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What is Bankruptcy?

Bankruptcy affords honest debtors a fresh start by reducing or removing debts. Through the mechanisms of stays and discharges, a bankruptcy proceeding alleviates the pressures of calls, letters and suits from creditors and mounting balances that you cannot repay.

Federal law determines the type of bankruptcy you can file, your obligations as a debtor and the extent of the relief you can obtain under bankruptcy. The laws of New York also impact limited aspects of your bankruptcy case. A Long Island bankruptcy attorney can help you with the questions you have and which may arise in a bankruptcy case.
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Bankruptcy Advice Are you drowning in debt? Are creditors harassing you day and night? Bankruptcy is a viable option to start over with a clean slate or repay your obligations under a reorganization plan. It may seem like credit death to ask the court for help, but it's one of the best choices if you need help stopping wage garnishments, foreclosures, and repossessions. Here are some of the most asked questions we receive, but if you have any further inquiries that you cannot find here, please don't hesitate to call us directly for assistance. We understand how significant this decision is to you and your family.

How Bad Is Declaring Bankruptcy?

Declaring bankruptcy is a decision that you shouldn't take lightly. This public record will remain in your credit report for up to ten years. However, most folks that need this type of court assistance already have credit problems that have impacted their score, so it’s one of the best options to get debt relief. There comes tremendous stress with being in debt and not having enough money to make ends meet. Many can’t get a reorganization loan from a bank, so it’s one of the few options left. Sadly, you can run yourself right back into the same situation if you’re not careful, so you must attend credit counseling and incorporate better financial practices in the future. However, you shouldn’t beat yourself up over filing bankruptcy as Debt.org reported that 774,940 people filed in 2019 alone.

When Is Declaring Bankruptcy the Best Option?

If you don't have enough money to pay your bills each month, then you should consider bankruptcy. You should be behind on your debts by a couple of months to show that there is a genuine need. Many people use credit cards to live on and have huge balances. If you feel that you cannot sustain your life anymore without the court's intervention, then it's a good choice. However, it should be the last option and not the first choice for debt relief.

Is There a Limit or Minimum Amount of Debt You Need to Declare Bankruptcy?

The US Bankruptcy court doesn't have any minimum debt for filing a chapter 7 or 13 case. However, when it comes to chapter 13, the maximum amount that you can have is $1,184,200 in secured debt or $394,725 in unsecured.

What Are Some Things That Most Won’t Tell You About Declaring Bankruptcy?

There are many things that people don’t know about asking the court for help in erasing or reorganizing their debts. Here are just a few of the most overlooked facts:

•It Takes Two Years or More to Rebuild
One person that you should familiarize yourself with if you are filing for bankruptcy on Long Island is the trustee. Their official roles are to review your income, debts, assets and distribute any property that you might own to the creditor. They are a neutral third party that is not there for you or the creditor; instead, they want to act as a mediator in your case.

Understanding the Role of The Bankruptcy Trustee

The official in this role has control over your property that is held in trust. They have a fiduciary responsibility to act impartially towards both person and business. They act as the overseer for the court, so this individual must be well versed in legal issues with bankruptcy, accounting, and management. Think of them as the “watchdog” over your case.

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For those who are contemplating filing bankruptcy, some of the terms can be confusing. The following information may help clarify some of the terms.

What Does a Discharged Bankruptcy Mean?

An order of discharge in bankruptcy means that the debtor is free of liability for a debt that was incurred. The legal obligation for repayment has been nullified by a permanent court order, and the creditor can no longer pursue the debtor for satisfaction of the debt. This also means that the debt cannot be sold to a collection agency since, in essence, the obligation no longer exists.

Which Debts May Be Discharged?

Not all types of debts are dischargeable in all types of bankruptcies. Chapter 7 and Chapter 13 bankruptcy filings are generally used for personal or sole proprietor debts. Although secured debts may be discharged in a bankruptcy filing, the creditor may have the option of reclaiming the security. Unsecured debts that can be discharged in both Chapter 7 and Chapter 13 include:
  • Credit card debts
  • Debts from a vehicular accident
  • Judgments from lawsuits
  • Leases and contractual obligations
  • Medical bills
  • Personal loans and promissory notes
  • Some types of miscellaneous debt
  • Some types of tax debt
Debts that aren't dischargeable in Chapter 7 but can be discharged in Chapter 13 only include:
  • HOA fees, condo and co-op fees
  • Court fees
  • Debts that weren't discharged in a prior bankruptcy
  • Loan debt that was used to pay a tax debt
  • Loans from a retirement plan
  • Marital debt from a divorce or property settlement agreement

What Types Of Debts Can Be Discharged?

Not all types of debt can be discharged in a bankruptcy filing, whether it's Chapter 7 or Chapter 13. Types of non-dischargeable debt include:
  • Alimony
  • Child support
  • Debts incurred as a result of driving under the influence
  • Debts for luxury items purchased within specific time frames prior to filing for bankruptcy
  • Debts from fraudulent activities
  • Monetary penalties and fines incurred as a result of breaking the law
  • Some types of tax debt

What Does a Bankruptcy Dismissal Mean?

