What Debtors Need to Know About Bankruptcy in New York
Bankruptcy can be a daunting process, especially for debtors in New York who are seeking relief from their financial burdens. Understanding the ins and outs of bankruptcy is crucial for anyone considering filing. Here’s what debtors need to know about bankruptcy in New York.
Types of Bankruptcy Available to Debtors
In New York, debtors have access to various types of bankruptcy filings, primarily Chapter 7 and Chapter 13. Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to discharge most unsecured debts, such as credit card bills and medical expenses. However, it may require the sale of non-exempt assets to pay off creditors.
On the other hand, Chapter 13 bankruptcy is known as "reorganization bankruptcy." It enables debtors to keep their assets while repaying a portion of their debts over a three to five-year repayment plan. This option is particularly beneficial for individuals looking to keep their homes or other essential assets.
Eligibility Requirements
To qualify for Chapter 7 bankruptcy in New York, debtors must pass the “means test,” which compares their income to the median income for their household size in New York. If their income exceeds this threshold, they may need to consider filing for Chapter 13 bankruptcy instead.
For Chapter 13 bankruptcy, debtors must have a regular source of income and their secured and unsecured debts must be below the statutory limits established by the Bankruptcy Code.
The Bankruptcy Process
Filing for bankruptcy in New York involves several steps. Firstly, debtors need to complete mandatory credit counseling from an approved agency within six months before filing. Once this is done, the debtor can prepare and file a bankruptcy petition, which includes a schedule of debts, assets, income, and expenses.
After filing, an automatic stay goes into effect, preventing creditors from pursuing collections, including foreclosure proceedings, wage garnishments, and harassing phone calls. The case will then be assigned to a bankruptcy trustee who will oversee the process.
Exemptions and Asset Protection
New York provides various exemptions that allow debtors to protect essential assets during bankruptcy. For example, debtors can exempt a portion of their equity in their primary home, a vehicle, personal belongings, and retirement accounts. Understanding these exemptions is critical for debtors to retain as much of their property as possible throughout the bankruptcy process.
The Impact on Credit
One of the most significant effects of filing for bankruptcy is its impact on credit scores. While bankruptcy can provide immediate debt relief, it remains on the debtor’s credit report for up to ten years, potentially affecting future borrowing options. However, many debtors find that after the initial shock of bankruptcy, they can take steps to rebuild their credit through responsible financial behavior.
Post-Bankruptcy Considerations
After successfully completing bankruptcy, debtors should be proactive in managing their finances. This includes creating a realistic budget, rebuilding credit by obtaining secured credit cards, and maintaining regular payments on new debts. It is also beneficial to seek financial education to avoid future pitfalls.
Consulting a Bankruptcy Attorney
Given the complexities of bankruptcy law and the potential long-term repercussions on finances, debtors in New York should consider consulting with a qualified bankruptcy attorney. An attorney can provide guidance tailored to individual circumstances, helping debtors navigate the process effectively and choose the best type of bankruptcy for their situation.
In summary, understanding the different types of bankruptcy, eligibility requirements, and the implications on assets and credit can empower debtors to make informed decisions regarding their financial futures in New York.