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Orange County, NY Lawyers Provide An Overview of Chapter 7 & Chapter 13 Bankruptcy

There are many different types of bankruptcy:

  • Chapter 7 – Liquidation
  • Chapter 9 – Governmental bodies
  • Chapter 10 – Railroads
  • Chapter 11 – Business Reorganization
  • Chapter 12 – Family Farmers
  • Chapter 13 – (Wage earner) Debt payment plan

We will only cover Chapter 7 and Chapter 13 Bankruptcy on this page.

Steps to prepare for bankruptcy

Before filing bankruptcy under any chapter, there are steps you should take:

  1. Hire an experienced, competent bankruptcy lawyer
    1. To advise you regarding what bankruptcy will do and not do for you.
    2. To fill in all necessary forms and documents.
  2. If you have funds in a bank or credit union to whom you owe money, withdraw your funds. (Once bankruptcy is filed, they may exercise their right and seize some or all of your money, depending on what you owe them.)
  3. Stop using your credit cards and do not incur any more debt.
  4. Stop paying debts that will be discharged by bankruptcy— this includes unsecured debt, such as credit cards, provided that you have not “loaded up” on a particular credit card during the 6 month (approx.) period prior to filing bankruptcy. A credit card lender will typically scrutinize (and possibly act) on an account if there has been $1,200.00 to $1,500.00 of “new money” (i.e. charges or cash advances, not balance transfers) put on the account within said 6 month period.
  5. If you have “loaded up” on a particular credit card, you should probably make the minimum monthly payment unless the minimum amount is exorbitant.
  6. Stop paying off debts to family and friends. A Chapter 7 trustee might pursue the friend or family member to recover the funds as a preferential transfer. In a Chapter 13 bankruptcy, you might have to pay the Trustee an equal amount of what you paid the friend or family member.
  7. Save all pay stubs received from employers in the past 7 months or obtain a detailed printout of your salary over the past 7 months with itemized deductions.
  8. Prepare and file Federal or State income taxes that are past due.

Things to avoid prior to filing bankruptcy

  1. Do not load up on credit cards once you have decided to file bankruptcy. Debts for “luxury goods and services” over $600.00 within 90 days of filing bankruptcy will not be discharged. Neither will “cash advances” of more than $875.00 on a single card within 70 days of filing bankruptcy.
  2. Do not liquidate your retirement accounts (pensions, 401K, etc.) to pay off debt. These accounts are generally exempt during bankruptcy and you will need that money to survive in your later years during retirement.
  3. Do not transfer property out of your name for little or no payment. A Chapter 7 Trustee can undo such a transfer as fraudulent and return the title back to your name. In New York, a Trustee can undo fraudulent transfers up to six years prior to filing bankruptcy. If you have transferred assets, make sure you received fair market value for them.
  4. After you have decided to file bankruptcy, do not ignore lawsuit papers served on you. Because it will take a while to file your bankruptcy, a creditor could obtain a judgment against you and start garnishing your salary before bankruptcy goes into effect.
  5. Most importantly, do not forget to tell your bankruptcy attorney about all of your assets and anything else relevant to your case. Incomplete or inaccurate disclosure in a bankruptcy can result in failure to discharge your debt or (in extreme cases) criminal prosecution.

Mechanics of bankruptcy relief

A bankruptcy petition is considered “filed” when it is completed, signed and either electronically filed over the Internet with the court on the court’s CM/ECF docket or delivered to the Court Clerk’s Office at Bankruptcy Court.

For the most part, filing the bankruptcy petition creates the Automatic Stay, which is the legal action that protects you from creditors and their collection efforts. We obtain the information for your petition during your consultations with us.

Before filing the petition, creditors are free to hound you, but it has been our experience that creditors stop calling when you advise them you have retained a bankruptcy lawyer. However, do not tell a creditor you have retained our services until you have paid us a retainer. Never tell a bank that you have retained a bankruptcy lawyer if you have funds in your bank account. The bank may seize your money.

Section 341 Meeting of Creditors

A Creditors meeting is held between 20-40 days after your bankruptcy petition is filed. It is held at the U.S. Trustee’s Office in Poughkeepsie, New York. The meeting usually lasts about 5 minutes, and we will appear with you at the meeting. Six meetings are usually scheduled for a one-half-hour time slot, so sometimes meetings run behind schedule. The Trustee will ask you a few questions under oath about your assets and certain information revealed in your petition. Creditors may attend these meetings, but few actually do.

Bring with you to the meeting:

  1. An official picture ID, such as a driver’s license.
  2. Proof of your Social Security number, such as your Social Security card.

Discharge

A bankruptcy “discharge” means you are free and clear of having to pay certain debts. Creditors holding an unsecured claim will no longer be able to collect your debt. Unless objections are filed or something unusual happens with your case, in a Chapter 7 bankruptcy, your discharge is entered 60 days following the initially scheduled Meeting of Creditors. In a Chapter 13 case, your discharge is entered after all required payments have been made to the Chapter 13 Trustee.

A discharge is the “fresh start” you have heard about connected with bankruptcy.

However, whatever difficulty with finances led you to file bankruptcy may still have to be solved. Hopefully, you have learned from your mistakes and know how to avoid similar pitfalls in the future. With a little bit of planning and good decision making, your life after bankruptcy can be all that you hoped it would be.