I must keep my house. Could I lose my house if I file Chapter 7?
With very rare exceptions, homeowners in the Hudson Valley will keep their homes when they file for Chapter 7 bankruptcy. It depends on the value of your home, the amount(s) owed on the mortgage(s), whether you are the only one on the title (and occasionally other factors).
What about my car(s)?
As with a house, it depends on the value of the car and the amount of the car loan. There are generous exemptions in bankruptcy to help you keep your car(s).
I’m the one with these debts, not my wife [husband]. Can I file without her [him]?
Yes, you can. That said, sometimes it is beneficial for married couples to file jointly, even if one of you has most (or almost all) of the debt.
If I file without my spouse, will my bankruptcy affect her [him]?
No, it shouldn’t. If you are jointly liable for a debt that is reported to the credit reporting agencies, the bankruptcy filing may be reported on both of your credit reports. But if the non-filing spouse continues to pay, he or she can take steps to remove the erroneous derogatory credit reporting information from their credit reports.
My wages are being garnished, or they are about the be garnished. Will bankruptcy stop a wage garnishment?
Yes, absolutely. If the garnishment has not begun, it must not begin. If it is ongoing, it must be discontinued, and any money taken after you file must be returned to you.
My creditors tell me that if I don’t pay now, they’ll take the money in my bank account and garnish my wages. What should I do?
No creditor other than the IRS or a federal student loan collector can take money from your bank account or wages without first suing you in court and taking a judgment. A collection lawsuit begins with a process server attempting in-hand service of a summons and complaint. If you get a knock at the door, or receive notice of certified mail to pick-up, open the door to accept service or go to the post office and get the mail. Here what you don’t know will hurt you. If you have been served with a collection lawsuit, call a bankruptcy lawyer immediately to learn your rights and protect yourself.
I want to pay these debts, but I don’t have the money now. Should I take a loan from my retirement account? Or my whole life insurance policy?
It is almost always a really bad idea to invade your retirement accounts or the cash value of a whole life policy to pay down unsecured debt, like credit card debt. Your retirement accounts and whole life insurance policies are exempt assets that creditors cannot touch. And, in the present economic environment, you are going to need every penny of those funds to support you and your family when you reach retirement age or experience a life-changing illness or injury resulting in disability. Charity begins at home. Please do not deplete these accounts without first speaking with an experience bankruptcy lawyer.
There is a judgment against me. What will happen with that?
If you are being garnished or if your bank account has been frozen (restrained), there has been a money judgment taken against you. When the judgment is filed by the county clerk in a county where you own some real estate, the judgment is also automatically a lien against that real estate. Frequently, you can take additional action in a bankruptcy case to avoid the lien of that judgment against your home. (Please note: this doesn’t happen automatically just because you file and get a bankruptcy discharge. The discharge in bankruptcy prevents a judgment creditor from garnishing your wages or bank account after bankruptcy, but it doesn’t affect the lien against your home that is created when the judgment is filed before bankruptcy. If you want to avoid that lien so that it doesn’t have to be paid [with 9% annual interest] when you eventually sell or re-finance your home, you must file a motion to avoid that judicial lien in the bankruptcy case. There is an additional fee for that service, but it is usually well worth it.)
I’m on Social Security and a pension, and I don’t have a house. Do I have to file? And if I don’t what happens next?
Social security and pension or retirement income is exempt from collection, so no, you don’t have to file if you don’t have a home or other assets that can be taken by a judgment lien creditor. If you are thick-skinned and don’t mind the hassle and stress that accompanies the consumer debt collections process, sit tight with the awareness that your income is bullet-proof. You will experience one or more times where creditor(s) that have taken a judgment against you will restrain your bank account(s), leading to bank service charges on the front and back-end of the process, and some NSF check charges. Many of my clients choose to file to avoid that stress, which is insidious and can be injurious to your health and welfare.
I feel that if I file for bankruptcy, I’ve failed. Should I try one of these debt settlement or ‘debt consolidation’ programs that they advertise instead of bankruptcy?
