The following articles are for informational purposes only and do not constitute legal advice. They do not in any way create an attorney-client relationship. If you are having financial trouble it is important that you speak with a qualified bankruptcy attorney.
- Bankruptcy as a Tool for Saving Your Home
Bankruptcy can be a powerful tool for stopping a foreclosure action and potentially saving your home. When you file for bankruptcy an “Automatic Stay” immediately takes effect, stopping any efforts by your creditors to collect a debt or sell your property (including a foreclosure). However, unless you are able to catch up on missed payments the stay is generally temporary when it comes to real property. Your lender can ask the court to “lift” the Automatic Stay, allowing them to continue on with their foreclosure action. This often happens in Chapter 7 bankruptcies where the debtor files the bankruptcy to stop or delay a foreclosure sale but has no means to catch up on the mortgage arrears.
A more successful way of stopping a foreclosure action and saving your home is to file a Chapter 13 bankruptcy. A Chapter 13 bankruptcy filing also immediately triggers the Automatic Stay but also offers the debtor options for repaying mortgage arrears and getting back on track with their payments. It is a great option for debtors who have missed payments in the past but now have the ability catch up. Debtors usually have to begin to make regular monthly mortgage payments outside of the bankruptcy, as well as small monthly payments toward mortgage arrears that can be spread out over 36 to 60 months.
For debtors who cannot afford to make their mortgage payments going forward but still want to save their home, you have the right to apply for a loan modification during the bankruptcy process. A loan modification can cure mortgage arrears, lower monthly payments, and reduce your interest rate or even your principal balance. The bankruptcy does not guarantee an approval or even improve your chances of successfully getting a loan modification, but it does set a timetable within which your lender must consider your case and approve or deny one.
As you can see, the bankruptcy process offers several potential ways of dealing with a foreclosure and can be a powerful tool for stopping or delaying a sale and saving your home. When facing foreclosure it is important to speak to a qualified bankruptcy attorney to review your options.
- How Long Does a Bankruptcy Take?
Chapter 7 is the most common type of bankruptcy for debtors with consumer debt and it is also the fastest. A bankruptcy lawyer can prepare the case in just a few weeks, days, or even hours if there is need for an emergency filing. Once the bankruptcy petition is filed the case has begun and a meeting of the creditors is scheduled for about 30 days later. That meeting takes place in an office building with the Chapter 7 Trustee. In most cases it takes only about 5 to 10 minutes and the debtor is on their way. 60 to 90 days later the debtor receives their discharge in the mail and their case is over!
A Chapter 13 bankruptcy takes place over a much longer time period. A debtor enters into a plan to pay back all, or in most cases only a small portion of, their debt over a period of 36 to 60 months (3 to 5 years). The debtor remains in the bankruptcy for that entire time period and only receives the discharge when the plan is complete. This is common for debtors who make too much money to qualify for a Chapter 7 bankruptcy or for those with valuable property that they wish to protect. Contact an experienced bankruptcy lawyer today to find out if a bankruptcy can solve your financial problems.
- How Does Bankruptcy Affect My Spouse?
Married couples can choose to file bankruptcy jointly or one spouse can file on their own. If one spouse files alone, the bankruptcy will not affect the non-filing spouse’s credit or appear on their credit report. However, there are ways in which the spouse will be affected.
To begin, the non-filing spouse will have to provide proof of income (generally paystubs) for the 6 months prior to the month in which the bankruptcy is filed. That income is used to calculate the household income when running the “means test”, which determines whether a debtor qualifies for a Chapter 7 bankruptcy. It will also be used to determine how long a Chapter 13 debtor must stay in their payment plan (36 or 60 months) and how much their monthly payment in the plan will be.
While the non-filing spouse is not subject to any of the negative affects of a bankruptcy filing, they also do not receive any of the benefits. If a debt is jointly owned by both spouses it may be discharged as to the filing spouse, but the non-filing spouse will still be liable for the debt. If most debts of a married couple are joint, then filing for only one spouse will provide very little relief.
There are various reasons why one spouse may want to file for bankruptcy and not the other. In some instances, all of the debt is in one spouse’s name and there is no reason for the other spouse to file. One spouse may have lots of equity in real or personal property that they would not be able to protect in a bankruptcy. One spouse may want to avoid the negative impact of a bankruptcy on their credit report. These are all issues that are important to consider and it is always best to talk to an experienced bankruptcy attorney when considering filing for bankruptcy.
- Is Tax Debt Dischargeable in Bankruptcy?
