Do your finances have you at the end of your rope? Are you looking for some financial assistance but don’t know where to turn? If so, the team of experienced lawyers that work at our bankruptcy firm may be able to offer you the exact help you need. If you’re considering bankruptcy but have many questions and concerns, you’ve come to the right place. Read below and get answers to some of the most frequently asked bankruptcy questions.
Q. What types of bankruptcy are available?
A. Although there are various types of bankruptcies available, the two most common are Chapter 7 bankruptcy and Chapter 13 bankruptcy. Two other types of bankruptcies are Chapter 11, which is reorganization of a business that has huge debts and Chapter 12, which is for family farmers.
Q. How do I know if I want a New York Chapter 7 or Chapter 13 bankruptcy?
A. The type of bankruptcy you need depends on your financial situation. A Chapter 7 is generally for consumers who have little or no income, cannot pay their monthly bills and have no real assets or equity other than personal property such as clothing or furniture inside the home. A Chapter 13 is for consumers who have an income and own a home that they want to keep.
Q. Is it true that I don’t have to pay my debts if I file bankruptcy?
A. Like the previous question, the answer to this question depends on the type of bankruptcy you file. In a Chapter 13 bankruptcy, you’re typically required to set up a payment plan that allows you to pay off all past due amounts and get the mortgage current. Although some debts may be discharged in a Chapter 13, the mortgage typically is not. In a Chapter 7 bankruptcy, your debts are wiped out and you get a “fresh slate”. A trustee, who is assigned to your case, collects and sells off your non-exempt assets. Our bankruptcy attorneys can go over your list of assets and determine which are exempt and which are non-exempt.
Q. Is one type of bankruptcy any better than the other?
A. The type of bankruptcy you chose is based on your debts, your assets, your income and your ability to repay. If you own property and have income, Chapter 13 will work better for you whereas Chapter 7 will work better if you have debts, limited assets and limited income as well as an inability to repay the debts you currently have.
Q. Do I have to have certain amount of income to file for bankruptcy?
A. While we typically think of bankruptcy in terms of for those without income, this is definitely not the case. To file for Chapter 13, you do need to have sufficient income to be able to make the required mortgage payments and pay the arrears. Chapter 13 does allow you to spread out the arrears over time. Because Chapter 7 allows you to wipe out your debts, you must have little or limited income and this must be documented through a New York means test. Our attorneys can also help you with the means test as it may appear quite complicated at first glance.
Q. Can I file bankruptcy more than once?
A. You cannot have your debts wiped out through a Chapter if you’ve had them discharged within the past eight years or have filed a Chapter 13 within the previous six years. Additionally, if you’ve filed a Chapter 13 in the past two years or have had debts discharged through Chapter 7 in the past four years, you cannot receive a discharge with Chapter 13 bankruptcy.
Q. What does it cost to file bankruptcy?
A. Chapter and Chapter 13 bankruptcies in New York typically cost around $300 in court costs plus any attorney fees you may incur.
Q. Can bill collectors continue to call and harass me when I’m filing bankruptcy?
A. Once the bankruptcy process has begun, the creditors will be sent a notice that you are filing bankruptcy and you will be under an “automatic stay”. Collectors are not legally allowed to contact you from this point on.
Q. Will bankruptcy affect my credit scores?
A. Unfortunately, the thing that leads to bankruptcy is usually the consumer’s inability to pay their bills on time so their credit is usually affected. Bankruptcies can stay on your credit report for up to ten years.
It’s important to realize that the above questions and answers may not apply to every situation. This is why you’ll find it beneficial to meet with one of our bankruptcy attorneys for a consultation. We can answer questions based on your individual and specific financial situation and advise you as to the best way to proceed.
If bankruptcy is indeed the best solution, our attorneys will work with you to help you get through the process as quickly and stress free as possible. If we don’t feel bankruptcy is your best or the only option, we’ll go over the various options available to you.
