Are you getting crushed by debt? Are you only making minimum payments and still falling behind? Is your income falling short of making ends meet. Are you getting notices from creditors that you are late making payments? Are the interest rates charged on your credit cards excessive? Bankruptcy is a right granted under the constitution and governed under federal law with provisions that allow states to affect exceptions. Bankruptcies allow individuals and business to get a fresh start without the burdensome debt that may have been accumulated and bars your ability to go forward. The three key types of bankruptcy that individuals and business use are Chapter 7, Chapter 11 and Chapter 13. So which type is right for you? Do you want to get out from your debt and start fresh, or do you want to reorganize your debt and pay something back? Do you own a home that is in foreclosure and need to stop the proceedings or try to modify the loan? Are creditors threatening or have seized assets. Are you getting telephone calls demanding money for unpaid bills? Did you recently lose your job, or had a medical issue that left you deep in debt?
A Chapter 7 bankruptcy is a liquidation of assets to pay off your liabilities. However, there are certain assets that are protected and may be held as exempt from being sold. While there are stricter requirements to qualify for a Chapter 7 bankruptcy, everyone’s situation is different, and you may qualify even if others told you that you are not eligible.
A Chapter 13 is a reorganization of your debt. There are limits on the size of the value of your total assets and liabilities in order to qualify for a Chapter 13, however, if you do qualify, Chapter 13 is a useful way to renegotiate the terms of loans. Further, you remain in control of your assets and you do not have to sell off assets unless you want to, or the values exceed certain limits
A Chapter 11 is a reorganization of your debt when you don’t qualify for a Chapter 13. Usually, this chapter is used for large estates, like GM or Barneys New York. However, you may have to file under Chapter 11 reorganization if you exceed the limits for a Chapter 13.
Will you lose everything you own if you file Bankruptcy?
What assets can you keep if you file a bankruptcy? If you file a Chapter 7, or your Chapter 11 or Chapter 13 get turned into a 7, then you will be required to turn over non-exempt assets to the trustee. Non-exempt assets are assets that, under the New York State and/or Federal Bankruptcy exemptions are not protected assets. In addition, some assets, like your home, have a limit to what is exempt. Under New York Law, a home’s equity up to $175,000, (lower in most upstate counties), is protected. That means that if there is less equity than $175,000 (the difference between the fair market value less any mortgages, liens and judgements, if any), you may keep the home. This is called the homestead exemption and only applies to your principal residence. You cannot carryover the equity to a second home. It also does not prevent the mortgage lender from foreclosing, after dismissal of the case or filing for a relief from a stay.
Is your home in foreclosure and the lender is about to sell it at auction? Has a creditor seized an asset or is about to and you need that asset? One of the biggest advantages of filing for bankruptcy is the Bankruptcy Stay. By filing for bankruptcy protection, you get an immediate stay from further actions of your creditors. That means the lender cannot sell the house at auction and any asset seized may be returned to you. It stops evections, even if there is a judgement and warrant issued. The stay applies to any Chapter, but cannot be abused. It preserves the status quo until the Bankruptcy Trustee, or the Court can review the situation and determine whether you have a right to the asset, or you can negotiate a settlement with the creditor.
Comparison Chapter 7 vs Debt Negotiation
Should you file bankruptcy or use one of those creditor negotiating companies that always advertise not to file bankruptcy, and instead, use them to renegotiate the debt down to pennies on the dollar. There are several issues with that. If you can qualify for a Chapter 7 Bankruptcy, the long-term effects on your credit will be better under bankruptcy then renegotiating the loans for several reasons:
Renegotiation of Debt
- Obligation remains until paid off
- Taxes due on difference between total amount due and the amount negotiated
- Credit affected until 7 - 8 years after last payment
- Negotiator charges based upon a percentage of debt and debt savings
Under a Chapter 7 Bankruptcy
- No further obligation to pay debt
- No taxes due on discharged debt
- Credit recovery quicker since you are limited to when you can file again and you may be able to obtain credit within 2 years after discharge.
- Attorney’s fees are fixed amount
If you cannot qualify for a Chapter 7, and you want to negotiate with your creditors, you should also consider a Chapter 13 filing. A Chapter 13 filing will allow you to negotiate with creditors, devise a payment plan that will be paid out over a 3 or 5 year period and leave you discharged of any debt in excess of the payments under the plan.
Contact the Rothenberg Law Offices, PLLC
If you have concerns with who will get and handle your money, now is the time to contact a law firm to explain and help you handle the process of planning your estate. At the Rothenberg Law Offices, we have over thirty years of experience helping families establish an estate plan to provide for their loved ones. We will explain the types of documents which applies to your planning needs. With proper planning we can show you how to avoid probate or administration and making your last wishes public. Call for a free 30-minute consultation to discuss how we can help you determine the best estate plan for your situation.