Most, but not all, types of tax debt are dischargeable in a bankruptcy. To begin with, the debt must be a result of unpaid income taxes. Sales tax and other types of taxes are not dischargeable in a bankruptcy. In addition, the debt must not be the result of a fraudulent tax return or willful attempt to avoid paying taxes. Finally, in order to be dischargeable, tax debt must pass this 3-prong test:
1. It must have become due more than 3 years before the filing of the bankruptcy (meaning the due date of the tax return for which the debt is owed is more than 3 years ago).
2. The tax return for the debt must have been filed at least 2 years before the filing of the bankruptcy.
3. The tax must have been assessed (by the federal government or state government) at least 240 days before the filing of the bankruptcy.
Although income tax debt that meets the requirements above is dischargeable in a bankruptcy, tax liens generally are not. That means that if the IRS or state government has a tax lien on your house, the debt will be discharged against you personally, but the lien will survive the bankruptcy and remain on your house. In order to then sell the house or refinance your mortgage you would have to pay off the lien. One way to deal with tax liens is to file a Chapter 13 bankruptcy (instead of a Chapter 7) and pay back all or some of the value of the tax lien in a payment plan over a 3 to 5 year period.
Taxes are among the most complicated issues to consider when contemplating a bankruptcy. If you have tax debt it is important to talk to a bankruptcy attorney to discuss your options.
- Dealing With Student Loans in Bankruptcy
Student loans are one of the largest debt problems that Americans are facing. Unfortunately, they are generally not dischargeable in bankruptcy. That means that they survive the bankruptcy and must continue to be paid after you receive your discharge. However, there are some types of student loans that may be dischargeable in a bankruptcy, and there are ways to deal with those that are not.
Dischargeable student loans are rare, but they do exist. Certain types of private loans that were used for living or housing expenses while a student, rather than for tuition, are dischargeable. If you think you have one of these loans, the loan documents will have to be closely examined by an attorney to see if they meet the requirements to be discharged. It is also possible to discharge student loans if paying them back would cause undue hardship. To some this may sound like an easy standard to meet, but courts have very rarely allowed student loans to be discharged this way, and only in extreme circumstances.
So, if you’re stuck with your student loans then how do we deal with them in a bankruptcy? In a Chapter 7 bankruptcy they simply survive the bankruptcy and get paid back directly to the lender going forward. A Chapter 13 bankruptcy gives you more options. It is possible to pay back your student loans outside of the bankruptcy (like in a Chapter 7) or you can pay your student loans off through the bankruptcy plan, over a 3 to 5 year period. Many debtors with multiple student loans choose to pay off some of their loans inside the bankruptcy, while continuing to pay others outside of the bankruptcy.
At the very least, the bankruptcy process allows you to postpone making your student loan payments until after you receive your discharge and the automatic stay prevents your lender from harassing you during the bankruptcy. Postponing the payments is helpful for some debtors with temporary cash flow problems, but is not always advisable because interest continues to accrue and will eventually have to be paid.
Student loans are a complicated issue and a bankruptcy can be a valuable tool for dealing with them. If you have student loan debt and are struggling to keep up with payments, it is important to talk to a bankruptcy attorney to explore your options.
- Home Equity Lines of Credit (HELOC) in Bankruptcy
Many homeowners who took out home equity lines of credit when their property values were high are now having trouble paying both their first mortgage and their HELOC. Since property values have dropped significantly since 2006, many homes are “underwater” on their first mortgage, leaving no equity to secure their HELOC. A Chapter 13 bankruptcy can help with these situations.
In a Chapter 13 bankruptcy you can strip off (remove) your home equity line of credit if it is wholly unsecured, meaning there is no equity in the property beyond the amount of the first mortgage. A Chapter 13 bankruptcy requires you to enter into a 3 to 5 year plan to pay back at least some of your unsecured debts. At the end of the plan you receive a discharge of your remaining debts and get a fresh start, free from your unsecured debts and your HELOC.
When considering a bankruptcy it is important to look at your financial situation as a whole. For some debtors, it is more advantageous to file a Chapter 7 bankruptcy to wipe out all of their unsecured debts, even if it means keeping their home equity line of credit. It is important to talk to a qualified bankruptcy attorney to determine which option is best for you.
- Stop Harassing Calls From Debt Collectors
If you owe money to creditors who are attempting to collect on the debt it is important that you know your rights under the Fair Debt Collection Practices Act (FDCPA). The FDCPA applies to personal or family debt such as credit card debt, medical debt, auto loans, personal loans, and mortgages. It does not apply to debts incurred in the operation of a business. The guidelines set by the act must be followed by anyone who regularly collects debts owed to others, including collection agencies and lawyers.
