Long Island Bankruptcy Attorney
What Is Bankruptcy?
Federal bankruptcy law (Title 11 of the United States Code, otherwise called the “Bankruptcy Code”) was enacted to allow the honest debtor, who is unable to meet his/her financial obligations, to obtain a fresh financial start or to reorganize his/her financial affairs. Bankruptcy law accomplishes this goal by providing debtors with a legally enforceable mechanism through which they may: (1) eliminate, reduce and/or extend most debt, and (2) protect themselves, subject to certain qualifications, during the bankruptcy case, from pursuit and harassment by their creditors. At the same time that bankruptcy law seeks to give relief to the debtor, it is also the goal of bankruptcy law to deal equitably with a debtor’s creditors by: (1) protecting the creditors against fraud, (2) treating similarly situated creditors in an equal manner, and (3) providing the creditors with constant notice and an opportunity to be heard during the bankruptcy case.
Who Can File for Bankruptcy Protection?
With only certain limited exceptions, an individual (alone or together as a married couple) or a business (a sole proprietorship, partnership, or corporation) may file for bankruptcy protection. While debtors filing for bankruptcy protection are usually “insolvent” (meaning that they are either unable to pay their debts as they become due, or that their liabilities are greater than their assets), insolvency is not a requirement for a voluntary bankruptcy filing.
What Are the Potential Benefits of a Bankruptcy Case?
A bankruptcy filing is often used as follows:
• By individuals to eliminate overwhelming credit card debt, medical bills, and other types of debt;
• By individuals or businesses to save their house or other real property from foreclosure or to save their car or other assets from repossession;
• By businesses, under a cash flow squeeze to obtain a “breathing spell” from their creditors in order to reorganize their financial affairs or to sell off assets;
• By individuals or businesses to extend or resolve burdensome tax liability; and
• By businesses to stop eviction from leased real property or repossession of leased equipment.
The above uses of bankruptcy are not exclusive and a bankruptcy case can be used for other purposes. However, an individual or business contemplating filing a bankruptcy case should carefully review their goals with a bankruptcy attorney since bankruptcy law can be complex. A bankruptcy attorney will be able to determine whether the above goals can be achieved depending upon the particular circumstances of a situation.
Can a Credit Rating Be Rebuilt After a Bankruptcy Filing?
Persons and businesses contemplating filing for bankruptcy protection are often undergoing serious financial problems that have already, or will shortly in the future, appear on their credit reports. While a bankruptcy filing would also appear on a person’s credit report, the bankruptcy filing has the advantage of dealing with and potentially solving some of the financial problems inherent in the situation. Therefore, after a bankruptcy filing, a person is often better situated to repay new creditors and in time can be a better credit risk than they were prior to the bankruptcy filing. A bankruptcy attorney can advise persons filing for bankruptcy protection as to the methods by which they can rebuild their credit rating.
When can or should a bankruptcy case be filed?
A bankruptcy case becomes an option when a person or family is unable to pay its bills as they become due. If this is a temporary problem and it is possible to catch up with unpaid bills, a bankruptcy case may not be necessary. But if the problem persists and the household is falling further behind, than the bankruptcy option should be considered. When credit cards and other bills are not paid for several months they start to call to demand payment. When they fail in resolving their debt they turn over the account to collection attorneys who start litigation to obtain a judgment. This process usually occurs between five (5) months to one (1) year. Therefore if a client is overwhelmed with bills and does not expect their finances to improve in the coming months the bankruptcy option should be considered. If a client has been in collections already and there are judgments threatened or already obtained against the client, it is detrimental to the client’s finances and to their credit rating to allow such difficulties to persist and a bankruptcy case to protect their wages, bank account, assets and credit rating becomes advisable in the majority of situations. The bankruptcy case will immediately protect clients from their creditors and help them to discharge or eliminate the obligation to pay the vast majority of debts, such as credit cards, personal loans and hospital bills. In most cases clients will be able to keep their cars and home.
A Chapter 7 Bankruptcy Case will eliminate most/all of a client’s debt, and will allow the client to obtain a fresh financial start. A Chapter 7 case is a highly effective tool in dealing with burdensome credit card and other unsecured debts such as medical bills and personal loans. A Chapter 7 case is especially helpful when the client cannot pay their present bills and faces the prospect of creditor harassment, collection actions and bad credit. The Chapter 7 case will allow the client to immediately protect themselves from their creditors and obtain legal forgiveness for their debt so that they can obtain a “fresh start” and be able to rebuild their credit. As soon as the case is filed the “automatic stay” protects the client from their creditors and at the end of the case the bankruptcy discharge allows the client to obtain legal forgiveness for their debt. Most clients discharge all their unsecured debt, although clients are able to voluntarily keep of or “reaffirm” certain debts. Most clients keep all of their property including their vehicles, homes and personal possessions as long as they stay current with the payments on these items and do not have too much equity in such property.
