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Common Questions,
with Answers by Legal Experts
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Under the new bankruptcy laws do I have to wait until I have no money before I file for bankruptcy? (NY)
No, New York Bankruptcy Law sets forth a list of assets that are exempt from the satisfaction of most creditor claims and which, in most cases, a debtor is allowed to keep even after filing bankruptcy. It is rarely a good policy to wait until all assets are absolved before filing for bankruptcy, as assets that normally would be exempt would now be lost. It would be beneficial to consult an attorney to determine which assets would fall under the exemptions allotted under the new bankruptcy laws.
(Courtesy of Association of the Bar of the City of New York)
Will I lose my house if I file for bankruptcy? (NY)
That is not necessarily the case. In fact, under New York Bankruptcy Law, a chapter 13 bankruptcy filing is often utilized as a strategy to prevent foreclosure. Last August the new bankruptcy laws amending New York Bankruptcy Law increased the homestead exemption to $50,000 per person ($100,000 for husband and wife/ joint filers). This means that anyone who owns real estate, including a co-op or condo, if it is the filer’s primary residence, can keep up to $50,000 of that home's equity exclusive of the balance due the mortgage bank. Thus, if the filer maintains their mortgage and tax payments, in most instances under New York Bankruptcy Law, one can file for bankruptcy and keep the home.
(Courtesy of Association of the Bar of the City of New York)
Would my credit be destroyed by filing for bankruptcy in New York?
Not necessarily. The effect a bankruptcy has on one’s credit is greatly dependant on the filer’s ability to pay their bills both prior to filing for bankruptcy and after bankruptcy procedures have been completed. Therefore, bankruptcy may have little to no net affect on a filer’s credit rating. However, a bankruptcy will remain on a credit report for 10 years. It is also important to bear in mind that debtor's often receive credit card solicitations in the mail following filing for bankruptcy. Creditors recognize that the debtor will not be able to file another bankruptcy, in most instances under New York Bankruptcy Law, for up to 8 years, and the debtor's past debts are about to be wiped clean. Many creditors would rather loan money to someone free from debt without the luxury to file for bankruptcy again for some time, than to someone is in debt and able to file for bankruptcy tomorrow. In most circumstances, after a year of prompt payment of their bills following a bankruptcy discharge, one may apply for a mortgage to buy a home and be approved. It is important to note that it is probable the rate of interest and related closing costs generally will be higher for someone who filed for bankruptcy in the last 10 years, than for someone who has not.
(Courtesy of Association of the Bar of the City of New York)
Does the new bankruptcy laws mean that people can no longer file for bankruptcy? (NY)
No, the new bankruptcy laws do not greatly affect the amount of people able to file for bankruptcy under New York Bankruptcy Law. The new bankruptcy laws make it more difficult to file a liquidating bankruptcy under Chapter 7 but if a filer does not qualify for Chapter 7, they may still qualify for Chapter 13 bankruptcy. However, it is estimated that up to 85% of those filing for bankruptcy under the old laws governing Chapter 7 would still be able to file for Chapter 7 bankruptcy under the new bankruptcy laws. The process has been made more complicated under the new bankruptcy laws because additional forms must be completed by lawyers and clients. This increases the time taken to complete the filing process and thus increases the cost to file, but in most instances, the new bankruptcy laws will not change a person's ability to obtain a bankruptcy discharge in New York.
(Courtesy of Association of the Bar of the City of New York)
Is it true that the new bankruptcy laws eliminate any chance for me to get a fresh start free of credit card debt? (NY)
No, everyone still has the right to file for bankruptcy under New York Bankruptcy Law and receive a fresh start. Most people will still be able to qualify for chapter 7 under the new bankruptcy laws. If a filer earns more than the NY State median household income, they may be required to repay part of their debt under a chapter 13 bankruptcy plan.
(Courtesy of Association of the Bar of the City of New York)
I own a small cooperative apartment. If I file for bankruptcy, will I lose my apartment? (NY)
If the fair market value of the apartment, after deducting any mortgages, is less than $50,000 singly, or $100,000 for a married couple filing jointly, the apartment would be exempt under the new bankruptcy laws in New York.
(Courtesy of Association of the Bar of the City of New York)
Can Con Edison stop electric service if I file for bankruptcy owing them money? (NY)
No, however, it is probable a security deposit would be required for a continuation of service.
(Courtesy of Association of the Bar of the City of New York)
If my ex files for bankruptcy, would he be able to stop making child-support payments? (NY)
No, under New York Bankruptcy Law a spouse liable to child-support payments does not relinquish this liability by filing for bankruptcy.
(Courtesy of Association of the Bar of the City of New York)
Is there any way that I can get bankruptcy relief from my student loans? (NY)
It is unusual for one to obtain bankruptcy relief from student loans. However, there have been exceptions for people who have a displayed desperate hardship. These exceptions are very rare under New York Bankruptcy Law.
(Courtesy of Association of the Bar of the City of New York)
Can I go to jail if I file for bankruptcy under New York Bankruptcy Law? (NY)
New York does not have debtor prisons. Debtor's prisons in the US have been illegal since the 1800's.
(Courtesy of Association of the Bar of the City of New York)
How does the new "means test" affect my chances of filing a bankruptcy petition under New York Bankruptcy Law’s Chapter 7? (NY)
If one is unable to pass the means test under the new bankruptcy laws, there is a presumption that the filer makes too much money to file a liquidation bankruptcy. It is advisable to meet with an attorney to determine the viability of success for a rebuttal of a presumption of financial solvency in court.
