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Bankruptcy FAQ

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). 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).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. 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.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.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.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 experienced bankruptcy lawyer. 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.)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 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. 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.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 plan payments 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. 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.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.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.Probably about 2 to 3 years.This is what Chapter 13 is designed for. Please give me a call.First and foremost, it relieves the incredible stress that you may experience when faced with overwhelming debt. It does this by immediately stopping constant creditor collection phone calls, letters threatening legal action, lawsuits, bank restraints and wage garnishment. You get a much-needed breathing spell to collect your wits and regain control over your life. At the conclusion of the case, usually a mere 3 months long in a chapter 7 case, the vast majority of your debts are discharged, and you begin the process of re-establishing your credit standing.In the great majority of cases filed in New York's Hudson Valley, no assets are liquidated. Liens on assets you intend to keep (e.g., your home and your cars), and laws called "exemption statutes" protect your property.Surprisingly, your credit score can return to the high 600's or the 700's in as little as 2 to 3 years after you receive your discharge in bankruptcy.Chapter 13 was originally (and still is) the 'save the house' case. It is a reorganization proceeding for individuals. In a chapter 13 case, you propose a plan to repay the past-due amounts on assets that are subject to a lien and which you want to keep. To do this successfully, your net monthly income must be sufficient to permit you to resume paying, e.g., the regular monthly payments on your past-due home mortgage, while also paying a monthly amount to the chapter 13 trustee in an amount sufficient to pay off the past due amounts over time. The time period for payments to the chapter 13 trustee is either either 3 years or 5 years.
Some clients may be required to seek protection under chapter 13 (rather than chapter 7) based on their income.
Chapter 7 is what most people think of when they think of bankruptcy. It does not involve a repayment plan, and is usually over with shortly after 3 months. While chapter 7 is entitled "Liquidation," in the great majority of cases filed in New York's Hudson Valley, the only thing that is liquidated is debt. Provided that your assets are accurately described in our work together, I will let you know whether any assets are at risk, and you then decide how to proceed. If your case does involve significant assets, you may choose to proceed under chapter 13, where the trustee does not have the power to sell your valuable property.
There are 2 basic types of 'lien stripping'.
If a creditor has taken a judgment against you before you file for bankruptcy relief and you are on the deed to your home, that creditor now has a judgment lien on your home. That judgment lien may (and often does) 'interfere' with your unfettered right to a homestead exemption. If it does, you may ask me to file a motion to avoid that judgment lien, stripping it off from your home. If left undisturbed, the judgment lien will accrue interest at 9% per year until paid. If you don't deal with the lien during the bankruptcy case, payment in the amount of the judgment plus interest will be required when you sell or refinance your home.
The other kind of 'lien stripping' occurs only in chapter 13 cases. This involves what is often called the 'underwater' junior mortgage (or mortgages, if you have both a second and a third mortgage). If you have multiple mortgages and your home is worth less than the payoff amount on the first mortgage, you may strip- off the underwater junior mortgage(s) by bringing what is called a Pond motion. ('Pond' is the name of the court of appeals case that permitted this practice in chapter 13 cases in New York State). This can have enormous benefit to you, depending on the amount owed on such junior mortgages, and may justify seeking relief under chapter 13 even though you are qualified for relief under chapter 7.

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