How Does Personal Bankruptcy Work, Q&A

What are the types of personal bankruptcies and how are they different?

There are two main types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 7 involves liquidating non-exempt assets to pay off debts, with remaining unsecured debts discharged. Chapter 13 allows for a repayment plan over three to five years, letting you keep your assets while catching up on overdue payments.

Chapter 7: you sell stuff to pay debts, most remaining debts are erased. Chapter 13: you keep your stuff and follow a payment plan to pay debts over time.

What kind of stuff do you have to sell to pay debts in a chapter 7 bankruptcy?

In Chapter 7, you might have to sell valuable items like a second car, expensive jewelry, or a vacation home. In Chapter 13, you usually keep everything, including your home and car, as long as you stick to the repayment plan.

What are the requirements for Chapter 7 and what assets are exempt?

For Chapter 7, you must pass a means test showing your income is below a certain level. Exempt assets vary by state but typically include necessary clothing, household goods, a modest car, and tools of your trade. Your primary home may also be exempt up to a certain value.

What are the rules in New York and what are the rules in Florida for exempt assets in bankruptcy?

In New York, you can choose between federal or state exemptions. State exemptions include a homestead exemption ranging from $85,000 to $179,975, depending on the county, a motor vehicle exemption of $4,825, and protections for personal property and wages.

In Florida, the state exemptions are more generous. The homestead exemption is unlimited for primary residences on up to half an acre in a municipality or 160 acres elsewhere. There's a $1,000 personal property exemption, and a $1,000 motor vehicle exemption. However, if you don't claim the homestead exemption, you can claim up to $5,000 in personal property.

So, in Florida, a person cannot keep their vehicle in a chapter 7 bankruptcy, if they own it outright?

Correct. In Florida, if your vehicle is worth more than the $1,000 exemption limit, the excess value could be used to pay off creditors. You might have to sell the vehicle or pay the difference to keep it.

In New York, if you own a home. you would not be able to keep it in a chapter 7 bankruptcy?

In New York, it depends on the county where you live. The homestead exemption ranges from $85,000 to $179,975, based on the county. If your home's equity exceeds the exemption amount for your county, you might have to sell it or pay the excess value to keep it in a Chapter 7 bankruptcy.

Are there income cutoffs for the respective types of bankruptcy in Florida and New York?

Yes, for Chapter 7 bankruptcy, there's a means test that applies nationwide, including in Florida and New York. It compares your income to the median income for a similar household in your state. If your income is too high, you might not qualify for Chapter 7.

For Chapter 13, there's no specific income cutoff, but your income must be high enough to cover your proposed repayment plan. The plan should show you can pay off certain debts within the three to five-year period.

It is fair to say that in Chapter 7 the debtors are usually people who have no assets and therefore liquidation is not a problem to them because there is nothing to liquidate?

Yes, that's often the case. Many Chapter 7 debtors have few or no non-exempt assets, making liquidation less of an issue. These "no-asset" cases are common, where the debtor's property is fully protected by exemptions or has no significant value for creditors. In such cases, the debtor receives a discharge of eligible debts without having to surrender property.

What's the typical situation of a Chapter 13?

A typical Chapter 13 case involves someone with a steady income who has fallen behind on mortgage or car payments, or has significant tax debt. They use Chapter 13 to propose a repayment plan, catching up on missed payments over three to five years while keeping their assets. They make regular payments to a trustee, who distributes the funds to creditors.

What kind of creditors, typically?

In Chapter 13, creditors typically include mortgage lenders, car loan lenders, tax authorities, credit card companies, and medical providers. The repayment plan prioritizes secured debts like mortgages and car loans, and may pay a portion of unsecured debts like credit cards, depending on your income and assets.

So you're saying it's a five-year repayment plan, but mortgages are typically for 30 years. How does that work?

In Chapter 13, you don't repay the entire mortgage in five years. Instead, the plan helps you catch up on missed mortgage payments over the plan's duration. You continue making regular mortgage payments during and after the Chapter 13 plan until the original loan term ends.

Is that better than just making a deal with the creditors?

Chapter 13 can be better because it offers court protection. Once you file, creditors must stop collection efforts, including foreclosure and repossession. The repayment plan is legally binding, offering a structured way to manage your debts, which may include reducing the total amount owed. This can be more predictable and comprehensive than negotiating with each creditor individually.

Are creditors obligated to accept the payments?

Yes, creditors are generally obligated to accept the payments outlined in a court-approved Chapter 13 repayment plan. Once the plan is confirmed by the bankruptcy court, creditors must accept the payment amounts and terms as specified, even if they're less than the original contractual agreement.

How does the court determine the payment amount?

The court determines the payment amount based on your disposable income, which is what's left after paying necessary living expenses. The plan should also account for priority debts like taxes and child support, and secured debts like mortgages and car loans. Unsecured creditors may receive a portion of what they're owed, depending on your financial situation.

What situations are people typically in when they file for Chapter 13?

People typically file for Chapter 13 when they're behind on mortgage or car payments, facing foreclosure or repossession, but have a reliable income. They may have significant debts that aren't dischargeable in Chapter 7, like tax debts, or want to protect non-exempt assets that would be sold in Chapter 7.

What kind of assets are reachable by creditors in a civil lawsuit?

In a civil lawsuit, creditors can reach non-exempt assets. This includes bank accounts, investment accounts, personal property like cars and valuable items, and real estate other than your primary residence. Some states allow creditors to garnish wages or place liens on property. Exemptions vary by state, often protecting some portion of your wages, a primary residence, and essential personal property.