The FDCPA helps to provide relief from harassing debt collectors. Under the act, debt collectors are not permitted to contact you before 8 am or after 9 pm. They also cannot contact you at work if you have advised them (orally or in writing) that you are not allowed to receive calls there. Moreover, if you advise a debt collector in writing (a letter sent by certified mail) that you want them to stop contacting you, they must stop calling you. They can then only contact you to advise you that they are taking a specific action, such as filing a lawsuit to collect the debt. Sending a letter can stop them from contacting you, but it cannot stop them from suing you.
Under the FDCPA debt collectors are permitted to contact others that you know (family, friends, co-workers) but only one time, and only for the purpose of obtaining your address, phone number, and information about where you work. If you are represented by an attorney to help deal with the debt, debt collectors must contact your attorney instead of you.
Most important, the FDCPA lists specific practices that are off limits to debt collectors. Those practices include harassment, threats of violence, use of obscene language, making false claims, threatening arrest, or using the phone specifically to annoy you.
If a debt collector has violated any of these rules you can report them to your state Attorney General Office, the Federal Trade Commission, and the Consumer Financial Protection Bureau. You can also sue the debt collector in state or federal court within one year from the date of the FDCPA violation. If successful, the debt collector may have to pay you for actual damages (such as lost wages or medical bills incurred because of the violation), your attorney’s fees, and up to $1,000 per violation (even if you can’t prove actual damages).
Generally it is not worth the time and cost involved in suing a debt collector for a single violation, but if you have a debt collector who you think has violated the FDCPA multiple times then it is important to see an attorney to discuss your options.
- Do I Qualify for Bankruptcy?
Everyone qualifies for bankruptcy. The right question is “what type of bankruptcy do I qualify for?” For consumer debtors (debtors whose debt is mostly credit card debt, medical debt, car loans, mortgages, and personal loans) there are two common types of bankruptcy available: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is often referred to as liquidation and is the quickest, easiest, and cheapest form of bankruptcy. Chapter 13 is often referred to as reorganization, and is a way of paying back some of your debt in a court-approved plan. Chapter 13 takes much longer than a Chapter 7 bankruptcy (the plan takes 3 to 5 years), and is more expensive. For a full discussion of the differences between a Chapter 7 and Chapter 13 bankruptcy, please see the Bankruptcy Basics page on this website.
Most debtors (who do not own a lot of valuable property) would prefer to file a Chapter 7 bankruptcy, rather than a Chapter 13. It is quicker, cheaper, and easier. However, not everyone qualifies for Chapter 7. Debtors who want to file Chapter 7 must first pass a “means test”. Under the means test, a debtor qualifies for a Chapter 7 bankruptcy if they earn less than the median annual income for a New York State resident. As of April 2014, that median income level is as follows, depending on the size of your household:
# in Household: $ Median
Your household size is generally determined by how many people live with you (include yourself in the household size). If you make more than the amount listed above for the size of your household then you are what is called an “above-median debtor”. However, that does not necessarily mean that you do not qualify for a Chapter 7 bankruptcy. Certain types of household expenses can be deducted from your income to help you get below the median. Those deductions include tax withholding from your paychecks, mortgage payments, car loan payments, and some childcare expenses, among other expenses. Those deductions often add up to enough to get the income below median.
If after the means test your income is still above median and you don’t qualify for a Chapter 7 bankruptcy, you will still likely qualify for a Chapter 13 bankruptcy. Most Chapter 13 debtors only pay back a small percentage of their debts, and often not much more than they would in Chapter 7. If you are having financial trouble and think a bankruptcy may be the answer, it is important to talk to an experienced bankruptcy lawyer to determine if a bankruptcy is right for you, what type of bankruptcy would be ideal, and what type of bankruptcy you qualify for.
- Loan Modifications in Bankruptcy
Struggling homeowners who cannot afford their mortgage payments can apply for a loan modification, which can lower their monthly payments and help them avoid foreclosure. Unfortunately, the application process is often lengthy and there is no guarantee of success. A Chapter 13 bankruptcy can delay a foreclosure action and give a homeowner the time they need to apply for loan modification.
Under the Home Affordable Modification Program (HAMP) homeowners in a Chapter 7 or Chapter 13 bankruptcy that meet certain conditions must be considered for a loan modification. The homeowner, their attorney, or the bankruptcy trustee must submit a request to the loan servicer. The request must include an affidavit of income and expenses, proof of income, and tax returns, among other documents. Applying for a loan modification in a bankruptcy does not improve your chances of successfully getting one, but it does mean that the loan servicer has to consider you for one and provide you with an answer within a reasonable time period.
If a homeowner is successful in getting a loan modification under HAMP, the options can include reducing the interest rate to as low as 2%, extending the term of the loan up to 40 years, deferring a portion of the principal payment to a balloon payment at the end of the loan term, and even forgiving a portion of the principal. Most loan servicers will require homeowners to go through a 3-month trial period where they must make their payments on time before they will sign a loan modification agreement.
