Personal Bankruptcy

Since the founding of our country, laws have allowed for debtor relief through a process known broadly as bankruptcy. Bankruptcy is designed to give people struggling with their debt the room to breathe and keep creditors off their backs. While bankruptcy laws have changed over time, the end results have not:

• People who are unable to pay their debts — and do not have valuable assets — may be eligible to have their debts wiped out by the courts.
• People who simply need time to pay — and help with interest rates — can often arrange to keep their homes and negotiate repayment plans that work for them.
• Once a person files for bankruptcy protection, all actions by creditors — even law suits — must cease immediately and assets are unfrozen.
• Interest rates on some debt can be lowered, often substantially, and in some cases even eliminated.

There are two broad options for "bankruptcy":

• Discharge (Chapter 7) is recommended to people whose income: i) qualifies for chapter 7 under the “means test” (described below); and ii) is less than or equal to their month to month expenses. In addition, bankruptcy professionals often consider whether a person’s possessions would largely be protected under NY State or Federal exemptions. Typically, after about four months, all of the debts are discharged and the individual restarts his or her financial life debt-free.
• Reorganization (Chapters 11 and 13) is a good option for individuals with some regular income and significant assets who also have too much debt. The court will order a reorganization plan that helps the individual pay off his or her debts — typically over five years — under more favorable terms. However, it is the individual’s job — and that of his/her attorney — to come up with a plan that is comfortable and that minimizes the need to sell assets that he or she wants to keep, such as a home.

Since Congress changed the bankruptcy laws in 2005, a number of myths have circulated about filing for bankruptcy:

• You can no longer file for bankruptcy any more. That’s simply untrue; the law still allows for discharge (Chapter 7) or reorganization (Chapter 13). The major difference under the new law is that debtors must now prove to a court why they should be allowed to discharge their debts.
• Once you fail the means test, you cannot discharge your debts. The “means test” is the basic method used to qualify for discharge instead of reorganization. Under this test, the court looks at a person’s income over the last six months to see if that person qualifies for Chapter 7. However, it is only a basic test; a skilled attorney can present special circumstances — such as bonuses, asset sales, loss of job/decrease in pay etc. — that the court should consider to see if that person qualifies for Chapter 7.
• If you file for bankruptcy, your credit is permanently ruined. First of all, if someone has judgments against them or is being sued for collections, his or her credit score is lower than most lenders will tolerate. In most cases, however, under current credit reporting rules an event will appear on your credit report for seven (reorganization) or ten (discharge) years. So a bankruptcy filing could have a negative impact on your ability to get credit on good terms during that period. Notice that we said “on good terms”; a number of companies have developed credit products designed to help people rebuild their credit and some of these are available even during the initial period.
• A credit counseling agency can help me reorganize my debts without filing for bankruptcy. Many organizations promise to help consumers reorganize their debts and negotiate lower rates and better repayment terms. Typically they do this for some kind of fee or, as some call it, a “donation.” We have found that many of these organizations are not reliable and several of them have been sued for misleading people. Some of our clients have even reported higher interest rates after working with one of these agencies.
• I can file for bankruptcy myself. Legally, this is true; any can file a bankruptcy petition. But, when Congress changed the bankruptcy laws in 2005, the practice of bankruptcy became much more complex. The forms became longer and courts have started asking more — and tougher — questions. Not only will an attorney — especially one who is an expert in bankruptcy law — help you get things done right, but it is helpful to have someone on your side to help you define and negotiate the best path for you.
• It doesn’t matter when I file for bankruptcy. Again, this is legally true. If you are experiencing any of the issues we identified earlier you can file for bankruptcy at any time. However, your chances of getting the outcome you want greatly improve if you file early. It is easier to negotiate before major loans — such as mortgages — go into default. Filing early can literally help you keep the roof over your head.

Personal bankruptcy is a legal proceeding brought in the federal bankruptcy court that allows a debtor to be relieved of most or all of his/her debts. This is the procedure most people think of as "bankruptcy." Although filing for bankruptcy will affect your credit, chances are that if you have been having trouble paying your bills, your credit score has already taken a hit. Chapter 7 is ideal for people who own a limited number of assets. Under New York law, creditors are not allowed to take certain assets from people who owe them money, but these protected assets are quite limited. If your monthly expenses are approximately the same as your monthly income, you may be able to file a Chapter 7 petition, wipe away your debts, and get a fresh start.

Once your bankruptcy petition is filed, it will be sent to a Chapter 7 trustee appointed to review your case. Within 30-45 days from the filing date, the Chapter 7 trustee will hold a "meeting of creditors". During the meeting of creditors, the trustee will ask you any questions he has with respect to your petition. If you are able to answer all of his questions and have no assets over the statutory minimum, the court will issue a discharge of your debts approximately four months from the date you filed your bankruptcy petition.

To find out if you qualify for this type of fresh start, contact Duffy & Atkins LLP.

Chapter 13 Personal Bankruptcy — Debt Repayment Plan. Even if you have assets that are not protected by New York law, you may still qualify for bankruptcy protection if you have a regular income. An individual or married couple, even if self-employed, can receive Chapter 13 relief if they owe less than $250,000.00 in unsecured debt and less than $750,000.00 in secured debt. Under this type of bankruptcy proceeding, a bankruptcy plan is developed in which you pay some or all of your debt over three to five years. A viable payment plan will be developed and submitted to the bankruptcy court for review. All of the debt included in the plan is paid off without the hassle of creditor calls during the repayment period or high interest rates and late charges. You can obtain your discharge and your fresh start.

If you are contemplating filing a bankruptcy petition and would like to find out which type of bankruptcy petition would best free you of your financial burden, contact a bankruptcy lawyer at Duffy & Atkins LLP.

Once you have made the difficult decision to file for discharge or reorganization you face another tough choice: which attorney you should hire. Hundreds of law firms advertise their services – on billboards, on subways, even on the sides of busses. We are not one of those firms. Instead of empty promises, we focus on listening to your concerns and providing the information you need to make the best decision for you and your family.

We understand how painful it is to have to alter your life plans in such a significant way. It can also be both confusing and upsetting to negotiate your way through the complex maze of regulation that governs bankruptcy filings. We combine a sympathetic, low-key approach to you with fierce advocacy for your needs. While many firms that file bankruptcy petitions do so at high volume, we take great pride in knowing the specific concerns of each one of our clients and look to solve those concerns without relying on a “one size fits all” mentality. We are creative problemsolvers and apply our 20+ years of experience to helping our clients identify and reach their goals, even under these difficult circumstances.

Contact Duffy and Atkins LLP today at 212.268.2685 or