I can’t count how many times I have filed cases for clients who tried these programs, only to have one or more creditors sue them anyway. These companies don’t do any more than you can do yourself, which amounts to waiting around for settlement offers to arrive with the hope that you will have enough money when they do to pay the discounted settlement offers. The debt settlement companies collect money from you each month and have a relationship with a lawyer who purports to represent you, so that collection notices go to them. After they take their fees, they wait for the offers to come in. And there is a very good chance that when the 600 lb. gorilla creditor comes knocking, there won’t be enough cash in the kitty and you’ll get sued. When that happens, you will probably call me or someone like me, and all of the $$ you paid to the debt company will have been lost, for nothing. Please come see me before you try this.
Who will know if I file for bankruptcy?
Your creditors, potential new creditors who offer you credit after bankruptcy, your trustee and me. If your bank account has been retrained, the bank will know because I will notify them to release your account. And if you are being garnished, the sheriff and your employer will know because I will notify them to release your wages from the garnishment.
What is the difference between chapter 7, 11, 12 and 13? Which one might be right for me?
Chapter 7 is the old-fashioned ‘straight bankruptcy’. Chapter 7 is entitled “Liquidation’ because the case administrator (called a Chapter 7 trustee) is a commission salesperson on a $70 base salary taken from the case filing fee. The trustee also gets paid a commission for any non-exempt assets that the trustee sells in the case. It is rare for assets in an individual Chapter 7 case in the Hudson Valley to be sold by a trustee. Ordinarily, a Chapter 7 case filed in Poughkeepsie (for clients in Orange, Dutchess, Ulster, Sullivan, Greene, and Putnam Counties) or White Plains (for clients in Rockland and Westchester Counties) ends up liquidating debts rather than assets. The case typically takes a little more than 3 months from the time that it is filed with the Bankruptcy Court (the case preparation time adds a bit to that before filing).
Chapter 11 is the mother of all reorganization bankruptcy cases. Think ‘General Motors’ and ‘American Airlines’. Chapter 11 is also available for individuals with lots of assets and may be essential for small businesses.
Chapter 12 is the family farmer bankruptcy case. “Family farmer” incudes small farming enterprises organized as limited liability companies or corporations. In Chapter 12, the family farming operation has even greater latitude in dealing with creditors than do individuals in Chapter 13.
Chapter 13 historically was the ‘save the house’ case. It is only available to individuals with debts below a statutory threshold and may be required (rather than chapter 7) if your income exceeds a certain limit based on data from the Census Bureau for your household size. In Chapter 13, unlike Chapter 7, you make monthly reorganization plans through the case administrator, called the Chapter 13 trustee. The Chapter 13 trustee does not have the power to sell anything, and instead acts as a collection and distribution agent. Once your Chapter 13 plan of reorganization is approved by the Bankruptcy Judge, the trustee begins paying out your plan contributions to your creditors. Unlike the debt settlement scenario outside of bankruptcy, creditors cannot break out and sue you, and must accept the payments on their claims. At the end of the plan repayment period, any remaining unsecured debts such as credit cards and personal loans are discharged. The amount of your plan payment is based on what you can reasonably afford, and not on the amount that you owe.
I don’t want to lose my paid-off car. I was thinking of giving it to my brother. Is that okay?
No, it’s almost certainly not okay. Before you transfer anything of value if you are contemplating a bankruptcy case, speak to me. It is probably safer if you keep it than if you don’t.
What about student loans? Are all student loans non-dischargeable?
Federal student loans are not dischargeable except in the most extreme circumstances. Private student loans may be dischargeable if they are not for qualified educational expenses.
I owe the IRS back taxes. Can I discharge income tax debt?
If you filed your tax returns on time (including within any extensions granted), older income taxes may be dischargeable if they are associated with returns filed more than 3 years prior to the bankruptcy filing and provided that the taxes in question have not been reassessed within 240 days. We may be able to time the filing of your case to maximize the discharge of income tax debt.
Note: Payroll taxes and sales taxes assessed against you individually as the result of your role in a business are never dischargeable, but may be paid down or paid off through a chapter 13 (or chapter 11) case.
How long will it take to rebuild my credit if I file?
Probably about 2 to 3 years.
My mortgage is behind, and my home is going into foreclosure. What can I do to keep my home?
This is what Chapter 13 is designed for. Please give me a call.