Homeowners can apply for a loan modification under HAMP without filing for bankruptcy and the application process is very similar. However, some homeowners have to file a bankruptcy in order to buy the time needed to go through the application process. If you are facing foreclosure and are having trouble getting a loan modification it is important to talk to an attorney to explore all of the options available to you.
- Identity Theft in Bankruptcy
Identity theft is an all-too-common problem that is on the rise thanks to online theft and security breaches at major U.S. retailers. Many people only discover that their identity has been stolen after thousands of dollars have been charged to their credit cards or their social security numbers have been used to obtain new credit. Instances of identity theft should be immediately reported to the Federal Trade Commission and to your local police department. However, identity thieves are notoriously difficult to catch, and removing the debts they incur in your name from your credit report can be equally as challenging.
When you discover that your identity has been stolen and your credit report shows debts that you did not incur it is important to contact the credit reporting agencies right away to let them know. They offer a process through which you can dispute debts that appear on your credit report and potentially have them removed. Unfortunately, this is often a long and arduous process with no guarantee of success. For many, the task proves too difficult and the debt follows them around for years.
When all avenues for removing the debt from your credit report fail, bankruptcy may be the solution. A Chapter 7 bankruptcy can wipe out all of your unsecured debt, and offer you a fresh start. It is a fast, effective, and inexpensive way to clear your credit report of those bad debts so that you can start to rehabilitate your credit. Most debtors are able to obtain new credit just a few months after their bankruptcy case, and in many cases their credit scores improve within the first year. If you are the victim of identity theft it is important to contact an experienced bankruptcy attorney to see if a bankruptcy may be the solution for you.
- Bankruptcy for Businesses
Many small business owners take on debt or obligations when growing a business or during difficult economic times. If they are later unable to satisfy that debt or if the debt is prohibiting the business from growing a bankruptcy may be the solution.
There are two types of bankruptcy available to corporations: Chapter 7 & Chapter 11. Chapter 7 is referred to as liquidation. If a corporation files a Chapter 7 bankruptcy the business must close and the trustee will sell off its assets to pay what it can to the creditors of the business. Chapter 11 is referred to as reorganization. If a corporation files a Chapter 11 bankruptcy the business continues to operate and restructures its debt, paying back all or sometimes only a small percentage of its debt. In a Chapter 11 a business can also get out of contractual obligations that are prohibiting the business from operating efficiently and generating a profit.
A corporate bankruptcy can reorganize or discharge the debt of the business, but it does not offer the same protection to the business owners. Many small business owners are also liable for the business debt or for contractual obligations of the business because their pledge of personal liability was required in order for them to obtain financing or a lease. This is very common with bank loans at the start of a business or with retail, office space, and restaurant leases. In these situations, the business owner responsible for the debt or contractually liable for the lease may have to file their own personal bankruptcy as well. Since the debtor in these situations is an individual, they would likely file a Chapter 7 bankruptcy (liquidation) or a Chapter 13 bankruptcy (reorganization).
If you are a business owner struggling to turn a profit and either need to close your business or shed some debt to keep the business afloat it is important to speak to a qualified bankruptcy attorney to discuss your options.
- How Does Bankruptcy Affect My Credit?
It is difficult to say exactly how bankruptcy will affect your credit as your credit history and credit score are managed by three major national credit bureaus: Equifax, Experian, and TransUnion. Each of these credit bureaus maintains a report that they can sell to your creditors, employers, and insurers. Each credit bureau lists things slightly differently, and debts that appear on one report may not appear on another. What is included in these credit reports determines your credit score.
Bankruptcy does undoubtedly have an initial negative impact on your credit. On the day you file your case it will likely drive your credit score down, and it remains on your credit report for a period of 7 to 10 years. However, for most people bankruptcy can have an overall positive affect on their credit. People who file bankruptcy usually already have a troubled credit history with missed and late payments being reported negatively on their credit reports every month. Filing a bankruptcy stops this monthly negative reporting, and receiving a discharge in the bankruptcy wipes out the unpaid debt. For most debtors, their credit scores are higher one year after they file for bankruptcy than they were before filing.
Bankruptcy can be seen as a positive because it is a signal that an individual is taking steps to deal with their debt problems, rather than let them continue to grow. After a bankruptcy a debtor is seen as a good credit risk. Their income remains the same but their debt has been wiped out. As such, they now have a very good income-to-debt ratio. In addition, bankruptcy comes with rules about how quickly you can file for another bankruptcy. For instance, if you receive a discharge of your debts in a Chapter 7 bankruptcy you cannot receive another one for 8 years. That means that any new debt you incur shortly after getting a Chapter 7 discharge will have to be repaid.
