee and bankruptcy judge.
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How Do I Know If Restructuring Would Help
Write a business plan for a post-pandemic business world. How will your business operate? Where will revenue come from? What new expenses for marketing, infrastructure and more will you incur to help your business pivot? If you can write a business plan that shows a positive balance sheet after bankruptcy, restructuring might work.
Chapter 11 bankruptcy is designed to fix peoples balance sheets, Mr. Keach, the Maine lawyer, said. It allows you to restructure some debt, eliminate other debt. It doesnt generate revenue for you.
Bankruptcy Exemptions In Chapters 7 And 13
Exemptions work differently in Chapters 7 and 13. In Chapter 7 bankruptcy, you lose property not covered by an exemption. The bankruptcy trustee responsible for managing your case will sell the property for the benefit of your creditors.
In Chapter 13 bankruptcy, you can keep all of your property however, that luxury comes at a priceliterally. You’ll pay your creditors the value of any property not covered by an exemption in your Chapter 13 repayment plan.
For example, say you own a car outright worth $3,000, and your state has a vehicle exemption of up to $5,000. Here’s what would happen in each chapter.
- Chapter 7 Bankruptcy. If you file for Chapter 7 bankruptcy, you will get to keep your car because the exemption would protect the equity fully. In the same example, if your vehicle were worth $15,000, the bankruptcy trustee would sell your car, pay you $5,000 for the exemption, and distribute the rest to your unsecured creditors.
- Chapter 13 Bankruptcy. In Chapter 13, you wouldn’t need to pay extra to your creditors through your repayment plan. However, if the car were worth $15,000, you’d need to pay your creditors at least $10,000 through your plan.
Keep in mind that these examples don’t take into account a vehicle loan. For more information, read How to File Bankruptcy Without Losing a Car.
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Filing Without Seeking A Discharge
In a few cases, a debtor may want to file for bankruptcy to extend the time in which they can pay off the debt. A repeat filing under Chapter 13 may be useful in these cases because it can spread the payments on the debt across the three to five years of the repayment plan. A debtor also may want to file under Chapter 13 immediately after getting a discharge under Chapter 7. This is often known as Chapter 20 bankruptcy.
A Chapter 20 bankruptcy may help debtors who have a substantial amount of debt but want the benefits of the repayment plan under Chapter 13, which allows them to pay off debts over time. Filing under Chapter 7 can help you trim your overall debt to be more manageable so that you can qualify for Chapter 13 and have a better chance of paying off your remaining debts efficiently. Even though the ensuing Chapter 13 case will not result in a discharge, it will allow you to catch up on substantial debts related to important assets, such as your home or car. It also can help you pay off debts that are not dischargeable. In some situations, a debtor can strip off second or subsequent mortgages through Chapter 20 as well.
Will I Lose Everything In Bankruptcy
It depends on what personal guarantees you made. Most small-business owners put up their home or some other asset as collateral for start-up loans. In fact, the Small Business Administration requires that as part of its non-Covid-related lending.
If you used your house as collateral, its possible you would be forced to sell it as part of a Chapter 7 settlement. Under Chapter 11, you may have more luck.
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Will I Receive A Discharge In Bankruptcy
Certain types of debt automatically do not get discharged in bankruptcy, like certain taxes, student loans, most government fines and penalties, court restitution orders, domestic support obligations , and debts in connection with divorce decrees, among others.
For other types of debts, creditors have the right to file a lawsuit in the Bankruptcy Court, called adversary proceedings, against the debtor to determine if these debts are dischargeable. Creditors can sue debtors for a judgment in the court determining that their debts will not be eliminated in bankruptcy.
Here are some examples of debts that could be excepted from discharge with a bankruptcy court order:
- Actual fraud or false representations
- Consumer debts owed to a single creditor above the dollar limits specified in the Bankruptcy Code for luxury goods or services
- Debts for malicious injury of the debtor to another person or entity or property of another person entity
- Money or cash advances above the dollar limit specified in the Bankruptcy Code incurred within the time period specified in the Bankruptcy Code
- Renewals or refinancing of credit obtained under false pretenses
Who Cant File For Chapter 7 A Good Question For A New York Chapter 7 Bankruptcy Attorney
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