The most common type of bankruptcy is under Chapter 7 of the Bankruptcy Code. This type of bankruptcy is available both to individuals and businesses, including corporations. (Although a corporation that wants to continue operating would need to file a Chapter 11 Bankruptcy.) A debtor (the term used to describe the party filing for bankruptcy) may not file a Chapter 7 bankruptcy petition if the he or she has filed one within the previous eight years.
With several exceptions, Chapter 7 Bankruptcy eliminates most debts. The most common exceptions are student loans, taxes, child support, civil fines and criminal fines. Although student loans are generally not dischargeable, due to extreme hardship the court can find student loans dischargeable. The court applies a very restrictive definition in determining what constitutes an extreme hardship. On the other hand, although the general rule is that taxes are not dischargeable, income taxes may be discharged under certain circumstances. Child Support payments, civil and criminal penalties are never discharged in bankruptcy.
A debtor that files a Chapter 7 Bankruptcy is allowed to keep certain property, which is termed "exempt" property. Each state may choose to apply federal exemption laws or its own exemption laws or a choice of either. New York allows you the option of using either the New York bankruptcy exemptions or the Federal bankruptcy Exemptions.
The federal exemptions are adjusted every three years to take into account inflation. The last adjustment occured on April 1, 2013, accordingly the next adjustment is scheduled to take place on April 1, 2016. New York also occasionally increases the allowed amounts of its exemptions. The last time New York increased its exemptions were in 2011. The exemption amounts it the charts linked to this page are the current amounts.
Generally, it is better to use the federal exemptions; however if you own a home with more than $20,000 of equity, it is likely that you will do better using the New York bankruptcy exemptions. You must choose either the New York bankruptcy exemptions or the federal bankruptcy exemptions. You can use some of and some of the other.
Chapter 7 Bankruptcy is an option to individuals with incomes at or below the median income of the state in which the debtor resides. As of April 1, 2013, the median incomes in New York are as follows:
For households larger than four, $8,100 is added for each additional family member.
The above figures are revised twice a year.
In the event the debtor's income is above the median income, a "means test" is applied to determine whether Chapter 7 Bankruptcy is allowed under the Bankruptcy Code. Click here for more information on the Means Test. If the debtor fails the "means test," Chapter 13 Bankruptcy may still be an option.
A debtor that files a Chapter 7 Bankruptcy must complete credit counseling and a class in Personal Financial Management, both of which are required by the Bankruptcy Code. The credit counseling and educational course can only be given by a court-approved organization. The courses are given over the internet or telephone. The credit counseling must be completed within the 180 days (6 months) prior to the filing of the bankruptcy petition. The Personal Financial Management class must be completed after the filing of the bankruptcy petition. A certificate of completion must be filed with the court within 45 days of the date of the first meeting of creditors. A failure to file this certificate on-time will result in the bankruptcy petition being dismissed.
Ordinarily, there is only one hearing before the Bankruptcy Trustee, which is known as the "first meeting of creditors." This name is something of a misnomer, because although creditors are invited to the hearing, it is very unusual for any of them to appear. At the hearing the debtor is asked questions by the trustee. The trustee is appointed by the court and is responsible for ensuring that the debtor hasn't committed fraud. The trustee is also tasked with looking for nonexempt assets for the benefit of the creditors. After all the trustee's questions have been asked and answered satisfactorily, the trustee will close the meeting. If the trustee does have further questions, he or she will schedule a second meeting.
If a debtor wishes to keep a debt, he or she must sign a reaffirmation agreement, stating that the debtor shall continue to be liable for a debt. Reaffirmation agreements are usually used by debtors who wish to keep a home or car. The reaffirmation agreement must be signed by the debtor, creditor and if the debtor is represented by an attorney, then by the attorney as well. The reaffirmation agreement must then be filed with the bankruptcy court.
Approximately three months after filing the bankruptcy petition, a discharge is usually issued by the bankruptcy court. The discharge releases the debtor from liability for all dischargeable debts.
Creditors have two months from the first meeting of creditors in which to file an objection to the discharge. Objections are typically made when a debtor has made significant use of credit shortly before filing for bankruptcy. If an objection is not made within the allowed period of time, the creditor will forever be barred from making an objection to the debt being discharged.