Pelton Serpe LLP - Bankruptcy Law

Bankruptcy law is designed to benefit both debtors and creditors, allowing discharge of a debtor's existing debts to provide a “fresh start” on finances while providing creditors with proceeds from the liquidation of non-exempt assets. Bankruptcy is governed by Title 11 of the United States Code and, with the exception of certain exemptions, remains uniform throughout the United States.

Passage of The Bankruptcy Prevention and Consumer Protection Act in April 2005 has caused major changes to the bankruptcy law, revising guidelines governing the dismissal or conversion of Chapter 7 liquidations to Chapter 11 or 13 proceedings while expanding the role of the United States Trustees Program to supervise and audit filings.The Bankruptcy Prevention and Consumer Protection Act requires debtors to undergo consumer credit counseling prior to filing for bankruptcy court protection.

The attorneys of Pelton Serpe LLP are experienced in all aspects of bankruptcy law, having assisted over a hundred clients file for bankruptcy court protection. While this website provides background bankruptcy information, please complete a Free Case Evaluation, email info@peltonserpe.com or call Sean Serpe at (212) 725-3600 or (888) 542-8529 to discuss your particular bankruptcy issues.

Chapter 7 Bankruptcy

A Chapter 7 bankruptcy filing is referred to as Liquidation because your non-exempt assets are liquidated, or converted to cash, to pay part of the debtor’s outstanding bills. However, most people who file for Chapter 7 bankruptcy protection own assets that are exempt from bankruptcy regulations. As such, there is no actual liquidation of the non-exempt assets. Chapter 7 bankruptcy cases generally move quickly and may allow for a discharge within a matter of a few months. The discharge will eliminate most unsecured debts, but certain debts such as child support and most student loans are exempt and may not be discharged.

In order to file for bankruptcy under Chapter 7, you must qualify through a means test. While most people who are considering filing for Chapter 7 bankruptcy qualify, those who do not may still qualify to file for bankruptcy under Chapter 13.

Filing for Chapter 7 bankruptcy may be right for you if you:

Have few assets outside your clothing, furniture and other household necessities
Have little or no disposable income
Have little or no money left each month after paying necessary living expenses
Rent or have little equity in your home.

Chapter 13 Bankruptcy

If you are overwhelmed by debts but have a job or some source of regular income, Chapter 13 bankruptcy may be right for you. A Chapter 13 bankruptcy will allow you to liquidate many of your existing debts while setting up a reasonable debt repayment plan, which should allow you to get a fresh financial start. The Chapter 13 process is complex and is best approached with the help of an experienced bankruptcy lawyer who can meet with you to assess your financial situation, explain the bankruptcy process, and work with you to set up a reasonable debt repayment plan.

Consumer Credit Counseling

Before your bankruptcy petition can be filed, you must receive a briefing from an approved credit-counseling agency. The credit-counseling agency is required to explain various financial opportunities available for you to receive credit counseling, and to help you analyze your budget. Although the new bankruptcy law does provide certain hardship exceptions to this rule, most debtors are required to undergo credit counseling and the failure to comply with this requirement before filing may result in your bankruptcy case being dismissed. If you plan on filing a Chapter 13 Bankruptcy, your lawyer should be able to refer you to a qualified and approved credit-counseling agency.

The Bankruptcy Petition

Your Bankruptcy case begins once you have prepared and filed your bankruptcy petition. Your Chapter 13 bankruptcy petition requires that you list personal information about yourself, your spouse, and your family, and you must report all of your income, your assets, your expenses, and all liabilities or debts to all persons. Additionally, you must select each exemption that you claim you are entitled. As discussed below, exemptions are legally protected types of property that your creditors may not take from you. Exemptions vary by state and your lawyer should be well versed in which assets are protected through exemptions. Once this information has been gathered and your attorney has prepared the bankruptcy petition, along with all supporting schedules, your Bankruptcy case is ready to be filed.

Shortly thereafter, the bankruptcy court clerk will send a notice of your bankruptcy case to all of the creditors you listed, providing notice that you filed for bankruptcy and requiring that they suspend efforts to collect their debts. Your case will be assigned to a bankruptcy trustee, who will review your case, and in most cases, the bankruptcy court will issue an Automatic Stay order, which prohibits most creditors from attempting to collect their debts from you. While the automatic stay is in effect, creditors may not repossess your car or other property and creditors are prohibited from starting or continuing legal actions against you while your bankruptcy case is pending.

