What You Need to Know Before Filing for Bankruptcy
Filing for bankruptcy is a significant financial decision that can provide individuals struggling with overwhelming debt a path to financial relief.
In New York, bankruptcy law is complicated, and there are various steps to follow to secure a favorable outcome. Working with an experienced individual bankruptcy attorney can make a considerable difference in managing this process.
At Todd E. Duffy PLLC in New York, New York, we can help you fully understand your options and make sure that your rights are protected throughout the process.
Before filing for bankruptcy, it's essential to understand the implications and the steps involved. Read on to learn more about this process and how an individual bankruptcy attorney can help you.
What Bankruptcy Means for You
Bankruptcy is a legal process that allows individuals or businesses to eliminate or repay their debts under the protection of the bankruptcy court. There are two primary types of bankruptcy for individuals in New York: Chapter 7 and Chapter 13.
The choice between the two depends on factors such as your income, assets, and the nature of your debts. The two primary types of bankruptcy are as follows:
Chapter 7 bankruptcy: Often referred to as "liquidation bankruptcy," Chapter 7 allows you to discharge most of your unsecured debts, such as credit card bills and medical bills. However, you may be required to sell non-exempt assets to pay off a portion of the debts. This option is usually available to individuals with limited income and assets.
Chapter 13 bankruptcy: This type of bankruptcy is often referred to as "reorganization." In Chapter 13, you work with the court to create a repayment plan, typically lasting 3 to 5 years, in which you repay a portion of your debts. This option is suited for individuals who have a steady income but need help managing their debt load.
Understanding these two types of bankruptcy is the first step in determining which option is right for you. Keep in mind that eligibility for Chapter 7 and Chapter 13 is determined by the means test, which examines your income and expenses.
The Bankruptcy Process
The bankruptcy process in New York involves several key steps that must be followed to make sure that the filing is successful. These steps can be overwhelming, and many individuals find it beneficial to work with an individual bankruptcy attorney to guide them through each stage.
Credit counseling: Before filing for bankruptcy, you’re required to undergo credit counseling from an approved agency. This counseling will help you explore alternatives to bankruptcy and create a budget plan. If bankruptcy is still the most favorable option, the agency will issue a certificate that you’ll need to file with your petition.
Filing the petition: The bankruptcy petition is the legal document that starts the bankruptcy process. It includes a detailed list of your debts, assets, income, and expenses. This step is critical, as any inaccuracies or omissions can result in your case being dismissed or your discharge being denied.
Automatic stay: Once you file your petition, an automatic stay is put in place, which temporarily halts creditor actions such as lawsuits, wage garnishments, and collection calls. This gives you breathing room while your bankruptcy case is processed.
Meeting of creditors: After filing, you’ll attend a 341 meeting (Meeting of Creditors) where you, your bankruptcy attorney, and a bankruptcy trustee will discuss your case. Creditors may also attend to ask questions about your debts.
Discharge or repayment: If your case is approved, you’ll either receive a discharge of your debts (Chapter 7) or begin your repayment plan (Chapter 13). In Chapter 7, your unsecured debts are wiped out, while in Chapter 13, you’ll follow a repayment plan for several years.
Filing for bankruptcy involves these steps, but before you take that first step, it's crucial to assess whether bankruptcy is the right choice for your financial situation.
Is Bankruptcy the Right Choice for You?
Before filing for bankruptcy, it's essential to carefully evaluate whether bankruptcy is the most appropriate solution for your financial struggles. Bankruptcy can provide a fresh financial start, but it isn’t a one-size-fits-all solution.
There are long-term consequences, including a significant impact on your credit score. Some factors to consider include:
The amount of debt: Bankruptcy is often more beneficial for those with significant unsecured debt, such as credit card debt or medical bills. If your debt is relatively manageable, other solutions like debt settlement or consolidation may be more suitable.
The type of debt: Some debts, such as student loans, child support, and alimony, are generally not dischargeable in bankruptcy. If most of your debt falls into these categories, bankruptcy may not provide the relief you're seeking.
Your assets: Bankruptcy may require you to liquidate non-exempt assets, such as a second car or valuable personal property. If you own significant assets that you want to protect, a Chapter 13 bankruptcy may be a better option.
Your income: If you have a steady income, Chapter 13 bankruptcy may be more appropriate, as it allows you to create a repayment plan rather than liquidating assets.
Assessing these factors with the help of an individual bankruptcy attorney is crucial to making the most favorable decision for your financial future. If you've determined that bankruptcy is the right course of action, understanding the potential consequences is the next step in the process.
The Consequences of Bankruptcy
While bankruptcy can provide a fresh start, it comes with consequences that can affect your financial future. Understanding these consequences is critical before filing.
Impact on your credit: Bankruptcy will have a significant impact on your credit score. Chapter 7 bankruptcy remains on your credit report for up to 10 years, while Chapter 13 stays for up to 7 years. This can make it challenging to secure new credit, obtain loans, or even rent a home in the short term.
Loss of property: In a Chapter 7 bankruptcy, you may be required to sell non-exempt assets to pay creditors. While New York has generous exemptions that protect certain assets, you could still lose valuable property in a Chapter 7 filing.
Public record: Bankruptcy filings are public records, meaning that anyone can access the details of your case. This can be an emotional burden, especially if you're concerned about the stigma of bankruptcy.
Limited access to credit: After filing for bankruptcy, you may find it more difficult to obtain credit. While it’s possible to rebuild your credit after bankruptcy, it will take time, and you may only qualify for high-interest loans or secured credit cards initially.
Emotional and psychological impact: Bankruptcy can be an emotional experience, as it involves confronting financial failure. However, it can also offer a sense of relief and a new beginning for those burdened by insurmountable debt.
Next, it's important to understand the role of an individual bankruptcy attorney in guiding you through the process.
Preparing for Bankruptcy
Before filing for bankruptcy, there are several steps you can take to follow a smoother process:
Gather financial documents: Compile a list of all your assets, debts, income, and expenses. Having a comprehensive financial picture will make it easier for your attorney to assess your case.
Stop using credit cards: Once you decide to file for bankruptcy, stop using your credit cards. Continued use can raise red flags and may affect the outcome of your case.
Consult with a bankruptcy attorney: Schedule a consultation with an individual bankruptcy attorney to discuss your options and learn more about the process.
Taking these steps will help set you up for a successful bankruptcy filing.
Speak to an Individual Bankruptcy Attorney Today
The bankruptcy process is complicated, but with the help of an experienced individual bankruptcy attorney, you can manage it with confidence. If you need legal assistance, contact us at Todd E. Duffy PLLC. We’re proud to serve clients in New York, New York, as well as across New York and New Jersey.
