Q: What are the different types of bankruptcy?
A: Bankruptcy proceedings generally come under Chapters 7, 11 or 13 of the Bankruptcy Code
- Chapter 7 is generally referred to as a liquidation. The object of a Chapter 7 case is to obtain the discharge of the debtor’s unsecured debt such as credit card bills, personal loans, etc. In a chapter 7 case, a trustee is appointed by the Bankruptcy Court to liquidate any “non-exempt” assets of the debtor for the benefit of creditors. However, the debtor is allowed to keep various “exempt” assets which are exempt from the claims of creditors.
Q: What are “exemptions?”
- A: In New York the debtors can choose exemptions either under New York or Federal law. The choice of whether to elect to use New York or Federal exemptions is based on an evaluation of the client’s particular circumstances. For example, if the New York exemptions are chosen, a husband and wife residing in Nassau County may claim exemptions for their pension and individual retirement accounts; wearing apparel and various household items subject to certain limits; up to $150,000 each in equity in a principal residence (the “homestead exemption”); $4,000 in equity in an automobile, and up $1,000 in cash or bank accounts where the homestead exemption is not claimed. Various additional exemptions under New York Law may also apply. If the Federal exemptions are utilized, a husband and wife may each claim a homestead exemption of $22,975; a “wild card exemption” of $1,225 plus $ 11,500 of any unused real property exemption; an exemption for a motor vehicle of $3,675; $1,550 for jewelry and an exemption for a claim for personal injury of $22,975. Additional federal exemptions may also apply. Your particular situation and the applicability of various exemptions and the decision whether to the New York or federal exemption group, can be reviewed during a consultation with our office.
- Chapter 13 is often referred to as a “wage earners plan.” Chapter 13 is typically utilized to enable a debtor to cure the arrears on a homeowner’s mortgage by making payments to a “Chapter 13 trustee over a sixty month period pursuant to a “plan” approved by the Bankruptcy Court.” In this circumstance, a Chapter 13 case is used to enable the homeowner to “stay” or stop a foreclosure proceeding and reinstate the mortgage on the premises. In addition, in a chapter 13 case, the debtor may be able to discharge their “unsecured debt” such as their credit card bills for less than 100% on the dollar. Chapter 13 is also used in cases where the filing of a Chapter 7 proceeding would result in the bankruptcy trustee appointed in the debtor’s case liquidating nonexempt assets which the debtor wishes to retain.
- Chapter 11 reorganization is typically used for individuals who do not meet the jurisdictional amounts required for Chapter 13 cases. Chapter 11 is also used to reorganize business debtors.
Q: Can I file a Chapter 7 Bankruptcy and still keep my home and car?
A: Generally, Yes. In New York, using the New York exemptions, the law provides for a “homestead” exemption of $150,000 equity above the mortgage balance of a home for each owner of a home provided it is their principal residence. If the federal exemptions are utilized, an exemption of $22,975 applies to each owner. Thus, for example, a husband and wife who had $60,000 in credit card debt and owned a principal residence valued at $500,000 with a mortgage balance of $400,000, could file a chapter 7 bankruptcy and discharge their credit card debt. The debtors would be able to retain their home since the $100,000 in equity in their home would be considered “exempt” from creditors. (Note: the homeowners would need to continue to pay their monthly mortgage).
Q: Can I file a Chapter 7 Bankruptcy and still keep my car?
A: Generally, Yes. New York provides for a $4,000 exemption for equity in an automobile. As such a debtor’s interest in his automobile is considered “exempt” as long as its value does not exceed the loan balance by more than $4000. (Note: the debtor would need to continue to pay their car load to retain the vehicle). If the federal exemptions are chosen by the debtor a “wildcard” exemption of $1,225 plus $11,500 of any unused property exemption can be utilized.
Q: I am being harassed by phone calls from creditors and collection agencies. Will the calls stop once I file a bankruptcy?
A: Yes. Once a bankruptcy petition is filed with the court on your behalf, bankruptcy Order of Relief commonly referred to as the “automatic stay” is issued by the bankruptcy and creditors (in most circumstances) are prohibited from taking any further collection actions or other actions without proceeding in the bankruptcy court.
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