The Repayment Plan

If you file for a Chapter 13 bankruptcy, the repayment plan is an agreement between you and your creditors whereby your creditors agree to forgive a portion of your debts in exchange for your commitment to repay your reduced debts over time. Most repayment plans require that you to make monthly payments to the bankruptcy trustee who then distributes these funds to your creditors. Repayment plans typically last between three and five years. So long as you abide by the payment schedule, your creditors listed on the repayment plan must abide by the terms of the plan and may not take collection actions against you.

Financial Education

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires that individuals who file for Chapter 13 bankruptcy complete an instructional course concerning personal financial management. Your attorney should be able to refer you to an approved financial management class provider in your area.

Chapter 13 Requirements

In order to qualify for a Chapter 13 bankruptcy, you must satisfy the following three requirements:

You must have a “stable and regular” source of income that allows you to meet the terms of your repayment plan.
You must have enough disposable income that you are able to meet your basic necessities while still having funds available to make monthly payments pursuant to your repayment plan. While there is no set formula for determining whether your income is sufficient, you should work with your attorney and credit counselor to formulate a proposed budget.
If your secured debts (which include loans that you have secured by liens on your property, such as home loans, automobile loans and even IRS tax liens) exceed $922,975, then you are not eligible to file for Chapter 13 bankruptcy. Further, your unsecured debts (such as credit cards, medical bills and personal loans) may not exceed $307,675.

Remember, even if you don't qualify for a Chapter 13 bankruptcy, you most likely will qualify to file for Chapter 7 bankruptcy.

Benefits of Chapter 13 Filings

While you will want to work with your attorney to determine which filing is right for you, Chapter 13 bankruptcy cases are generally preferable to Chapter 7 filings when:

You are behind in your payments for property that you wish to keep following the bankruptcy, such as a car or home.
You owe money to the IRS. It is generally very difficult to discharge tax debts in Chapter 7 bankruptcy cases and even if your tax debt is discharged, the IRS will still record a tax lien against you, which may allow the IRS to seize property owned at the time you filed for bankruptcy. As such, a Chapter 13 filing may be preferable if unpaid federal taxes make up a large portion of your outstanding debt and you are able to pay the taxes over time.
If you have a lot of non-exempt property that you would have to give up under a Chapter 7 filing, a Chapter 13 bankruptcy may allow you to keep this property.
If you have received a prior Chapter 7 discharge, you are precluded from filing another Chapter 7 bankruptcy case for eight years.

Bankruptcy is nothing to be ashamed about and millions of individuals file for bankruptcy protection each year. Bankruptcy laws were designed to allow financially distressed individuals to get their financial lives back in order.

Frequently Asked Bankruptcy Questions

The following questions to frequently asked bankruptcy questions are intended to provide you with general information regarding U.S. bankruptcy law. This FAQ section does not constitute legal advice and should not be used as a substitute to retaining a lawyer. Bankruptcy laws are complex and remain subject to annual changes. As the following information is general and may not apply to your particular situation, you should consult an experienced bankruptcy lawyer in your area to properly assess your legal needs.

Q: Are all of my debts dischargeable if I file for bankruptcy?

A: No. Congress has excluded certain debts from discharge including:

Student Loans (unless you can prove "undue hardship");
Debts arising out of spousal support and/or child support obligations;
Income taxes owed within the last 3 years;
Debt aggregating more than $1,150.00 from any single creditor for non-essential, “luxury” goods, or cash advances totaling over $1,150.00 on a credit card within 60 days prior to filing for bankruptcy;
Debts incurred by fraud or false pretenses;
Debts incurred through false written statements, such as false credit applications;
Criminal fines and restitution;
Fines and penalties owed to a governmental unit;
Debts incurred through embezzlement or larceny;
Debts incurred by willful and malicious injury;
Personal injury or wrongful death debts arising out of a debtor operating a motor vehicle while intoxicated;
Marital equalization obligations under Chapter 7 filings (these may be discharged in a Chapter 13 action);

While these are the main categories of debts that are excluded from discharge, certain additional exclusions may apply.

Q: When may I file for bankruptcy? If I am being sued or already have a judgment against me, is it too late for me to file for bankruptcy?

A: No. It's almost never too late to file bankruptcy. Assuming that your judgment constitutes dischargeable debt (meaning one that isn't incurred through fraud, or a domestic support obligation, or one of the others Congress has excluded from discharge), you can still get rid of the debt even if a creditor has filed a lawsuit against you and gotten a judgment. You may even be able to discharge the debt if they have a lien against your property, as discussed below.

Q: Where do I file my bankruptcy case?

