If you are reading this you are probably considering filing Bankruptcy. Bankruptcy is a tough decision to make and it is important to understand that filing bankruptcy is a tool that can be used to help people. Many times people who file bankruptcy are upset that they are in this position. Unfortunately, no one can predict what happens in life and sometimes unforeseen curveballs are thrown your way. Although, it may be upsetting filing bankruptcy can help you start over. The decision to file bankruptcy should be looked at as a way of relief rather than the end of your life. Many people who file bankruptcy are able to get back on their feet and enjoy life again without the constant harassment by creditors. Bankruptcy allows garnishments to stop, levies to be lifted and judgments to be erased. It also allows people to begin building up their credit immediately. Sometimes asking for help is the best way to be able to begin living your life again.
Below, I will go through some of the top things to know about filing bankruptcy.
1. What is Bankruptcy?
Bankruptcy allows people to get rid of their debt with the help of laws enacted by the Federal Government. There are different types of bankruptcy but the two I will talk about here are Chapter 7 and Chapter 13 bankruptcy which deals with consumers. In a chapter 7 your debts become part of the bankruptcy estate. This means that in a chapter 7 you are able to get a discharge of your debt therefore, you do not have to pay the debts back. Unfortunately, not everyone can file a Chapter 7 bankruptcy, and get their debts wiped out completely. If you generate too much income, have too many assets, or have filed previously then you will not qualify for a Chapter 7 Bankruptcy.
In order to file a Chapter 7 Bankruptcy, the court first looks to see if you are below the median household income level. The court uses a test called “The Means Test.” Different states such as New York and New Jersey have different median incomes which means the Means Test is different per state. The court uses this test to determine whether you qualify for a Chapter 7 Bankruptcy. In order to qualify for Bankruptcy under the means test, the court takes your average household income for the last 6 months and compares it to the standard median income for a household of the same comparable size in that state. It is important to note that social security payments are not included in calculating The Means Test.
An individual can only file for a Chapter 7 Bankruptcy every 8 years. A person who has filed a Chapter 7 Bankruptcy in the past must wait eight years before filing again.Many people prefer to file a Chapter 7 Bankruptcy because your debt gets completely wiped out. Further, many people are under the misguided impression that filing for Chapter 7 Bankruptcy means that you won’t be able to keep any of your assets. This is completely false. There are Federal and State exemptions which allow debtors who file a Chapter 7 Bankruptcy to sometimes keep their property if they fall within the exemptions.Unlike a Chapter 7 Bankruptcy where assets are liquidated and the debt is discharged, a second method of bankruptcy involves Reorganization. Reorganization is a method in which you can communicate to the court how much you intend to pay your creditors to clear your debts.This is also known as filing for a Chapter 13 Bankruptcy. Unlike Chapter 7 Bankruptcy, with aChapter 13 you pay back your creditors over a 3-5 year plan. One of the reasons people enter into a Chapter 13 Bankruptcy is because they generate too much income or have too many assets.
The monthly payment plan in a Chapter 13 Bankruptcy is determined by adding up your outstanding debt to secured creditors. One advantage of choosing a Chapter 13 Bankruptcy is that all of your debts will be paid back interest free.
Another advantage of a Chapter 13 Bankruptcy offers individuals an opportunity for individuals with too much equity to save their homes from foreclosure. By filing a Chapter 13 Bankruptcy individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time.
Under the Bankruptcy Laws, any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief. The Bankruptcy law permits the filing of a Chapter 13 Bankruptcy as long as the individual’s unsecured debts are less than $394,725 and secured debts are less than $1,184,200. 11 U.S.C. § 109(e). These amounts are adjusted periodically . It is important to note that a corporation or partnership may not file a Chapter 13 Bankruptcy.
2. How Much Does it Cost to File Bankruptcy With a Lawyer?
Lawyers fees to file bankruptcy vary. When a lawyer prices a bankruptcy they usually look at various variables that go into a case. Some of these variables included how much debt you have, the type of debt you have, if you own property, if there is equity in the property, how much you make etc.
A typical chapter 7 case in New York/ New Jersey can be anywhere from $1200-2500 while a chapter 13 bankruptcy usually ranges anywhere from $4000 and up.
One important difference when it comes to fees associated with a chapter 7 bankruptcy vs a chapter 13 plan is that lawyers usually collect their bankruptcy fees up front in a Chapter 7 case. This is because when you file a chapter 7 bankruptcy case lawyers are not allowed to ask for their fees because then they become a creditor which is prohibited. On the other hand in a chapter 13 bankruptcy case lawyers will usually collect a fee up front and put the rest of the money into your payment plan. Thus, even though you are not paying them all of the fees up front you will be paying them in the plan.