We certainly do not recommend taking on large amounts of new debt after getting a bankruptcy discharge, but you will undoubtedly be offered credit almost right away. Opening up a new credit card account or auto loan (or better yet, a secured credit card) and keeping current on the payments can help to rehabilitate your credit and build your credit score. This helps to ensure that bankruptcy gives you the fresh start that you need.
- Going to Court in Bankruptcy
A question that most bankruptcy filers seem to have is “Will I have to go to court?”. In the majority of bankruptcy cases the answer is no. In some cases a debtor may be required to make a court appearance, but even then it is nothing to be nervous or concerned about.
In Chapter 7 bankruptcy, which is the most common type of bankruptcy filed, court appearances are rare. Most debtors only have to appear once at a meeting with a Chapter 7 Trustee, who is appointed to administer the case. The trustee is an attorney (not a judge) and the meeting takes place in an office building (not a court). The trustee simply asks the debtor a series of simple questions, and if the debtor answers truthfully most meetings are over within 5 to 10 minutes. Court appearances are only required in very rare cases where there are contested matters.
In Chapter 13 bankruptcy debtors attend a very similar meeting with a Chapter 13 Trustee, who is appointed to administer the case. However, an additional appearance may be required at the confirmation hearing (where the Chapter 13 plan is confirmed), which takes place in a courtroom with a judge presiding. Often the debtor’s appearance at this hearing is waived, or the debtor’s attorney can appear on her behalf. However, in situations where the debtor has to appear, there is little for the debtor to do and it should not be a source of anxiety or trepidation. As in Chapter 7 bankruptcy, most appearances in Chapter 13 bankruptcy are for contested matters, which are rare.
The fear of going to court should never stand in the way of a debtor seeking a solution for their financial troubles. The bankruptcy process is fairly easy to navigate for a debtor who is represented by an experienced attorney. It can provide relief from their debts and give them a fresh start. A good bankruptcy attorney will do their best to minimize required court appearances, and help the debtor to easily get through any that do arise.
- Car Repossessions and Bankruptcy
If you have had or are at risk of having a vehicle repossessed, bankruptcy can help. Depending on your ability to pay for the car, you can either catch up on the debt you owe (and keep the car), “cram down” what you owe on the car and pay off only the current value of the car over a 3 to 5 year period, or give back the car without any further obligation.
One of the most common types of debt that people have is a deficiency from a repossessed car. A deficiency occurs when the car is repossessed and sold at auction for less than what is owed on the loan. The difference between the balance owed on the loan and the amount the lender receives at auction is the deficiency. Deficiencies from car repossessions can be wiped out in a Chapter 7 bankruptcy, allowing the debtor to put the whole transaction behind them and get a fresh start. A debtor can also benefit from the same relief under Chapter 7 if the car has not yet been repossessed or sold. They can simply reject the car lease or loan contract, stop paying it, and allow the vehicle to be repossessed at the lender’s discretion. The debtor will not be held liable for any deficiency.
If the debtor’s goal is to keep the car, that can be achieved in 2 ways through a Chapter 13 Bankruptcy. They can put the arrears (payments that have been missed) into the Chapter 13 plan and pay them back over a 3 to 5 year period with no additional interest accrued, all the while continuing to make their ongoing car payments outside of the bankruptcy, beginning in the month in which they file the bankruptcy. Alternatively, the debtor can “cram down” the balance on the loan to the current value of the car, and pay back only the current value, along with a reasonable rate of interest, over the life of the Chapter 13 plan. However, in this case, the entire balance of the crammed down loan (the current value of the vehicle) must be paid in full during the 3 to 5 year Chapter 13 plan. This is often a good option for newer cars where the debtor owes much more than the value of the car, the interest rate is high, and the remaining time in the loan period is less than 5 years. It is not recommended in cases where the car is older, because the 3 to 5 year commitment period of a Chapter 13 plan may outlive the usefulness of the car.
Whatever the situation, it is clear that bankruptcy offers several solutions for people facing repossession or deficiencies as a result of a repossession. If you’re in such a situation, it is important to contact an experienced bankruptcy lawyer to explore your options.
- Getting a Job After Bankruptcy
Many people who are considering bankruptcy have concerns about their ability to get a job after bankruptcy. For the majority of people, bankruptcy will have no impact on their ability to get a job. It is only people in certain industries that typically have to worry about bankruptcy preventing them from getting a job.
