Consumer debt may be overwhelming. Bankruptcy can provide relief and a fresh financial start. But filing should be carefully considered because it may have long term consequences.
Bankruptcy is a legal proceeding, governed by federal law and courts, where debtors can seek debt relief. Filing immediately halts creditors from seeking to collect debts until a plan is adopted.
Bankruptcy may allow you to discharge debts. It may temporarily stop mortgage or tax foreclosure on homes, vehicle repossession and wage garnishment.
Bankruptcy, however, may not resolve every financial problem. Debtors must continue to make car and mortgage payments to keep those assets even though those payments can sometimes be made over time.
Child and spousal support, most student loans, some taxes, court restitution and criminal fines are among the debts that may not be discharged. Debts accrued after the bankruptcy filing is not dischargeable.
Debtors may file a Chapter 7 straight liquidation bankruptcy asking a court to discharge their debts. Certain property, which is not legally exempted, is sold to pay the debt. The sale proceeds of nonexempt property goes to creditors. Afterwards, the debtor receives a discharge of all remaining debt.
Chapter 7 is generally not recommended if you are behind on car and mortgage debt. It does not eliminate these creditors from taking this property to pay off your debt. Your income must fall below a certain level to file for Chapter 7.
A debtor may choose exemptions under Federal or New York laws. New York exemptions include home equity of $82,775 which may be higher in some parts of Eastern New York, car equity of $4,425, job and tool equipment of $3,330, $1,100 in property or cash if there is no home exemption, most clothing, furniture and household items, and benefits such as child support, Social Security, SSI, Social Security disability, unemployment compensation, insurance and veteran’s benefits, public assistance, pensions and retirement funds.
Chapter 13 is another option that allows the filing of a plan for paying off debt over three to five years. You may keep valuable property such as your vehicle and home when payments are made to creditors. Enough income is needed to pay for your necessities, these required payments and any additional amount to cover earlier unpaid debt for these assets.
An attorney can present options that address your needs. They can also help protect your rights in bankruptcy.