If a bankruptcy case is dismissed, it has the same result as if the case were never filed. There is no discharge of indebtedness and the debtor remains responsible for the debt. Dismissal can occur due to filing errors or other types of errors. When a bankruptcy case is dismissed, the automatic stay is terminated and creditors can resume their efforts to collect their debt up to and including foreclosures, placing liens on real and personal property, and seizure of tangible assets.

What's The Difference Between A Voluntary And An Involuntary Dismissal?

Voluntary Bankruptcy Dismissal

When an individual files for Chapter 13, they can request a voluntary dismissal if they decide that filing bankruptcy was an error in judgment. This could be due to finding successful employment or learning that a particular debt isn't dischargeable or for another reason. The court can then order a dismissal of the case. Under Chapter 7, however, once the case is filed, only the judge can order a voluntary dismissal.

Involuntary Bankruptcy Dismissal

If an individual doesn't make the required payments on a bankruptcy or otherwise fails to meet the requirements of the court, then the court may file an involuntary dismissal. Although the decision to no longer make payments or otherwise meet the court-mandated requirements is voluntary, the dismissal is not considered voluntary. Sometimes, an involuntary dismissal can be reversed and the bankruptcy reinstated, but this must be done in an expedient manner, and reinstatement is ultimately up to the court's discretion.

Filing for Bankruptcy Again After a Dismissal

When re-filing to have a bankruptcy case reinstated, the individual must meet specific time limitations. It's imperative to learn the reason for the dismissal before proceeding with the request for reinstatement. Involuntary dismissals can occur due to simple clerical errors or missed deadlines or other issues. If the dismissal occurred due to information supplied by creditors, then it may be more challenging to have the case reinstated. Whether the case is voluntarily or involuntarily dismissed, the protection and automatic stays cease at the time of dismissal, and the creditors will be notified of the dismissal so that they can resume their collection efforts. If the dismissal was involuntary, then it may be possible to file another bankruptcy case, but there are time constraints and federal restrictions that must be met. As long as the requirements are met, it doesn't matter whether the original case was a Chapter 7 or a Chapter 11 bankruptcy. However, the second filing may appear on the credit report as a separate bankruptcy filing, which may result in a significant reduction of an individual's credit score.

Can Your Bankruptcy Discharge Be Denied?

Although bankruptcy cases can be denied, it seldom occurs. When it does, it's usually due to fraud on behalf of the debtor, and it's usually committed against one or more creditors. The most common reasons for having a bankruptcy denied include:
  • Defrauding a creditor: When personal property is transferred, sold, destroyed, or concealed within the year immediately preceding the bankruptcy filing, it may be evidence of an attempt to defraud. The decision to assign fraudulent intent is at the discretion of the judge.
  • Deficiency in assets: When there's no satisfactory explanation for a deficiency in assets, then a judge may decide that there's an intent to defraud.
  • Misrepresentation of facts: Also called lying, bankruptcy forms require the filer to state under penalty of perjury that the information is true and accurate to the best of their knowledge. If this is subsequently proven to be false, then the petitioner can be deemed to be attempting to perpetrate a fraud, and their bankruptcy case can be denied.
  • Misrepresenting or hiding financial information: Failure to disclose financial information or assets can be considered an attempt to defraud and result in the denial of the bankruptcy case.
  • Non-compliance with court orders: If a debtor doesn't complete the courses required by the court or doesn't obey other lawful court orders, they can be considered fraudulent debtors and their bankruptcy case denied.

Can Creditors Still Call After A Bankruptcy Has Been Discharged?

When a debtor files for bankruptcy, whether it's Chapter 7 or Chapter 11, an automatic stay of collection is put into place. When the case is discharged, then creditors have no legal right to continue their collection efforts. Those creditors who continue to call after the debtor has filed Chapter 7 or Chapter 11 bankruptcy or after the debt has been discharged are in violation of the law. The debtor may have legal recourse against them unless the court has granted the creditor the right to continue their collection activities. If a creditor continues to attempt collection efforts despite being informed of the bankruptcy, then they may be liable for legal action, especially if they threaten to place a lien or garnish wages. It's essential to keep detailed records of their activities, including names, dates, times, and types of contact, whether it's email, phone, text, or U.S. mail.
If you have already filed for chapter 7 relief or you are considering doing so, then you should be aware that you will be required to go to the bankruptcy court and attend a Section 341 Meeting of Creditors.

In every bankruptcy case, regardless of whether it is Chapter 7 or Chapter 13, there is always a 341 Meeting of Creditors. This meeting, often referred to as a 341 hearing, is not held in a courtroom. There will be no judge. It usually takes place in a meeting room, presided over by a trustee, appointed by the Office of the United States Trustee (a Government Agency which oversees all bankruptcies in the USA), approximately one month after a case is filed. Although it not held in a court room, 341 meetings are nonetheless legal proceedings, and anyone who is examined or questioned, will be under oath.
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