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Middletown Attorneys Explain the Consequences of Bankruptcy to New York Residents

Does bankruptcy impact my credit report?

At Hayward, Parker, O’Leary & Pinsky Esqs., our attorneys have explained the consequences of bankruptcy to many Ulster, Dutchess and other mid-Hudson County residents. One of the chief concerns of many is the impact the bankruptcy has on credit reports. Many people assume that credit agencies are a governmental body with direct access to all of your financial records. In reality, this far from the truth. Credit reporting agencies are:

  • Private companies
  • Not affiliated with the government or the bankruptcy courts
  • Unable to directly access your bankruptcy petition

While creditors are supposed to report to the credit reporting agencies when their debts are discharged, many do not. Therefore, it is not uncommon for your discharged debts to remain open in your credit report. To ensure that your credit report accurately reflects your bankruptcy discharge, you should send the following to the three (3) major credit reporting agencies:

  • A discharge of debtor and order of final decree
  • Schedules “D”, “E” and “F” of your bankruptcy petition including any amendments

What are the tax consequences of bankruptcy?

Most people are aware that when debts are canceled you may be required to report part or all of the amount as income for tax purposes. However, the bankruptcy code excludes debts discharged by bankruptcy from counting as income. Rather, a debt discharged by bankruptcy has no income tax consequences. If you mistakenly receive a an inquiry from the IRS about the cancelled debt, simply file IRS form 982 to advise the IRS that the debt was discharged through bankruptcy.

Does the bankruptcy code provide protections against discrimination?

The bankruptcy code establishes protections against discriminatory treatment based on the person being a debtor in bankruptcy, being insolvent prior to or during the bankruptcy case, or not paying a debt that is dischargeable or was discharged in bankruptcy. The government may not discriminate in granting a “license, permit, charter, franchise, or other similar grant” in employment matters or in approving a student loan. Additionally, private employers may not discriminate based on bankruptcy or debtor status.

What are fraudulent and preferential transfers?

A preferential transfer is a transfer where the debtor selects certain creditors to pay over others and the creditor ends up receiving a greater percentage of the debt than they otherwise would have under bankruptcy. While in normal dealings there is nothing wrong with preferential treatment of creditors, they are discouraged by bankruptcy law and a trustee may recapture payments made while insolvent or within 90 days before the bankruptcy filing.

A fraudulent transfer is another type of property transfer that is discouraged by the bankruptcy code. A fraudulent transfer is an attempt by a debtor to transfer property in a way the puts it out of the reach of creditors. Examples of fraudulent transfers include:

  • A friend sells his new, luxury Tesla Roadster S for $1 the day after learning he was being sued for $10 million
  • A brother gives his sister a collection of paintings after learning that he is insolvent
  • Parents transfer their home to their adult child to avoid probate. The parents then declare bankruptcy.

To determine whether the transfer was fraudulent New York courts look to six “badges” of fraud:

  • Is there a close personal relationship?
  • Was the transfer made in anticipation of a lawsuit?
  • Was the debtor insolvent?
  • How much of the debtor’s assets were transferred?
  • How severe was the asset depletion?
  • Was the purchase price adequate?

What about wage garnishments and bank account restraints?

One major feature of the automatic stay is that a bankruptcy filing immediately stops all wage garnishments and bank account restraints.

Contact us to understand the consequences of bankruptcy

Bankruptcy is a powerful tool to eliminate debt. However, it can have wide-reaching consequences. For your free consultation at our Middletown office, call Hayward, Parker, O’Leary & Pinsky Esqs. at 855-592-1559 or contact us online today.