What exemptions are in Florida?

In Florida, key exemptions in a civil lawsuit include the homestead exemption, which protects your primary residence without a value limit, a $1,000 personal property exemption, and a $1,000 motor vehicle exemption. Additionally, wages of the head of a family are exempt up to $750 per week, and certain retirement accounts and life insurance policies are protected. These exemptions can vary, so it's important to consult with a legal professional for specific cases.

Is a Chapter 13 bankruptcy a common strategy in real estate foreclosures?

Yes, Chapter 13 bankruptcy is a common strategy for dealing with real estate foreclosures. It allows homeowners to catch up on missed mortgage payments over a three to five-year period while keeping their home.

The automatic stay immediately stops the foreclosure process, giving you time to propose a repayment plan. This can be especially helpful if you have equity in your home or want to avoid losing it. The plan helps you manage arrears while continuing to make regular mortgage payments.

Would the mortgage payments be lower than without the bankruptcy?

In Chapter 13 bankruptcy, the overall monthly payments might be lower than what you'd pay without bankruptcy. This is because the repayment plan can consolidate debts and extend payments over three to five years, often reducing interest rates and eliminating late fees. Secured debts like mortgages are paid through the plan, potentially lowering your monthly burden compared to trying to catch up on your own outside of bankruptcy.

Give me an example of a typical bankruptcy resolution to a foreclosure.

Let's say you owe $15,000 in missed mortgage payments, and the bank is moving to foreclose. In Chapter 13 bankruptcy, you propose a plan to repay the $15,000 over five years. That's $250 per month. You also resume your regular mortgage payments. The bank must accept this plan, stopping the foreclosure. After five years, you're current on your mortgage, and the missed payments are fully paid off.

If you could not pay the mortgage payments before every month, what changes with the bankruptcy?

With Chapter 13 bankruptcy, several changes can help you manage payments. The bankruptcy court may lower your overall debt burden by reducing interest rates or eliminating certain fees. It structures a manageable repayment plan, spread over three to five years, allowing you to catch up on arrears while making regular mortgage payments. Additionally, the automatic stay can provide breathing room by halting foreclosure proceedings, giving you time to stabilize your finances.

Is there a bankruptcy trustee in a chapter 7 bankruptcy?

In Chapter 7 bankruptcy, a trustee is appointed to oversee the case. The trustee's role is to liquidate the debtor's non-exempt assets and distribute the proceeds to creditors.

Is there a bankruptcy trustee in a chapter 13 bankruptcy?

In Chapter 13 bankruptcy, a trustee is also appointed, but the role is different. The Chapter 13 trustee evaluates the debtor's repayment plan, collects payments from the debtor, and distributes funds to creditors according to the approved plan. Unlike in Chapter 7, the debtor retains their assets but must adhere to the repayment plan overseen by the trustee.

What is an automatic stay and how is it good for the debtor?

Filing for bankruptcy, whether Chapter 7 or Chapter 13, triggers an automatic stay. This legal protection stops most creditors from pursuing collection actions against the debtor, including foreclosures, repossessions, and lawsuits.

What is a 341 Metting - Meeting of Creditors?

In both Chapter 7 and Chapter 13, the debtor must attend a 341 meeting. The trustee and creditors can ask questions about the debtor's financial situation and the information provided in the bankruptcy forms.

When will my debts be discharged under bankruptcy?

In Chapter 7, eligible debts are typically discharged within a few months, giving the debtor a fresh start. In Chapter 13, the discharge occurs after the successful completion of the repayment plan, usually three to five years.

How do attorneys bill for a bankruptcy?

Attorneys typically bill for a bankruptcy case using a flat fee structure, especially for Chapter 7 cases. This fee covers the entire process, from initial consultation to case closure. For Chapter 13 cases, you might charge an upfront fee plus additional payments through the repayment plan. The court must approve fees in bankruptcy cases, ensuring they are reasonable for the work required.

What are the typical attorney fees amounts for bankruptcy?

Typical fees for bankruptcy cases can vary by location and complexity. For Chapter 7, flat fees typically range from $1,000 to $3,500, depending on the case's complexity. For Chapter 13, fees range from $2,500 to $6,000 or more. Chapter 13 fees are often higher due to the longer duration and complexity of the repayment plan. Courts in each jurisdiction set guidelines for reasonable fees.

What are the typical attorney fees for bankruptcy in Florida?

In Florida, Chapter 7 bankruptcy fees typically range from $1,200 to $2,500, while Chapter 13 fees range from $3,000 to $5,000 or more.

What are the typical attorney fees for bankruptcy in New York?

In New York City, Chapter 7 fees are generally between $1,500 and $3,500, and Chapter 13 fees range from $4,000 to $6,500 or more.

These are typical ranges; actual costs depend on the complexity of the case and the attorney's experience.

How much of it is up front and how much of it is part of the repayment plan?

In Chapter 7 bankruptcy cases, the full fee is usually required upfront before filing. This is because, once the case is filed, the attorney's fees become part of the debt, which could be discharged. For Chapter 13 cases, a portion of the fee, typically $1,000 to $3,000, is paid upfront. The remainder is included in the repayment plan and paid through the bankruptcy trustee over the three to five-year plan period.

If you are intetrested in a bankruptcy, we at the Law Offices of Albert Goodwin are here for you. You can call us at 212-233-1233 or send us an email at [email protected].