When debt has grown past what you can pay, bankruptcy may be the fresh start you need. It is a serious decision. We help individuals and businesses understand how the bankruptcy laws apply to them, decide whether filing is the right answer, and, if it is, get through the process while protecting their rights and their exempt assets. Where bankruptcy is not the right answer, we say so and look at the alternatives.
You can call us at 212-233-1233 or email [email protected] to discuss your situation.
Personal Bankruptcy
For individuals and families, the choice is usually between Chapter 7, which eliminates most unsecured debts through liquidation, and Chapter 13, which reorganizes debts into a payment plan you can manage. Before filing we evaluate which of your debts can be discharged, work out how to keep exempt property such as your home and car, and deal with creditors to stop harassment and collection actions. We make sure the pre-filing credit counseling requirement is met, and after the case we help you plan for rebuilding credit and financial stability.
Business Bankruptcy
Business debt threatens the company, and often the owner’s personal assets and livelihood with it. A business that can keep operating may reorganize under Chapter 11, restructuring its debts while it continues to trade. A business that cannot may wind down under Chapter 7, with its assets sold. Some businesses do better restructuring their debt by negotiation with creditors outside of bankruptcy altogether.
In each of these situations we work on protecting the owner’s personal assets from business creditors, dealing with creditor committees in reorganization cases, valuing the business’s assets and operations, and handling the sale of business assets or of the whole operation. Every business is different, and the strategy has to fit the owner’s circumstances.
Alternatives to Bankruptcy
Bankruptcy is not always the best solution. Before recommending it, we look at whether something else would work better: negotiating with creditors to reduce the amounts owed and the payment terms, arranging a manageable payment schedule, consolidating several debts into a single payment, or protecting important assets from creditors by other means. We also help with budgets and spending plans, with stopping abusive collection practices, and with defending a home against foreclosure. The goal is financial stability by whichever route fits, whether that is bankruptcy or an alternative.
The Means Test for Chapter 7
Not everyone qualifies for Chapter 7. The “means test” decides whether an individual debtor’s income is low enough to file Chapter 7 or whether the debtor must file Chapter 13 instead. It compares the debtor’s income to the median income in the debtor’s state for a household of the same size. Debtors below the median can file Chapter 7 freely. Debtors above the median must do further calculations to show whether they have disposable income that could pay creditors.
In practice the test looks at the debtor’s average monthly income for the six months before filing and compares it to the New York median for the household size. For an above-median debtor, it then calculates allowable expenses using IRS standards and asks whether the disposable income left over could fund a Chapter 13 plan. A debtor with sufficient means is, in most cases, disqualified from Chapter 7.
The Automatic Stay
One of the most powerful effects of filing is the automatic stay under Section 362 of the Bankruptcy Code. The moment the case is filed, the stay stops collection calls and letters, lawsuits to collect debts, wage garnishments, bank account levies, foreclosure proceedings and repossessions. It stops utility shutoffs for at least 20 days and, with some exceptions, eviction proceedings.
That gives the debtor immediate relief from creditor pressure and breathing room to assess options and develop a plan. A creditor who violates the stay can be sanctioned by the bankruptcy court.
Exempt Property in New York
A bankruptcy debtor can protect certain assets from liquidation. New York debtors can choose between the federal exemptions in the Bankruptcy Code and the New York state exemptions, and the right choice depends on which assets the debtor most needs to protect.
| Exemption | What it protects |
|---|---|
| Homestead | Equity in the debtor’s primary residence. The amounts differ under federal and New York law. |
| Motor vehicle | Equity in a car, up to a specific amount. |
| Personal property | Household goods, clothing and similar items. |
| Retirement accounts | Generally fully protected, including 401(k), IRA and pension benefits. |
| Tools of the trade | Equipment used in the debtor’s profession. |
| Wildcard | Any property the debtor chooses, up to a specified amount. |
| Wages | A portion of earned but unpaid wages. |
Choosing the right exemption scheme requires a careful look at the debtor’s specific assets.
Discharge of Debts
Completing a bankruptcy results in a discharge of the debtor’s eligible debts, which releases the debtor from personal liability on them. Certain debts survive the discharge, and knowing which ones is essential to judging whether bankruptcy will give meaningful relief.
| Debt | Dischargeable? |
|---|---|
| Most tax debts | No, with limited exceptions for older tax debts that meet specific requirements. |
| Student loans | Only on a showing of undue hardship, which is difficult to establish. |
| Child support and alimony | No. |
| Debts from fraud or willful misconduct | No, if the creditor establishes the basis. |
| Criminal restitution | No. |
| Debts not listed in the bankruptcy | Generally no, for debts the debtor knew about but did not disclose. |
Chapter 13 Repayment Plans
Chapter 13 requires the debtor to propose a plan for repaying creditors over 3-5 years. The plan must pay secured creditors as the underlying loan documents require (with some room for modification), pay all priority claims in full (administrative expenses, certain taxes and support obligations), and pay unsecured creditors at least what they would have received in a Chapter 7 liquidation. It must devote all of the debtor’s disposable income to the plan and comply with the applicable means test calculations.
The court approves the plan at a confirmation hearing. Once it is confirmed, the debtor makes monthly payments to a Chapter 13 trustee, who distributes the money to creditors according to the plan. Completing the plan results in a discharge of the remaining qualifying debts.
Foreclosure Defense Through Chapter 13
Chapter 13 is often used to deal with a foreclosure. Filing stops the foreclosure immediately through the automatic stay. From then on the debtor must keep up the current mortgage payments, and the past-due payments are spread over the plan period, typically 3-5 years. If the plan is followed, the debtor keeps the home. The bankruptcy works as a structured workout that avoids losing the property. For a homeowner facing foreclosure who otherwise has enough income to carry the mortgage going forward, Chapter 13 can be the right tool.
The Credit Counseling Requirement
Before filing, a debtor must complete credit counseling with an approved provider. The counselor reviews the debtor’s financial situation, discusses alternatives to bankruptcy, considers debt management plans, and issues the certificate of completion that must accompany the filing. It is typically a short session completed online or by phone. The requirement is procedural rather than substantive — the debtor does not have to follow the counselor’s advice, only complete the session.
Effect on Credit
A bankruptcy filing appears on credit reports for 7-10 years, and credit scores typically drop substantially when the case is filed. New credit is harder to get in the years immediately afterward. Rebuilding is possible with careful financial management, many lenders specifically work with post-bankruptcy borrowers, and mortgages and other major credit can typically be obtained 2-4 years after bankruptcy once credit has been rebuilt.
The credit impact has to be weighed against the benefit of the debt relief. For a debtor whose credit is already damaged by financial problems, the marginal impact of bankruptcy may be small.
Talk to Us
If you are considering bankruptcy, personally or for your business, call us at 212-233-1233 or email [email protected]. We will tell you whether filing makes sense and what the alternatives are.
