Bankruptcy is designed to provide a fresh start for individuals experiencing severe financial distress. Where appropriate, it can be used to discharge most types of liabilities, including credit card and mortgage obligations. However, bankruptcy cannot be used to discharge all obligations. Some common non-dischargeable debts include domestic support obligations, tax arrears, criminal fines and most student loans. Chapter 7 or Chapter 13 of the United States Bankruptcy Code are the two most common types of bankruptcies used by consumer (non-business) debtors.
Depending on the chapter and other important factors, filing for bankruptcy can place a temporary “automatic stay” on the ability of creditors to pursue you and your assets. This limited period can be helpful in allowing you to maintain property such as your home, bank accounts and other personal items while addressing your duties to creditors.
A bankruptcy formally begins when you file a petition for relief with the Federal Bankruptcy Court. In Nassau County, Chapter 7 and 13 petitions are filed with the Bankruptcy Court located at either 271 Cadman Plaza East in Brooklyn, New York or 290 Federal Plaza in Central Islip, New York. At that point, a trustee will be appointed to your case. It is the trustee’s duty to ensure that you qualify for bankruptcy and that the interests of your creditors are maintained. Approximately 30 days after filing, you will be required to appear at a meeting of creditors. At this meeting, the trustee will question you about your finances and the circumstances leading to your financial distress. Creditors listed in your petition have the right to attend this meeting and ask questions, but this seldom occurs. If the trustee is satisfied, the hearing will be closed and the bankruptcy can proceed.
A Chapter 7 bankruptcy is commonly considered a “liquidation” scenario in which the value of a debtor’s property is totaled and in most cases, theoretically reduced to a dollar amount. New York State laws and the Federal Bankruptcy Code provide different options for protecting most, if not all, of the equity in certain pieces of consumer property. Depending on the amount of equity possessed and the income level of the debtor’s household, a successful Chapter 7 will result in the discharge of personal debt. In most cases, this includes credit card bills, medical expenses and other consumer liabilities. However, secured debts, such as debts owed on homes and vehicles, must be repaid if you wish to keep that property. A Chapter 7 discharge is only available to individual debtors and not to partnerships or corporations.
A Chapter 13 bankruptcy is known as a “reorganization” and enables individuals with regular, consistent income to develop a plan to repay all or part of their debts. This approach is often used by individuals seeking to become current on mortgage arrears or those who do not qualify for a Chapter 7 due to their income level. In a Chapter 13, debtors propose an installment plan to repay creditors over three to five years. Those with regular income below the state median amount for a household of a similar size and location will be placed on a three-year plan. During this time, the automatic stay prevents creditors from starting or continuing collection efforts.
Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as the individual’s unsecured debts are less than $360,475 and secured debts are less than $1,081,400. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a Chapter 13 debtor.
Although an individual is permitted to file his/her own bankruptcy, the act of filing and full disclosure of assets can be complicated. An unsuccessful filing will result in dismissal, which may prevent you from obtaining the full benefits of the Bankruptcy Code if you attempt to reapply. There are also waiting periods that must be observed if attempting to file consecutive bankruptcies. Seeking the help of a bankruptcy attorney can help you navigate the process and avoid costly mistakes.
The information provided by the Nassau County Bar Association is not meant to serve as specific legal advice for a particular situation or as a substitute for consultation with a lawyer. If you require the services of a lawyer, you may call the Nassau County Lawyer Referral Service at (516) 747-4832, email firstname.lastname@example.org, or go to www.nassaubar.org.