How to Handle Unsecured Debt During Bankruptcy in New York

Filing for bankruptcy can be a daunting experience, especially when dealing with unsecured debt in New York. Unsecured debts, such as credit card balances, medical bills, and personal loans, do not have collateral backing them. In this article, we will discuss how to effectively handle unsecured debt during bankruptcy proceedings in New York.

Before proceeding, it is essential to understand the two main types of bankruptcy available for individuals: Chapter 7 and Chapter 13. Each type has distinct implications for unsecured debts.

1. Chapter 7 Bankruptcy

Chapter 7, often referred to as “liquidation bankruptcy,” allows for the discharge of most unsecured debts. This means that if you qualify, you can eliminate your unsecured debts and get a fresh financial start. However, not everyone is eligible for Chapter 7 bankruptcy; you must pass the means test, which evaluates your income versus state averages.

If you file for Chapter 7, it is critical to compile a complete list of your creditors and debts. During the process, the bankruptcy trustee will assess your financial situation. Most unsecured debts will typically be discharged, relieving you of the obligation to pay them back.

2. Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also known as “reorganization bankruptcy,” is another option where you create a repayment plan to pay back a portion of your unsecured debts over three to five years. This solution is particularly beneficial if you have a steady income and want to avoid the liquidation of assets.

With Chapter 13, you will need to propose a plan that outlines how and when you will repay your debts. While unsecured creditors do not receive full payment, they may receive a percentage based on your income and the value of your non-exempt assets. This chapter allows for the restructuring of debt and occasionally leads to a reduction in overall debt amounts.

3. The Automatic Stay

Filing for either Chapter 7 or Chapter 13 bankruptcy triggers an automatic stay, which prevents creditors from engaging in collection activities. This includes phone calls, lawsuits, and wage garnishments. The automatic stay provides much-needed relief as you navigate your bankruptcy case and begin the process of addressing your unsecured debts.

4. Develop a Post-Bankruptcy Plan

After bankruptcy, it’s essential to create a financial plan to prevent falling into debt again. Focus on building an emergency fund and sticking to a budget. Establishing a good credit history post-bankruptcy can help in recovering your financial stability over time.

If you're unsure of what to do next, seeking guidance from a knowledgeable bankruptcy attorney in New York can provide clarity and ensure that you make informed decisions throughout the process.

Conclusion

Handling unsecured debt during bankruptcy in New York requires a clear understanding of your options. Whether you choose Chapter 7 to discharge your debts or Chapter 13 to reorganize them, it’s vital to approach the process with a strategic mindset. By following the steps outlined above and consulting a legal professional, you can take charge of your financial future and pave the way towards recovery.