A: You should file your bankruptcy case in the federal district court where you have resided or have your domicile (or for a business, its principal place of business) for the greater part of the 180-day period prior to the date your case is filed.

Q. What are exemptions?

A: Exemptions are allowances for the value in certain assets, which you are not required to forfeit in a bankruptcy. For example, the homestead exemption will protect the equity you have in your home, up to a certain value. Each state has different exemption limits that protect the value in certain assets and you should check with a qualified bankruptcy attorney in your area regarding exemptions before you file your bankruptcy case. As discussed above, your bankruptcy case will be filed in the state in which you have been domiciled during the 2 years prior to commencing your bankruptcy case.

Q: What is the automatic stay that goes into effect after a bankruptcy petition is filed?

A: Pursuant to federal bankruptcy law, an injunction goes into effect immediately after you have filed your bankruptcy case. The stay is automatic and it prohibits the commencement or continuation of any acts to collect a debt that arose prior to the filing of the bankruptcy. The automatic stay is important because it prohibits the enforcement of judgments and/or liens until you receive discharge through bankruptcy. For cases filed on or after October 17, 2005, The Bankruptcy Prevention and Consumer Protection Act applies to limit the length of the automatic stay under the following situations:

If you had a prior bankruptcy case dismissed under any chapter within one year prior to the filing of your present case, the automatic stay terminates 30 days after your new case is filed, unless you obtain a court order extending it for cause and a showing of good faith as to why the prior case was dismissed.
If you have had more than one prior bankruptcy case dismissed under any chapter within one year prior to the filing of your present case, the automatic stay does not go into effect at all unless and until the court orders it into effect, after a noticed hearing. The Bankruptcy Prevention and Consumer Protection Act provides other limitations to the automatic stay. Remember to check with your attorney to determine whether the other limitations will affect you.

Q: What does it mean to discharge a debt?

A: When you get rid of your debt through a bankruptcy filing, you have “discharged” your debt. In a successful bankruptcy proceeding, your legal obligation to pay on your debt will be discharged, notwithstanding the fact that the debts itself is not technically eliminated. While your debt may continue to exist after you have emerged from bankruptcy, you will no longer have the legal obligation to pay on the debts that have successfully been discharged through bankruptcy.

Q. Which state's exemption law applies to my bankruptcy case?

A: For cases filed after October 17, 2005, the exemption laws of whatever state you were domiciled in for the last 2 years apply. If you lived in more than one state during the two-year period prior to filing for bankruptcy, then the exemption laws of whatever state you lived in for the 180 day period prior to the start of the last 2 year period applies. If you lived in more than one state during that 180-day period, then the exemption laws of the state where you lived for the greater portion of that 180 days will apply. This revision is designed to ensure that people filing for bankruptcy court protection do not engage in forum shopping, selecting the state with the most favorable exemption laws to move to just prior to filing.

Q. May I choose which assets, debts and creditors I list on my bankruptcy case?

A: Absolutely not. You must comply with the law, which required that you list all of your assets and all of your debts in any chapter of bankruptcy. While you may wish to voluntarily repay anybody you want after your case is concluded (and you are required to repay any debts that are not discharged), you are legally required to list all of your creditors. Similarly, failing to list all assets on a bankruptcy petition is a fraud that is punishable by law.

Q. Can I remove liens against my property?

A: Yes. Under certain circumstances, judicial liens and "non-possessory, non-purchase money security interests" may be removed from property if, based on the value of the asset and the amount of senior liens and encumbrances against the property on the date of your bankruptcy court filing the lien causes an exemption to which you are entitled under state law to become impaired, the judicial lien or other non-possessory, non-purchase money security interest lien may be removed.

Q. Can I be fired or denied employment because of a bankruptcy?

A: No. Section 525 of the Bankruptcy Code provides that employers may not fire employees for filing for bankruptcy court protection. In practice, however, employers can often find excuses to fire employees and a bankruptcy filing may be looked upon unfavorably when you are purchasing a home, renting an apartment or applying for a job. As such, it is important to speak with a skilled attorney prior to filing a bankruptcy case to learn about all available options and to determine the ways in which a bankruptcy case may impact your financial future.

The attorneys of Pelton Serpe LLP are experienced in all aspects of bankruptcy law, having assisted over a hundred clients file for bankruptcy court protection. If you have bankruptcy questions, please complete a Free Case Evaluation, email info@peltonserpe.com or call Sean Serpe at (212) 725-3600 or (888) 542-8529 to discuss bankruptcy court options.