Chapter 7 is the most frequently used type of bankruptcy case and is often used by individuals who are overwhelmed by debts – including credit card debt, medical bills, repossession/foreclosure deficiencies or other debt – to eliminate their legal obligation to pay (or to “discharge”) such debt. Persons qualifying for Chapter 7 relief need to have average six (6) months gross income that is below a certain level or pass a means test which takes into account the client’s expenses in determining if the client qualifies for Chapter 7 relief. A Chapter 7 case like all bankruptcy cases allows a client immediate protection against their creditors with an “automatic stay” (a court order which requires creditors to stop all collection activity and calls). At the end of a Chapter 7 case, which usually takes approximately five (5) months, the client receives a “discharge order” (a court order granting the client legal forgiveness for their debt). Most chapter 7 cases are highly effective in allowing a client to quickly deal with and resolve their problems by eliminating their obligation to pay debt that is beyond their ability to pay. However, a bankruptcy attorney needs to carefully review a client’s circumstances with the client to determine that the client does not have issues that may complicate the case, like major assets with significant equity; income that may be too high; alleged “avoidable transfers”; and/or debt taken by the client that may be deemed to be abusive and/or in bad faith.
A Chapter 13 bankruptcy case is often used by persons in foreclosure to stop the foreclosure process, including foreclosure sales, so as to cure their mortgage arrears over a period of time. Debt other than mortgage arrears, such as credit cards, is also cured under the Chapter 13 plan, often without interest and at a reduced rate. Under a Chapter 13 case, a monthly payment plan is developed which allows the gradual curing of all of the client’s debt including mortgage arrears over time, up to five (5) years.
Chapter 13 is a very effective type of bankruptcy case and is used by individuals in various situations to reorganize and reduce debt, including mortgage, car loan arrears, credit cards, taxes and student loans over a five (5) year plan that is binding on their creditors. Chapter 13 is often filed by individuals seeking to overcome difficulties due to house foreclosures or vehicle repossessions. Chapter 13 is also used extensively by individuals who seek to deal effectively with their overwhelming debt, but who should not file in Chapter 7 due to incomes or asset values that exceed certain levels where a Chapter 7 may entail risks or potential difficulties or may not be possible. The filing of a Chapter 13 case will instantly cause an “automatic stay” to go into effect which will stop all creditor activity including imminent foreclosure sales or repossessions. At the end of the Chapter 13 plan which is usually five (5) years or sixty months (60) in duration, but can be paid earlier, the client’s debt is usually “discharged” or legally forgiven. Most Chapter 13 cases are highly effective in giving clients an opportunity to reorganize and reduce debt over a protracted time while being protected from their creditors. However, Chapter 13 cases, like other types of bankruptcy cases can be complex, and to effectively proceed in a Chapter 13 case an individual would usually need to be represented by a bankruptcy attorney.
During the Chapter 13 case the client will on a monthly basis go back to making post-petition mortgage payments and, in addition, the client will make Chapter 13 plan payments to a court-appointed trustee. The combination of such payments will allow the client not to fall further behind in mortgage arrears while at the same time catching up and curing the arrears that existed before the filing of the case. A budget, a Chapter 13 plan and bankruptcy schedules, as well as significant other documentation, need to be submitted to the Chapter 13 trustee and Bankruptcy Court as part of the process necessary to confirm the Chapter 13 plan.
If a client had had two (2) or more chapter 13 cases pending before the Bankruptcy Court in the last year a Chapter 13 case may not be able to stay a foreclosure sale against your property. To obtain a stay in such situation (of two or more pending bankruptcies in the last year) you will need to retain a bankruptcy attorney to quickly move by Emergency Order to Show Cause in front of the Bankruptcy Court and demonstrate strong financial “changes in circumstances” that positively affect you chances of success in another Chapter 13 case.
“Secondary loan cram downs” (or “strip downs”) are a possibility in Chapter 13. If a client has a secondary mortgage or home equity loan which is totally unsecured, in a Chapter 13 case it can be deemed to be an unsecured debt and paid at a vastly reduced amount. To accomplish this our law firm would need to start an adversary proceeding in the Chapter 13 case and show the Court the complete lack of equity in the property. The client needs to stay in Chapter 13 for the full duration of the plan for this form of relief to have permanent effect.
Reorganizations can be either within or outside the context of a bankruptcy case. Outside the context of a bankruptcy case a business or an individual may try to workout formal agreements with several of its creditors in what is considered to be a reorganization. Within the context of a bankruptcy case, a Chapter 11 reorganization case allows a business or an individual with significant debts and assets to protect itself from its creditors while it concentrates on reorganizing its affairs. A Chapter 11 reorganization case requires the debtor to offer a plan of reorganization, which extends, and in some instances, reduces many of the debtor’s obligations. A Chapter 11 reorganization is an involved and potentially lengthy bankruptcy case and requires special knowledge.