The good news is there are some steps you can take in order to avoid the possibility of getting your bank account(s) frozen and to make it much simpler to get the funds released in case it ever does happen.
Ways to Avoid Getting Your Bank Accounts Frozen
1. Talk to Your Debt Collectors
It’s not a wise decision to ignore a debt collector or your debts since it can result in a bank account levy. If you don’t have enough money to pay your debts due to job loss or some other life-altering situation, talk to your creditors about setting up a repayment plan that will allow you to get your financial obligations repaid. Most creditors as well as federal and state taxing authorities are willing to work with you.
Although nearly all creditors require a judgment against you prior to getting your bank accounts frozen, some do not. Some of these include government-based institutions that collect state and federal taxes along with student loans and child support.
2. Direct Deposit Your Government Aid Funds
If a garnishment or attachment order is received by a certain bank, it has to review the said account in order to determine if any direct deposits being made into the account involve any government assistance funding, including unemployment compensation, veteran’s benefits, and social security. The bank itself is prohibited from freezing the prior two months regarding the government aid deposits if they are made by direct deposit. However, this rule doesn’t apply to any funds that were deposited by a check. Therefore, if you get the same aid in the form of a check and deposit it into your account, ultimately the account could be frozen and will remain so until you can prove your right and get the funds released.
NOTE: Change all your government aid funding to direct deposit rather than sent by check.
3. Keep Your Social Security Money Coming to the Frozen Account
Social security income is protected, especially if it’s direct deposited into the account. Even if it’s not direct deposited, it’s still protected. Social security money retains its protection once it’s received. But, it’s your job to prove where funds came from. If you decide to move your social security funds into a different account once you receive it or mingle it with other funds, it’s going to be even harder to prove that the money came from social security. Leave it set up the way it is right now.
4. Exempt Funds: Keep Them Separate and Not Mixed Up with Non-Exempt Funds
If you keep separate accounts for certain funds that you already know qualify for a particular exemption from attachment, it will likely be much quicker and easier to get the account released to you by proving that the said account only has funds that actually qualify for an exemption, if an attachment should occur. If the funds get mixed up with funds that are not exempt, the burden is on you to trace back the deposits and to prove to the authorities that the frozen balance was derived from the exempt money. This process will likely take a great deal of time since it’s so complicated.
5. Never Keep Money in an Account with a Bank You Already Owe
If you owe a certain bank money where you have your checking or savings accounts and you subsequently fall behind on making payments, they have the legal right to access the funds in your account in order to pay the debt that you owe. If you owe money to a bank that’s holding your accounts, they don’t need to obtain a court order or judgment to strip your funds.
As a general rule, it’s usually a good idea to keep your financial lenders and the bank that holds your personal checking and savings accounts separate. Even though it’s a common practice to keep your business accounts at the bank that gave you the initial lines of credit or business loans, you’re not obligated to keep your personal banking accounts there as well. Should your business ever unfortunately fail, it will be less likely for the bank to access your personal funds in order to fulfill personal agreements you may have provided regarding the business loans that were provided to you.
Use a reputable and trustworthy NYC Bankruptcy Law Firm to help you sort out all your financial difficulties and to prevent you from losing any more money.
New York City residents who are considering bankruptcy should become familiar with the means test. This test is required for anyone filing Chapter 7 relief, and involves a precise formula that’s used to calculate debt and income. What is the means test and why is it important? Read on to find out more.
History of the Means Test
In 2005, the United States Bankruptcy Code was amended to prevent consumers who were filing for Chapter 7 relief from abusing the system. Prior to that time, people of all income levels were eligible to file Chapter 7, which works to eliminate as much debt as possible. By passing the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, Congress hoped to prevent bankruptcy from being used to counteract poor spending habits. It must now be taken before filing a Chapter 7 bankruptcy to determine your eligibility for it.
What does the Means Test Include?
The means test involves a series of questions concerning income, assets, and debts to determine your ability to pay off your debts. The first step involves determining whether your income is more or less than the median income in New York. If your income is less than the statewide median, you have already passed the means test.