By law no federal, state, or local government agency can take your bankruptcy into consideration when deciding whether to hire you. However, there is no such law that applies to private employers. Many private employers do run credit reports when considering job applicants, and they may take your bankruptcy into account when making a decision. Bankruptcy can be a real problem in industries that deal with money such as banking, accounting, and payroll. Employers in these industries cannot fire you or discriminate against you because you filed bankruptcy, but they don’t have to give you a new job. People who are in these industries should carefully consider whether they will want to apply for a new job within the next few years before deciding to file for bankruptcy.
In many other industries, employers may run a credit report for potential job applicants. However, they will need your permission to run the credit report, and they can refuse to hire you if you object. It is best to allow them to run the credit report, but speak candidly about the bankruptcy and explain your financial situation. Being honest and upfront about it shows that you have nothing to hide, and the bankruptcy shows that you took a positive step to solve your problems and take care of your debt. Many employers will prefer that over an applicant who has debt still outstanding and has done nothing to deal with it.
- Traffic Fines in Bankruptcy
A Chapter 7 bankruptcy discharge does not wipe out fines or penalties you owe to a governmental unit. Thus, traffic fines are not dischargeable in a Chapter 7 bankruptcy. However, a Chapter 7 bankruptcy can wipe out other types of unsecured debt, such as credit card debt, medical debt and deficiencies from car repossessions, freeing up income to pay your fines and penalties.
Another way to deal with traffic fines and penalties is to file a Chapter 13 bankruptcy. In a Chapter 13, traffic fines may be dischargeable if they are civil in nature, and not criminal. This will depend on the type of traffic violation you committed, and whether your state classifies it as a civil or criminal fine. However, even if the fines are not dischargeable, they can be paid off over 3 to 5 years through a Chapter 13 plan. If the fines are included in your plan and are to be 100% paid off, then you can generally get your driver’s license back right away.
Whether filing for bankruptcy can help you discharge your traffic fines, pay them back, or get your driver’s license back depends on several factors and the laws of your state. If you have unpaid fines or a suspended license it is important to contact a bankruptcy attorney to discuss your options.
- Discrimination Because of Bankruptcy
It is the law that employers may not discriminate against their employees because they have filed bankruptcy. They may not fire you, or discriminate against you in terms or conditions of employment. This law applies to both government and private employers. However, bankruptcy will not prevent employers from taking negative action against you for reasons other than your bankruptcy filing, such as tardiness, dishonestly, or incompetence.
When applying for a new job, federal, state, or local government agencies may not consider your bankruptcy when deciding whether to hire you. However, this law does not apply to private employers who may refuse to hire you because you filed for bankruptcy. That said, bankruptcy usually only presents a problem when applying for jobs in particular industries such as bookkeeping, banking, accounting, and payroll.
- Cars in Bankruptcy
Debtors filing for bankruptcy have several options when it comes to dealing with the cars they own or lease. They can keep the car, return the car, or even buy the car outright for its present value. I’ll deal with the options in more detail below by bankruptcy chapter:
Debtors who file Chapter 7 bankruptcy have three options when it comes to cars that they own or lease:
1. Return the car. Debtors who owe money on a car they no longer want can reject the finance contract and stop making payments on it. The debtor can return the car or let the lender repossess it and she will not be liable for the balance owed on the loan. Similarly, a debtor can reject a car lease and return the car or allow it to be repossessed without any further liability on the lease.
2. Keep the car. Debtors who own a car outright or are current on their loan or lease payments can choose to keep the car and continue to make payments on it. Some lenders require that debtors affirm the finance contract or lease, which means that their liability will survive the bankruptcy, while other lenders allow debtors to reject the finance contract or lease but keep the car as long as payments remain current. These options work so long as there is not too much equity in the car. If a debtor owns a very valuable car with little or no money owed on it, the trustee may want to sell the car to pay creditors.
3. Buy the car outright. Debtors who have enough available cash (that is exempt and cannot be taken to pay creditors) can “redeem” the car. This means that they can pay for the car in full at the current market value of the car, rather than paying the full amount that they owe. This is a great option for those who owe more than their car is worth. However, it is rarely done as most debtors cannot afford to pay for their car in cash, and if they can, they may not be able to exempt that much cash from their creditors.
Debtors in Chapter 13 bankruptcy also have three options when it comes to cars that they own or lease:
1. Return the car. The debtor’s options for rejecting a finance contract or lease are essentially the same in a Chapter 13 bankruptcy as they are in a Chapter 7 bankruptcy (please see the discussion above for details). However, in a Chapter 13 bankruptcy any deficiency that is left after the lender repossesses and sells the car will be treated as unsecured debt. It will be paid back at the same percentage as all other unsecured debt in the Chapter 13 plan. Depending on the debtors budget, they may have to pay back 100% of it, or they may only pay back a very small percentage of it.