(Courtesy of Association of the Bar of the City of New York)
My wife and I missed the October 17, 2005 deadline to file bankruptcy under the old bankruptcy laws in New York. I make $35,000 per year and my wife makes $12,000 working part time and we have about $32,000 in credit card debt. I understand there are new bankruptcy laws with more stringent requirements for filing for Chapter 7 bankruptcy. Would we be eligible? (NY)
It is true there are more stringent requirements to file for Chapter 7 under the new bankruptcy laws. New York Bankruptcy Law now requires those filing to first obtain a credit counseling certification prior to actually filing. New bankruptcy laws also stipulate one must now complete a financial management course after filing the case. However, for a household of two persons that earns below the median income in New York of $48,492, the “means test” formula would not be applied. Therefore “eligibility” for a Chapter 7 filing under those circumstances should not be problematic.
(Courtesy of Association of the Bar of the City of New York)
I earn over $60,000 per year, live alone in Manhattan, and have accumulated over $45,000 in credit card debt and student loans. My rent is over $2,000 per month, I have telephone and other utility bills of about $400 per month, and I take home about $3,500 per month. Can I still file for Chapter 7 under the new bankruptcy laws? (NY)
An income over $60,000 per year is in excess of the median income in New York, for a family size of one, thus, under New York Bankruptcy Law, the means test will apply. This is to ensure the Chapter 7 filing is not abusive. However, based on IRS standards for housing and utilities in Manhattan ($2936 per month for housing and $611 for utilities), there should be no difficultly in passing the means test, as it also includes expenses allocated for transportation ($302), personal living expenses ($691 per month food, clothing etc) and a variety of “other necessary expenses” (such as internet, medical/dental and taxes). It should be noted that even where the debtor actually spends less than the IRS standards, the debtor has been entitled to use the IRS standards, excepting the other necessary expenses category. New York Bankruptcy Law states actual expenses must be used.
(Courtesy of Association of the Bar of the City of New York)
I am a consultant in New York and my income varies. In some periods, I make about $5,000 per month while at other times I make about $3,000 per month. My wife, who makes about $5,000 per month, and I are separated and no longer live together. I own a cooperative apartment with my wife, which has about $90,000 in equity. I have over $50,000 in debt. Under the new bankruptcy laws can I file for Chapter 7 bankruptcy? If I do file for Chapter 7 bankruptcy would I risk losing my cooperative apartment in New York? (NY)
The means test is based on the average of the last six months income of the filer prior to filing for bankruptcy. If the filer does not live with their spouse, the spouse’s income is not included. Otherwise, under New York Bankruptcy Law, the spouse’s income would be included even if the spouse did not file. Under such circumstances filing for bankruptcy after a period of time in which the filer was making less per month would be the most prudent course of action, provided the median income generated from the means test would be less than the median income in New York. Under New York Bankruptcy Law, establishing the filer’s income fluctuates on a regular basis might provide a special circumstance that can be utilized to rebut the means test presumption of abuse.
In the case of the cooperative apartment, under the new bankruptcy laws the exemption has been increased in New York to $50,000. A cooperative apartment owned jointly by the filer and spouse would entitle the filer to an exemption equal to one-half the total equity in the cooperative apartment. If this is less than the $50,000 exemption allowed under New York Bankruptcy Law the filer would not risk losing your apartment. A new appraisal of the cooperative apartment’s value should be obtained prior to filing bankruptcy in New York.
(Courtesy of Association of the Bar of the City of New York)
I lived in Los Angeles until about 18 months ago when I moved to New York City, where I was making about $6,000 per month. I was recently laid off and now receive unemployment compensation. I am over 62 and also receive about $1500 per month in social security and a pension of about $1,500 per month. My debts include credit cards and medical expenses of about $45,000. I have a few assets and I want to make sure these are exempt if I file for Chapter 7 bankruptcy under the new bankruptcy laws. I had to use a cash advance of about $1,500 last week to pay my living expenses. Do I qualify for Chapter 7 under New York Bankruptcy Law? (NY)
To file for Chapter 7 bankruptcy under New York Bankruptcy Law the filer must have resided in New York for over two years. A California resident who wished to file for Chapter 7 bankruptcy in New York after residing in New York for 18 months would be judged according to California law, not New York Bankruptcy Law, even though the bankruptcy was filed in New York. If the filer waited another 6 months before filing, the New York State exemptions under the new bankruptcy laws would be available.
When filing for bankruptcy after recently being laid off, it might be wise to wait in filing since income is determined by viewing income generated in the last 6 months prior to filing, if this would include some part of a salary even though the filer had been laid off. Social security and unemployment compensation are both not included as part of income for purposes of determining whether the filer’s income exceeds the median income in New York based on family size. New York Bankruptcy Law states any cash advance made within 70 days prior to filing in excess of $750 would be presumed to be non-dischargeable. It is advisable to wait until this 70 day period expires, preferably a little longer, prior to filing for bankruptcy in New York.
(Courtesy of Association of the Bar of the City of New York)
How many different types of personal bankruptcy are there for individuals?
There are three. They are: Chapter 7, 11 and 13.
What is the difference between chapter 7 and 13?
Chapter 13 is a three to a five year payment plan for those who own assets that they would like to keep such as a car or house, that they could not otherwise keep under chapter 7.
Chapter 7-a "liquidation and fresh start"-this is the type of bankruptcy that most clients think about-the end result is a discharge which wipes out most of a persons debts. What property can I keep after I file for chapter 7 bankruptcy? Upto $2,500 of cash, $10,000 of equity in a house, $5,000 of personal property, one (1) car having equity not to exceed $2,400.00 and unlimited pension, IRA or SEP money.
Can creditors sue me after I file for bankruptcy?
No once a person files for bankruptcy, the automatic stay comes into effect and creditors cannot sue you, garnish your wages or restrain your checking or savings account.
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