What is Bankruptcy?
Bankruptcy is a type of relief provided by the federal government to individuals and businesses who are no longer solvent, allowing them to eliminate all or part of their debts. More simply put, if you can no longer pay your bills, the government may be able to relieve you of having to pay them by discharging these debts for you, and giving you a “fresh start”.
The concept of bankruptcy is very simple: it is a give and take process. If a person wants to file, they must give up certain non-exempt assets in exchange for being relieved of their bills (But don’t worry, the majority of people who file for bankruptcy do not actually lose any of their property, and I’ll get to that in a second).
The process of bankruptcy starts when the person filing (the “Debtor”) files a petition with the bankruptcy court in their district. A debtor must list all of their debts, assets, income information, and monthly living expenses in this petiton, along with other information. Approximately four weeks after filing this petition, the Debtor must attend a meeting presided over by a bankruptcy trustee, who will ask the Debtor questions to make sure all the information is correct, complete, and honest. If there are no assets to distribute, the trustee will file a report of no distribution relatively soon after this meeting, and in approximately 1-2 months the Debtor will receive their discharge.
What is the Big Deal about a Discharge?
Getting a discharge in bankruptcy is a HUGE DEAL. If your debt is discharged in bankruptcy, it means you never have to pay this debt again. More importantly, it means that the creditor can never ask you to pay this debt, or attempt to collect it in any way after you receive your discharge. This is a big deal because a bankruptcy discharge contains major federal protections. A creditor who commits a discharge violation (as in, asking you to pay a debt that has been discharged) can be held accountable for breaking federal laws.
Many different kinds of debts can be discharged, including medical bills, credit cards, mortgages, car loans, and other contractual obligations. Sometimes, personal income tax can be discharged if they meet the government’s eligibility criteria. However, not all debts are considered dischargeable. These include child support/domestic support obligations, student loans, debts obtained fraudulently, and personal income taxes that do not meet the discharge criteria.
Will I Lose Everything I own?
Filing for bankruptcy does not mean you will lose your personal property. In fact, there are numerous exemptions under either the state or federal statutes that allow you to keep your personal property out of the reach of the bankruptcy court.
You can even protect equity in your real estate in bankruptcy. For example, in New York City, you can exempt up to $150,000 of equity in your primary residence, which is great news if the value of your property is higher than the mortgage on it.
Determining whether to apply the federal or the state exemptions in bankruptcy requires the experience of a knowledgeable bankruptcy lawyer who can successfully engage in exemption planning to maximize available exemptions to protect your property. If exemption planning is done properly, a bankruptcy attorney can help save your house and other valuable assets while still helping you obtain a bankruptcy discharge.
The Law Firm of Moumita Rahman, PLLC has experience in filing dozens of Chapter 7 bankruptcies, from simple to complicated, and we will be your advocate throughout the entire Chapter 7 bankruptcy proceedings.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, or “liquidation”, is available to both individuals and businesses. In a Chapter 7, any property you have that is not “exempted” may be sold to pay your creditors and pay down your debt. Any unpaid debt will be discharged at the conclusion of your case.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is called the “wage earner’s bankruptcy” because you must have some sort of income to qualify for it. A Chapter 13 bankruptcy differs from a Chapter 7 mainly in that it involves a monthly repayment plan for 3-5 years to pay back creditors a portion of some or all of their debts, whereas in a Chapter 7, a person’s assets would be liquidated instead to pay back the creditors.