2. Keep the car. Debtors who do not owe money on their cars or who are current on their payments can keep their cars in the same way they can in a Chapter 7 bankruptcy. For those that want to keep their cars but are behind in payments, a Chapter 13 bankruptcy gives them the option of catching up on missed payments. Debtors must begin making their regular ongoing monthly payments when they file the bankruptcy, as well as an additional monthly payment to the Chapter 13 Trustee to catch up on the arrears. The arrears payments can be spread out over a 3 to 5 year period, often making it very affordable for debtors to keep their cars.
3. Payoff the car. In a Chapter 13 bankruptcy debtors have the option of “cramming down” their car loan and paying it off over 3 to 5 years. This means that they can pay off their car in full at the current value of the car, rather than paying the full amount that they owe. This option is similar to the “redeem” option in a Chapter 7 bankruptcy, except in a Chapter 13 bankruptcy they have 3 to 5 years to pay off the car, rather than having to pay it off in cash right away.
For a discussion on the differences between a Chapter 7 and Chapter 13 bankruptcy, please see the following page on our website: Bankruptcy Basics.
- Debt Consolidation or Bankruptcy?
Those who owe more than $5000 and are considering debt consolidation should consider bankruptcy as a good alternative. Debt consolidation can be a good solution for those who can afford to make regular monthly payments on their debt but would prefer to make just one payment to a single creditor, rather than multiple payments each month. Debt consolidation can sometimes result in a lower interest rate, and thus lower monthly payments. However, debt consolidation cannot match the saving power of a Chapter 7 bankruptcy.
Those that qualify for a Chapter 7 bankruptcy can wipe out all of their unsecured debt in just a few short months. This includes credit card debt, personal loans, medical bills, car repossessions, and even deficiencies from foreclosed homes. Wiping out this debt leaves the debtor with a fresh start in life. A typical Chapter 7 bankruptcy costs less than $2,000, making it a bargain compared to paying back thousands or tens of thousands of debt through debt consolidation.
For those that don’t qualify for a Chapter 7, bankruptcy still offers a solution. A debtor can file a Chapter 13 bankruptcy and pay back all or maybe only a small percentage of their debt over a period of three to five years. These payments are made to a single person called the Chapter 13 Trustee, and they are without interest. This can save debtors hundreds or even thousands of dollars over debt consolidation.
Before deciding on debt consolidation or bankruptcy it is important to contact an experienced bankruptcy lawyer to explore your options.
- Redeeming a Car in Bankruptcy
Debtors that owe money on a car that they want to keep have an option to pay less for it in a Chapter 7 bankruptcy. A Chapter 7 debtor can “redeem” a car, which means they can buy it outright for the current value of the car rather than what they owe to their lender. Any deficiency owed to the lender will be discharged in the bankruptcy.
In order to redeem a car the full value must be paid within a short period of time, generally just a couple of months. Most debtors do not have the cash available, but there are special lenders who are in the business of lending debtors money to complete these transactions. The debtor is essentially getting a new car loan based on the value of the car rather than what is owed on their prior loan.
Redeeming a car can be a great option for debtors who owe far more on their cars than they are worth. Contact a qualified bankruptcy lawyer to find out if you qualify for a Chapter 7 bankruptcy.
- Stopping an Eviction with Bankruptcy
If you are behind in your rent payments and are facing eviction a bankruptcy may be able to help. Many renters go through a period where they fall behind in their rent payments due to a job loss or an unexpected expense, such as a hospitalization. Once one or two payments are missed it becomes nearly impossible to catch up without a substantial increase in income. Filing a Chapter 13 bankruptcy can stop an eviction and allow the tenant to catch up on rental arrears over a 3 to 5 year period.
It is important to know that debtors in a Chapter 13 bankruptcy must also make their ongoing rent payments during the bankruptcy, so they have to be able to afford their normal monthly payment, plus a small payment toward the arrears. Most important, a Chapter 13 bankruptcy in New York only allows debtors to spread out the arrears over a 3 to 5 year period if there has not yet been a judgment entered in their eviction proceeding. Once a judgment has been entered, the only relief a Chapter 13 bankruptcy can provide is to allow the debtor to pay the arrears in full within just 30 days.
Tenants who are in the position to file a Chapter 13 Bankruptcy can also use the bankruptcy to pay back or wipe out unsecured debts such credit card, medical, or car repossession debt. For tenants who cannot catch up on their rental arrears, a Chapter 7 Bankruptcy may be of some help. It can delay an eviction proceeding by several months during the pendency of the bankruptcy, as well as wipe out the tenant’s personal liability for the rental arrears. The tenant can use the time during the bankruptcy to save up the money needed to rent a new home and move.
