BANKRUPTCY AND DEBT

Bankruptcy and Debt

WHAT IS BANKRUPTCY?

Bankruptcy refers to the legal process in which a person's debts are discharged. What this means is that the debtor is no longer held liable for the repayment of specific debts, and their creditors may no longer collect or attempt to collect what they are owed.

If you are facing severe financial trouble, you are not alone. The decision to file for bankruptcy is often one of the hardest choices that a person has to make in their lifetime. Poor planning can often make the process even harder. It goes without saying that filing for bankruptcy should be a last resort, and should only be done when all other methods of satisfying one's financial obligations have been exhausted.

However, if your situation has become so severe that you are in danger of foreclosure, garnished wages or repossessions, or are facing debts that you are in no position to pay, putting off the inevitable can have devastating consequences. Procrastination can have devastating consequences, including the loss of your home, your vehicle, and your hard-earned wages.

HOW A BANKRUPTCY ATTORNEY CAN HELP YOU RECLAIM YOUR LIFE

Filing for bankruptcy is a powerful legal tool designed to protect consumers. When you work with an experienced bankruptcy attorney, you can achieve the following:

  • Stop Foreclosure: Declaring bankruptcy can halt foreclosure proceedings and even create a payment structure that will help you pay off your arrears to save your home.
  • End Wage Garnishment: Stop creditors from taking money directly from your paycheck so you can afford life's necessities.
  • Restore Utilities: If your water, heat, or electricity has been shut off, bankruptcy can help restore these vital services so you do not have to live in darkness.
  • Eliminate Medical & Credit Card Debt: Large medical bills combined with a loss of employment, or on their own, can create a nearly impossible financial hole to climb out of. Wipe away the "impossible financial hole" created by high-interest credit cards and unexpected medical bills.
  • Stop Creditor Harassment: Once you file, an "automatic stay" prevents debt collectors from calling or visiting your home, especially if they are being unfairly pushy or unreasonable or are fraudulently trying to take more than you owe.
  • Bankruptcy may cause your car or other property to be given back to you if they have been repossessed by a creditor.
  • Although your student loans will not disappear, bankruptcy may help you to consolidate those debts and pay them off in a reasonable timeframe.

You may have more than one of these issues overlapping in your life and bankruptcy may be the best and most logical way to start your financial life over.

To put it simply, bankruptcy is a federal court process which is designed to help consumers and businesses eliminate or repay debts under the protection of the bankruptcy court. Once bankruptcy proceedings are initiated, whether through Chapter 7 or Chapter 11, creditors cannot attempt to collect debt from the business until the bankruptcy process has ended.

DISCHARGEABLE VS. NONDISCHARGEABLE DEBTS IN BANKRUPTCY

There are two types of debt for bankruptcy purposes: dischargeable and non-dischargeable. A debtor is freed of the legal obligation to pay debts that are discharged in bankruptcy. Not all debts are dischargeable in bankruptcy, however.

CHAPTER 7: LIQUIDATION BANKRUPTCY

Chapter 7 bankruptcy provides a debtor with the full discharge of debts that are legally allowed to be discharged. Often called "straight bankruptcy," Chapter 7 provides a full discharge of qualifying unsecured debts. Basically in a Chapter 7 bankruptcy, the bankruptcy court takes control of all of the debtor's assets and liquidates them as necessary to pay off as much of the debt as possible. The debtor is no longer responsible for the unpaid balances that remain after liquidation of the assets. If there are not enough assets after liquidation to pay off all of the debts, the debts are discharged and the debtor is no longer obligated to pay them. While a trustee may liquidate non-exempt assets to pay creditors, many clients find that their essential property, like their home and car, is protected by legal exemptions.

CHAPTER 13: REORGANIZATION

If you have a steady income but are overwhelmed by debt, Chapter 13 allows you to keep your property while following a court-approved repayment plan (usually 3 to 5 years). The goal is to pay them off in full, but if some balances cannot be paid in full because the assets in the bankruptcy estate are inadequate, they can then be discharged.

Generally tax debt is priority debt in all chapters of bankruptcy. Tax debts are the first debts to be paid when assets are liquidated in Chapter 7. Only income tax debt can be discharged and even income tax debt can only be discharged in limited circumstances.

In a Chapter 13 bankruptcy, any tax debt incurred during the last three years cannot be discharged. It must be included and paid in full in Chapter 13 repayment plan. However, as in Chapter 7 bankruptcy, income tax debt can be discharged to a certain, very limited extent.

ARE ALL DEBTS DISCHARGED IF I FILE FOR BANKRUPTCY?

Tax debt is a type of debt that is not dischargeable without limitation. Again, only income tax debt is dischargeable to some extent. Other types of tax debt, e.g. property tax debt, is not dischargeable. Other debts that are not dischargeable are as follows:

  • Federal, state and local taxes other than federal income taxes;
  • Customs duties;
  • Spousal support;
  • Child support;
  • Student loans;
  • Secured debts;
  • Government imposed fines and penalties;
  • False statement debt incurred;
  • Restitution for fiduciary fraud such as embezzlement or larceny;
  • Punitive damage claims for acts found to be willful or malicious;
  • Debts not accounted for on court forms;
  • Obligations arising from drunk driving incidents.

Many of these debts are not dischargeable for reasons of public policy.

WHAT IS BANKRUPTCY DISCHARGE?

Individuals and businesses petition for bankruptcy when they are unable to pay their debts and creditors threaten or take legal action to recover payment. In most cases, the debtor hopes to have his, her, or its debts discharged through bankruptcy.

Debt discharge means that the debtor is no longer legally obligated to pay back the debts. Creditors who have their claims discharged cannot legally collect their claims.

WHICH DEBTS ARE DISCHARGED?

With some exceptions, most unsecured debt is discharged. The most common debts which are discharged are:

  • Credit card bills;
  • Utility bills;
  • Medical bills;
  • Attorney's fees;
  • Personal and business loans;
  • Deficiency balances;
  • Civil court judgments;
  • Taxes past a certain number of years;
  • Past rent and other lease obligations.

Generally, a debt is discharged during bankruptcy as long as the debt is not secured by property and the Bankruptcy Code does not explicitly make the debt non-dischargeable.

PROTECTING YOUR ASSETS WITH EXEMPTIONS

Many people in financial trouble fear they will lose everything if they file. This is a common misconception. New York and federal laws provide "exemptions" that allow you to protect equity in your:

  • Primary residence (Homestead Exemption);
  • Motor vehicle;
  • Personal property (clothing, furniture, and household goods);
  • Tools of the trade.

DO I NEED A BANKRUPTCY LAWYER?

Whether you are filing chapter 7, chapter 13, or Chapter 11, bankruptcy can be a complicated process. It is vital to know how the law regulates bankruptcy in your state, including what property exemptions you can claim. An experienced bankruptcy lawyer knows the ins-and-outs of filing for bankruptcy, and can recommend what chapter of bankruptcy is right for you. You are most likely to get the best possible outcome from your bankruptcy if you have an experienced bankruptcy lawyer representing your interests.

Call our office today at (833) 388-7044 or complete the convenient online contact form to set up a consultation.