Another thing to note is that just because an attorney charges less fees than the rest does not mean that you should use them. Remember you get what you pay for.
3. How Do I Choose a Bankruptcy Lawyer?
Choosing a bankruptcy lawyer can be a difficult decision. It is important that when you choose a bankruptcy lawyer you choose someone who you feel comfortable with. It is important to remember that you are hiring the lawyer to work for you and if you are not comfortable with the bankruptcy lawyer then do not hire them. A lawyer and a client must form a good relationship in order to work together when you are filing bankruptcy. If you feel that your lawyer is not a good fit for you then go with your gut instinct and hire someone else.
Many times people can refer you to a good bankruptcy lawyer or you can even go on google and check out reviews.
If fees are a consideration when you are thinking about filing bankruptcy then it is important to do some research. One thing I cannot stress enough is that just because a bankruptcy lawyer may be much cheaper than another one it does not mean that you should go with them. Some bankruptcy lawyers charge less because they have thousands of cases. Many times these firms won’t give you the individualized attention that you want. Moreover, bigger firms sometimes practice different areas of law thus, you may not get the best bankruptcy advice if you choose them rather than a law firm that specializes in bankruptcy. Thus, when considering filing bankruptcy it is best to find a lawyer who specializes in it to ensure you are getting sound advice.
A small bankruptcy law firm may be a better fit if you are the type of person who likes to speak with your attorney often and not just their support staff. Smaller law firms are usually more capable of giving individualized attention since they do not have as many clients. Needless to say whether you decide to go with a larger firm or a smaller bankruptcy law firm it is all about your preference.
4. Do You Have to Have an Attorney to File Bankruptcy?
Many times people wonder if they have to have an attorney to file bankruptcy. Although, you do not have to have an attorney to file bankruptcy I strongly recommend that you do not file bankruptcy without at least speaking with a bankruptcy attorney first. Filing bankruptcy is not something to take lightly. When you file a bankruptcy petition you must list all of your debts and assets and if, for any reason you fail to list any of your assets it can be seen as bankruptcy fraud which is a federal crime.
Moreover, bankruptcy attorneys can help you determine which of your property is exempt and which property is unexempt. These exemption laws can be complicated for someone who does not understand them. The reason why exemption laws are so important is because if you do not use the right bankruptcy exemptions the trustee can take your property and sell it to pay off your creditors. A good bankruptcy attorney will be able to determine which of your property is exempt which can also be the determining factor as to what chapter of bankruptcy you should file for.
5. Is it better to file Chapter 7 or 13?
If you are wondering whether or not it is better to file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy then it is probably best to speak with an attorney. Although, people assume that filing a Chapter 13 bankruptcy may be better because they are paying their creditors back this is not necessarily true. No matter whether you file a chapter 13 bankruptcy or a chapter 7 bankruptcy both show up on your credit report. Moreover, each have their own advantages and disadvantages.
I normally tell my clients that if they qualify for a chapter 7 bankruptcy then they should file a chapter 7 (assuming there are no other issues with their house being in foreclosure etc). If you file a chapter 7 bankruptcy the process is much quicker and you do not have to pay the debt back. This allows you to begin rebuilding your credit immediately and begin putting money aside. A chapter 13 bankruptcy may be better for someone who is facing foreclosure on their home or wants to try to get a loan modification.
Many times clients come to the office and say that they want to do a chapter 13 bankruptcy because they want to pay back their creditors because it is the right thing to do. They also think that doing a chapter 13 will allow creditors to look at them in a more favorable light since they are paying them back but this just simply is not true. Chapter 7 allows you to begin building up your credit more rapidly. Thus, creditors are more likely to start lending you credit. When creditors are determining whether they want to extend credit to you they normally want to know if your bankruptcy has been finished. In a chapter 7 since it only take a few months to obtain a discharge creditors will normally start sending credit cards immediately. Moreover, creditors are aware that people who file chapter 7 bankruptcy now have no debt at all thus, they are more likely to be able to make minimum payments. On the other hand, in a chapter 13 bankruptcy you are in bankruptcy for five years. Thus, creditors likely are not going to lend you credit while you are in bankruptcy. Further, during those five years you still are carrying around debt thus, creditors may be more hesitant to extend any type of credit to you.
It is important to understand that whether you decide to file a chapter 13 bankruptcy or a chapter 7 bankruptcy you must qualify for each.
If you are unsure which chapter of bankruptcy is right for you it is important to speak with an experienced bankruptcy attorney so that they can go through your case and determine which bankruptcy option is best for you.
Karra L. Kingston and William P. Bonomo are both experienced bankruptcy attorneys in New York and New Jersey. If you are looking for a bankruptcy attorney that can assess your situation give them a call today. The consultation is free and they are more than happy to speak to you over the phone to go over your options.
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