If you are behind in rent and facing eviction it is important to speak to an experienced NYC bankruptcy attorney to discuss your options. Whenever possible try to do it before a judgment is entered against you.
- Bankruptcy in the Bible
For many people who are in debt and are considering bankruptcy, the idea of having their debt discharged does not sit right with them. They feel a moral obligation to pay back their debt. For some, this feeling is bolstered by a religious belief. Those who feel this way may take solace in knowing that the idea of bankruptcy has its roots in the Bible:
Deuteronomy 15:1-2: “At the end of every seven years you shall grant a release. And this is the manner of the release: every creditor shall release what he has lent to his neighbor. He shall not exact it of his neighbor, his brother, because the Lord’s release has been proclaimed.”
Whether you have a particular religious belief or just have a strong moral compass that makes you feel bad about escaping your debts, it is important to look at the whole picture. Bankruptcy is a right provided by law to allow those in debt to deal with that debt, and get a fresh start. It is a positive step of accepting responsibility and asking for forgiveness, rather than continuing to ignore a problem that won’t go away on its own. If you’re in debt and want to take a positive step towards dealing with it, contact a bankruptcy attorney today to discuss your options.
- Short Sale or Bankruptcy?
Many people who are underwater on their home mortgages (meaning they owe more than their house is worth) attempt to do a short sale. A short sale is when the homeowner sells the home to a third party for less than what is owed on the note, and the mortgage lender accepts the proceeds of the sale in full satisfaction of the note. The mortgage lender must approve the short sale before it can go through. A short sale is a good option for homeowners who do not want to keep their homes, and are willing to move almost right away.
Anyone considering a short sale should also look at the benefits of a Chapter 7 bankruptcy. In a Chapter 7 bankruptcy the homeowner can “surrender” the home to the mortgage lender in full satisfaction of the note. However, the homeowner does not have to immediately move out of the house. They can continue to live in the house rent-free while the lender goes through the lengthy process of foreclosure. In New York, foreclosures can take as long as 1.5 to 2 years before the mortgage lender can hold a foreclosure sale. Even after the house is sold at foreclosure sale, the new buyer (which is often the mortgage lender themselves) has to start eviction proceedings to evict the homeowner from the home. This long period of living in the home rent-free gives the homeowner time to save up money for a new move. Best of all, any deficiency that results from the sale of the house is wiped out in the bankruptcy, meaning the homeowner owes the mortgage lender nothing when they move.
A chapter 7 bankruptcy also has one more important advantage over a short sale. When a mortgage lender accepts a short sale they are forgiving a portion of the debt owed on the note. That debt forgiveness is considered income for the homeowner and the mortgage lender will generally send the homeowner a 1099 for it. That means the homeowner will have to report it as income on their tax return and they may have to pay taxes on it. In a Chapter 7 bankruptcy, there is no tax liability for the debt that is wiped out by surrendering the house.
Short sales and Chapter 7 bankruptcies are both good options for homeowners who want to walk away for their homes and their mortgages. When your home is underwater and you are considering a short sale, it is important to talk to an experienced bankruptcy attorney first. That way you can review your options and make an informed decision.
- Rent Stabilization and Bankruptcy
In the past, debtors with rent stabilized leases risked losing their leases when filing a bankruptcy in New York. Some Trustees treated the leases as an asset of the estate, which can be sold, and the proceeds of the sale used to pay creditors. However, in a 2014 decision, New York State’s highest court ruled that leases for rent-regulated apartments cannot be taken by the Trustee and sold as an asset of the estate. This is great news for New York City residents. For detailed coverage of the decision, please see the following article from the New York Times: Rent-Stabilized Leases Shielded in Bankruptcy.
For more information on bankruptcy in New York City, please visit the following page: bankruptcy basics.
- Catching Up on Late Condo or HOA Fees in Bankruptcy
Most people know that if they don’t pay their mortgage they can lose their home in a foreclosure. However, many people don’t know that they can also lose their home in a foreclosure if they fall behind in their condo or Home Owners Association (HOA) fees. Missed HOA fees attach to the property as a lien, and can be foreclosed on the same way a note and mortgage can be. One way to stop the foreclosure and give the homeowner time to catch up on the missed payments is to file a Chapter 13 bankruptcy.
A Chapter 13 bankruptcy gives the homeowner up to 5 years to catch up on the missed HOA payments without any additional interest or late fees. The homeowner also has to begin making current HOA payments right away. Other debt such as credit cards, car loans, and medical bills can also be dealt with in the bankruptcy, either by paying back a portion of them or by wiping them out.
If you have missed condo or HOA payments and want to catch up before your association starts a foreclosure action, contact an Chapter 13 bankruptcy attorney for a free consultation.