Bankruptcy

What is Bankruptcy?

Bankruptcy is a right provided by the United States Constitution for people and other entities to pursue relief from some or all of their debts through the Bankruptcy Court.

Broadly, consumer bankruptcy can be described as:

• Chapter 7 (Liquidation), which offers a discharge of debt for qualified debtors who are allowed to keep certain exempt property, including some equity in a principal residence, while turning over non-exempt assets to the Chapter 7 Bankruptcy trustee to satisfy creditors.  The Bankruptcy trustee will schedule a “341” meeting to review the paperwork with the debtor and ask questions about assets, and if the trustee and the bankruptcy judge approve the filings, the debtor will be granted a discharge of eligible debt.   If a homeowner’s equity is exempt, then he/she can retain the home and sell it after discharge.

Under New York Civil Practice Law and Rules § 5206, the debtor’s principal residence is exempt in bankruptcy up to the following amounts (2021 figures):

• $179,975– Nassau, Suffolk, Kings, Queens, New York, Bronx, Richmond, Westchester, Rockland and Putnam Counties;
• $ 149,975– Dutchess, Albany, Columbia, Orange, Saratoga and Ulster Counties;
• $ 89,975– All other counties.

Chapter 13 (repayment plan) allows the debtor to make a formal plan (with Court approval) to repay certain debts, including delinquent mortgage payments, over a three- or five-year plan.

A Chapter 13 Bankruptcy offers debtors a number of advantages over liquidation under chapter 7. Most importantly, a Chapter 13 Bankruptcy offers debtors an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and possibly cure delinquent mortgage payments over time (3-5 years). However, they must still make all mortgage payments that come due during the Chapter 13 plan on time. Another advantage of Chapter 13 is that it allows individuals to “reschedule” secured debts and extend payments over the life of the Chapter 13 plan.

Corporate Bankruptcy

Chapter 11 is a reorganization of a debtor’s business, debts, and assets. A Chapter 11 gives the debtor a fresh start. Once the debtor completes its obligation under the claim of reorganization.

Determining what type of bankruptcy is best for each debtor and what is, and what is not, dischargeable debt requires careful legal analysis.

What is the benefit of Bankruptcy?

Depending on the debtor’s financial situation, the nature of the debts, the type of bankruptcy chosen, and the debtor’s history of bankruptcy filing, a debtor is ordinarily entitled to a stay (freezing debt collection efforts), have a chance to discharge some or all debts or pursue a repayment plan to become current on debt payments. As discussed, a Chapter 13 is regularly used to retain a debtor’s principal residence.

Chapter 7, Chapter 11 and Chapter 13 Bankruptcy further explained.

A Chapter 7 Bankruptcy allows a qualified debtor to discharge certain debts, while a Chapter 11 allows companies, or in rare cases individuals, a chance to format a bankruptcy reorganization plan to “cram down” debt payments typically with a reduction in amounts owed. Most consumer choose between a Chapter 7 or Chapter 13 Bankruptcy.

In most cases, a person filing for bankruptcy (and this can be an individual or married couple) will choose a Chapter 7 – if they qualify – and discharge certain debt.

If the individuals do not qualify for chapter 7 relief, they can pursue relief under Chapter 13, which may require 3-5 years of careful budgeting and timely payments under an approved plan.

Under Bankruptcy law, there are certain “non-dischargeable” debts such as intentional tort judgments (think assault), certain divorce & child support obligations, and certain tax debts.