How to file for Bankruptcy in NY
From credit cards and mortgages to student loans and medical bills, people are carrying more debt now than at any other time in history. According to a 2019 consumer debt study by Experian, the average consumer debt amount in the United States is $90,460.
This amount of debt is daunting enough when you’re employed and able to keep up the payments, but what if you lose your job? Become permanently disabled? Has your income been compromised due to separation or divorce? The normal stress from carrying so much debt can affect your quality of life, health, and personal relationships.
Filing for Chapter 7 or Chapter 13 bankruptcy can help you manage that debt or get rid of it entirely, restoring your financial independence. In this blog, we’ll explain how to file bankruptcy in NY and enjoy the freedom of getting out of debt.
Step 1: Learn more about your bankruptcy options
There are two main types of consumer bankruptcy: Chapter 7 and Chapter 13.
- Chapter 7 bankruptcy lets you discharge most of your debts in a matter of months in exchange for giving up all of your nonexempt property (property not protected by a bankruptcy exemption). For this reason, it is commonly known as a ‘liquidation’ bankruptcy, but most filers successfully protect all of their property and don’t lose anything.
- Chapter 13 bankruptcy allows you to repay some or all of your debts under a court-approved repayment plan that lasts three to five years. In exchange, you are not required to surrender any property. Chapter 13 is also called the ‘wage earner’s’ bankruptcy because it is designed for those who can support the monthly payments. It’s a preferred form of bankruptcy for homeowners who are behind on their mortgage payments and want to catch up and keep their home.
The type of bankruptcy you should file will depend on your income, expenses, amount, and types of debt you owe, and your own goals. For example, you may want to discharge all debts like credit cards and medical bills in a Chapter 7 bankruptcy filing so you can focus on repaying your student loans or child support arrears.
Step 2: See which chapter you qualify for
To qualify for Chapter 7 bankruptcy, you must be able to prove that you don’t have enough disposable income to pay your debts. This is accomplished via the means test, which compares your income to the New York state median amount for your household size. If you earn less, you will be allowed to file Chapter 7. You will also qualify if you make more than the median amount but your reasonable living expenses don’t leave you with enough left over to pay your debts.
If the means test shows that your income is above the median amount for your family size and you have enough disposable income to make reasonable payments towards your debts, you will probably have to file under Chapter 13, unless your debt exceeds the limits set by the U.S. Bankruptcy Code. In 2020, those limits are:
- $419,275 for unsecured debts, which are obligations not guaranteed by some form of collateral. Examples include credit card debt and medical bills.
- $1,257,850 for secured debts like mortgages and car loans, which are guaranteed by the assets themselves.
If you fail the means test but your debt amounts don’t qualify you for Chapter 13, a New York bankruptcy lawyer will help you investigate other options, such as Chapter 11 bankruptcy.
Step 3. Take a credit counseling class
You must take a credit counseling class with a government-approved provider within 180 days before filing for bankruptcy in New York. (You can find a list of providers on the Department of Justice website.) These classes, which can be attended in person, over the phone, or online, take around 90 minutes to complete, and at the end, you’ll be given a certificate that needs to be included with your bankruptcy petition.
Step 4. Prepare and file the bankruptcy paperwork
If you haven’t engaged a New York bankruptcy law firm yet, now is the time. Although the law doesn’t prohibit you from preparing and filing your own case, the paperwork and compliance requirements can be so complicated that it’s easy to unwittingly jeopardize your discharge.
A bankruptcy attorney will show you how to:
- Complete the bankruptcy forms detailing your current income, assets, debts, and expenses.
- Claim exemptions to protect your personal property. If you own a home, there is a homestead exemption available under both the federal and state exemption systems. (Chapter 7)
- State your intentions regarding secured debts like auto loans and mortgages. (Chapter 7)
If you are filing Chapter 13, you also need to submit a proposed repayment plan for approval by the bankruptcy court. Your attorney can help you put together a plan based on how much money you have available to pay down debt after covering your reasonable monthly expenses. Priority claims, like income tax and child support arrears, will have to be paid in full, while unsecured debts can usually be settled for a lower amount.
Once the petition is prepared, you (or your attorney) will file it, along with all supporting paperwork, at the appropriate federal court. There will also be a filing fee that you pay upfront or in installments unless you apply for a waiver.
Once everything is successfully filed, the automatic stay immediately protects you from creditor collection efforts. This means that calls and letters stop and any wage garnishments, foreclosure proceedings, and lawsuits are halted. If your bank account was frozen, you will have access to your funds once again.
Step 5. Attend a 341 hearing (creditors’ meeting)
Approximately one month after your petition is filed, you will have to attend a 341 hearing, also known as a creditors’ meeting. If you have an attorney, they will attend with you. The trustee assigned to your bankruptcy case may ask you questions about the information you submitted on your forms, and creditors will have the opportunity to question you.
If you are filing Chapter 7 and want to retain secured property like your home or car, you have to file a reaffirmation agreement within 60 days of the 341 meeting. This agreement states that you want to remain liable for the debt and keep the property in exchange for ongoing payments.
Step 6. Complete a personal financial management class
You must complete a personal financial management class no more than 45 days after the 341 hearing. Like the credit counseling class, this debtor education course has to be taken from a court-approved provider and the certificate of completion submitted to the court.
Step 7. Follow the terms of your bankruptcy
If you filed Chapter 7, you can generally expect to receive your discharge around 60 to 90 days after the 341 meeting. With Chapter 13, you will have to make all of the payments outlined under the court-approved plan, which will take three to five years. Then you’re free to start anew!
Do you have more questions about bankruptcy in NY?
At Gershburg Law, P.C., we understand how financial problems can disrupt your life. That is why we are committed to providing thorough and compassionate guidance and legal advice when you want the fresh start that the law can provide you. We can help you determine which type of debt relief is right for your financial situation, so to schedule a free consultation about the bankruptcy process in New York City, call 866-554-8082 or contact us online.