While many people fear losing their shirt in a bankruptcy, it is only a figure of speech. Even in a Chapter 7 bankruptcy, you will likely be able to keep possessions most precious to you, but the facts of each
case are different.
While it is an intimidating option to consider, bankruptcy may ultimately be beneficial if you wish to reduce your debts and build a healthy financial future for yourself.
Your financial situation is different from any other. If you are considering bankruptcy as an option, you need to separate fact from fiction. Consider these points:
Fiction: Changes in the bankruptcy law in 2005 made filing for bankruptcy impossible.
Fact: Legislative changes to the U.S. Bankruptcy Code in 2005 were made to respond to allegations that too many people were using bankruptcy petitions to discharge debt they could have paid. Among other changes made to the Bankruptcy Code, a means test was created to examine eligibility for Chapter 7 bankruptcy, the most common form of bankruptcy filed. If you are eligible, Chapter 7 bankruptcy, or a quidation bankruptcy, is still available to you.
Fiction: You must have a certain amount of debt to qualify for bankruptcy.of debt required before you can file bankruptcy.
Fact: You can file for bankruptcy when you have debt you can no longer pay down over a reasonable period of time with your expected income.
Fiction: If you are employed, you cannot file for bankruptcy.
Fact: Many working individuals carry unmanageable debt. Filing Chapter 13 bankruptcy, or a wage earner bankruptcy, is a good option if you have an income and property you would like to keep.
Last year more than one million consumers and businesses filed for relief under federal bankruptcy laws. With the economic downturn and continuing weak labor market, bankruptcy is an important option to help hardworking people get a new financial start.
For most consumers, bankruptcy is an opportunity to handle overwhelming personal financial problems. There is no stigma attached to getting help when you are in trouble ‹ it¹s just being smart.
In addition to immediate protection from garnishment and collection efforts made by creditors, bankruptcy provides tools for discharging or reorganizing your debt. Using the method right for your financial
picture helps you get back on your feet financially.
With Chapter 7, debt not paid off using funds from liquidated property is eliminated through discharge. In Chapter 13, your debt load may be reduced through renegotiation prior to approval of your repayment plan.
In either case, it is important to know what type of debt can be discharged during bankruptcy. Consider these points:
Unsecured debt. Creditors who do not have an interest in property as collateral for the money you owe are called unsecured creditors.
Unsecured debt often takes the form of credit card debt, medical bills and other expenses. While unsecured creditors cannot repossess your property, they can initiate garnishment and collection actions against you.
Secured debt. A creditor who has an interest or lien on property as collateral for money borrowed by you is called a secured creditor.
Although the automatic stay in bankruptcy prohibits further effort toward repossession of secured property during the bankruptcy, that security interest remains and the property can eventually be repossessed
by the creditor if you are unable to bring the loan current.
Other obligations. Many people owe debt that cannot be discharged through bankruptcy, including child support, alimony and criminal legal penalties. In specific cases, student loans and tax obligations can be addressed through bankruptcy.
What Can You Keep When You File Bankruptcy?
For many people unable to pay their bills, bankruptcy is the only reasonable option to restore some kind of financial stability. Most people worry about the possessions they will lose in the process.
When you file bankruptcy, what can you keep?
The answer is more than you think, depending on the type of bankruptcy you file. In a Chapter 13 action, your debt is reorganized and reduced to allow you to pay off expenses over a three- to five-year period. If you work through your plan, you keep all your property.
If you qualify for a Chapter 7 bankruptcy, the bankruptcy trustee evaluates your petition for property that is not exempt under federal bankruptcy law. Exempt assets are those possessions and goods that state or federal law allows you to keep, even during a Chapter 7 bankruptcy.
In New York you can elect to take bankruptcy exemptions provided by the state or those detailed under federal law, but not both. The types of possessions that are exempt, up to a certain value, under state or federal bankruptcy law include:
* Equity in your homestead or residence
* Value in a motor vehicle based on current market value
* Household goods including furnishings, clothes and other items
* Tools needed for your trade or business
* Jewelry
Factors to consider when filing:
You must be honest with yourself and make sure you include all your debts when assessing your financial circumstances. Also, make note of factors that affect your debts, such as whether you have a co-signer on a loan or mortgage and find out if your debts are even eligible to be eliminated through filing for bankruptcy.
Bankruptcy may be your wisest option if you:
* Cannot budget yourself out of debt within the next five years
* Cannot pay more than the minimum payment on your credit card bills
* Have received letters or phone calls from collection agencies
* Have suffered a severe financial setback, either through losing your job or becoming seriously injured
* Do not have any co-signers who would be forced to pay off bills if you file to have dischargeable debts wiped
The author practices bankruptcy law on 26 Court Street in Brooklyn.
