What Happens to Your Debts After Bankruptcy in New York
Filing for bankruptcy is a significant financial decision that can dramatically affect your debts. In New York, the implications of bankruptcy on your debts vary depending on the type of bankruptcy you file. The two main types are Chapter 7 and Chapter 13 bankruptcy. Understanding how these options impact your debts is crucial for making informed choices.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to discharge most of their unsecured debts, such as credit card bills and medical expenses. After your bankruptcy is granted, the court will appoint a trustee who may sell non-exempt assets to repay creditors. However, many individuals in New York find that their assets are exempt, allowing them to keep personal property while discharging debts. Most unsecured debts can be eliminated, giving you a fresh financial start.
Chapter 13 Bankruptcy
In contrast, Chapter 13 bankruptcy is known as "reorganization bankruptcy." This option is designed for individuals with a regular income who wish to keep their assets while repaying a portion of their debts over time. Under Chapter 13, you create a repayment plan lasting three to five years, during which you make monthly payments to a trustee who distributes the funds to creditors. If you complete the plan successfully, any remaining unsecured debts may be discharged, giving you another path to financial recovery.
What Happens to Specific Types of Debts?
When considering bankruptcy, it's essential to understand how different types of debts are treated:
- Unsecured Debts: These include credit card debt, medical bills, and personal loans. Generally, unsecured debts can be discharged in both Chapter 7 and Chapter 13 bankruptcy.
- Secured Debts: These are loans backed by collateral, such as mortgages and car loans. In Chapter 7, you might need to surrender the property to eliminate the debt, while in Chapter 13, you can keep the asset if you stay current on your mortgage or car payments.
- Priority Debts: Certain debts, like child support, alimony, and tax obligations, are considered priority debts and typically cannot be discharged in bankruptcy.
Impact on Credit Score
Filing for bankruptcy will also significantly impact your credit score. Chapter 7 bankruptcy remains on your credit report for up to ten years, whereas Chapter 13 stays for seven years. This can affect your ability to obtain credit and the terms lenders may offer. However, many individuals find that they can begin rebuilding their credit soon after their bankruptcy is discharged by focusing on responsible financial behaviors.
Consulting with a Bankruptcy Attorney
Given the complexities of bankruptcy and its lasting ramifications, it's advisable to consult with a bankruptcy attorney in New York. An experienced attorney can help tailor the bankruptcy process to your unique financial situation, ensuring you understand what will happen to your debts and what options are available for recovery.
In summary, both Chapter 7 and Chapter 13 bankruptcy provide avenues for managing debts, but the outcomes vary. Understanding what happens to your specific debts following bankruptcy can guide you toward making the best decisions for your financial health.