If your income is above the median, additional calculations are needed to determine if you are able to pay off your debt. These additional calculations are needed in order to assess whether or not you have “disposable income”, or money left over after your expenses are covered to repay debt with. To do this, the cost of basic living expenses such as rent, food and health care will be figured. The allowable amount is based upon the national standards that are determined by the Internal Revenue Service (IRS).
You will also enter information about your secured and unsecured debts on form 22A. When entering this information, keep in mind that certain debts are not dischargeable in bankruptcy court, including taxes, student loans, child support and spousal support.
Presumption Does/Does Not Arise
Filling out form 22A is much like preparing a manual tax form. When finished, the numbers will reflect that you either do or do not have enough disposable income remaining to pay your debts with. If calculations determine that “the presumption does not arise”, this means you are not disqualified from filing Chapter 7 bankruptcy. If the presumption does arise, you are ineligible and must consider Chapter 13 or another form of relief.
Means Test Exceptions
Certain individuals are exempt from taking the means test. For example, disabled veterans who primarily incurred their debt while serving on active duty may automatically check the box labeled “the presumption does not arise.”
Members of the Reserve and National Guard components of the Armed Forces who were called to active duty after September 11, 2001 for at least 90 days are exempt during their period of active duty as well as for 540 days after being released. Reserve component soldiers meeting this criteria will check a box marked “the presumption is temporarily inapplicable.” Once the exclusion period ends, service members have 14 days to complete the means test or the presumption will automatically expire.
Deciding to File Chapter 7
Just because you pass the means test does not mean filing Chapter 7 bankruptcy is the right decision. While it can eliminate all or most of your debt, you must also give up any property that is not exempt. Your property will be handed over to a bankruptcy trustee, who will liquidate it in order to pay off as many of your debts as possible. It also does not eliminate student loan debts, and will not absolve you of the responsibility to pay child support or alimony.
Criteria that Makes you Ineligible
You are not eligible to file Chapter 7 bankruptcy if you have previously filed Chapter 7 or Chapter 13 proceedings within the past six years, or have had a bankruptcy case dismissed within the past 180 days because you violated a court order. If allowed to file, you will be prohibited from filing an additional bankruptcy petition for six years afterwards.
At our New York City law firm, we meet people every day who need debt relief, but are anxious about taking the means test. If you’re one of these people, we invite you to schedule a consultation so we can answer your questions and determine if a Chapter 7 proceeding is ideal in your situation.
The Bankruptcy Process
When you decide that you are not capable of managing the debt load you have, then it is time to think about bankruptcy. Bankruptcy is a way to protect your assets from creditors, who might otherwise be able to repossesses them as payment of your debt. The bankruptcy process can help you discharge and restructure some of the debt.
In bankruptcy court, you come to an agreement with your creditors about what you can afford to pay and how you can do it. This might involve giving up some assets that are directly tied to the debt. For example, if you have a mortgage that you cannot pay, you might need to give up the house. The same is true for a car. The key is that in bankruptcy, you can manage to protect the rest of our assets from being taken away. You can also arrange for a portion of the debt to be forgiven in order for you to manage to pay the rest.
There are two main categories of bankruptcy for individuals: chapter 7 bankruptcy and chapter 13 bankruptcy. Chapter 7 bankruptcy is meant for people with credit card debt, medical debt, and other debt that does not have collateral. There is also an income requirement: you must make below a certain income to qualify for Chapter 7. Chapter 13 bankruptcy is for people with more money and assets, as well as larger debts. It generally involves working out a payment plan.
We are a New York law firm with decades of experience helping people successfully negotiate bankruptcy.
If you feel that you might be losing control of your debts and you do not think you can keep up, the worst thing you can do is ignore the problem. If you let the debt build up, then it will only get worse. Consider getting in touch with us and we can advise you about what you need to do next. It is an uncomfortable process, but a necessary one.