What is Bankruptcy Relief: FAQs & More

What is Bankruptcy Relief?

​Bankruptcy relief is the term given when you file a petition under one of the bankruptcy chapters. Under Chapter 7 bankruptcy, for example, the Bankruptcy Court issues an Order for relief to the individual requesting bankruptcy relief.

People seeking bankruptcy relief are referred to in legal documents as a “debtor.” After the court issues the order, the “automatic stay” kicks in. The automatic stay stops most creditors from continuing collection activities.

This includes:

• Lawsuits
• Wage Garnishments
• Repossessions
• Property Executions (ex. bank accounts freezes, foreclosures, etc).

Upon completion of the bankruptcy proceeding, the Court issues a discharge of debts. The debts that are discharged are no longer legally collectable against the debtor.

Benefits of Bankruptcy Relief

• End wage garnishments 
• Prevent your home from going into foreclosure & create a manageable payment structure
• Stop foreclosure proceedings 
• Help in having your repossessed items returned to you
• Reduce, or even completely forgive, large medical bills, especially in times of lost employment
• Aid in restoring services that have been shut off, such as utilities
• Consolidate student loan debts and allow you to address them in a much more manageable timeframe
• Put an end to harassing communications from creditors

Chapter 7 vs. Chapter 13

The main difference between a Chapter 7 and a Chapter 13 is that a Chapter 7 is a short process the Court discharges certain debts because individuals are incapable of paying them back. 

While most Chapter 7 cases are no-asset cases, if there are any non-exempt assets, a bankruptcy trustee may sell that asset and use the proceeds to pay  your creditors. 

A Chapter 13 is a reorganization that allows you to keep your non-exempt assets and pay your creditors an amount that is equal to the non-exempt equity.

Chapter 13 also allows you to repay past due debt owed on your secured debts (mortgage, auto loan). You can also repay taxes, such as real property taxes or taxes owed to the IRS or NYS over time with the cloak of the bankruptcy protection.

FAQs

How long does it take to file bankruptcy?

​​Filing bankruptcy takes about 4 months from beginning of the case to the discharge in a standard no-asset chapter 7 case. A chapter 13 reorganization can last between 3 and 5 years, with the term depending on a number of factors such as the debt that the chapter 13 plan is designed to reorganize and the income level of the debtor.

How much debt do you need to file?

There is no minimum or maximum amount of debt required to seek bankruptcy relief.

Does bankruptcy clear all debts?

​Bankruptcy can clear or wipe out the obligation to pay most debts. However some debt will survive a bankruptcy discharge. Examples may include: domestic support obligations, certain taxes and student loans – depending on whether repayment poses an undue hardship

Can you file bankruptcy on credit cards?

​​Credit card debt is dischargeable in bankruptcy. There are very limited circumstances when credit card debt might not be dischargeable such as using the card for luxury goods or services within 90 days of the bankruptcy filing. In such circumstances, the creditor will have to ask the Court not to discharge the debt and will have to prove the debt should not be discharged.

Can you file bankruptcy on student loans?

​Student loans are one exception to a bankruptcy discharge. In order for student debt to be discharged in bankruptcy, the debtor must prove to the Court that allowing the debt to survive will cause an undue hardship on the debtor or the debtor’s dependents. The standard for undue hardship varies by jurisdiction.

Can I keep my house if I file bankruptcy?

​Yes! If you have a mortgage loan and the payments are current, the equity (the value of the property after deducting the loan balance) is exempt. Exemption laws protect your property from the reach of creditors.

​In New York, there are two laws the debtor can choose between to exempt property- the laws provided by New York State exemptions statutes or those found in the Bankruptcy Code.

What are bankruptcy filing fees?

Bankruptcy filing fees are payments made to the Court by the debtor throughout the bankruptcy process.

​Currently the filing fees are $338 for a chapter 7, $278 for a chapter 12, $313 for a chapter 13 and $1,738 for a chapter 11.

Debt relief vs bankruptcy

Bankruptcy provides relief from debt through a Court proceeding, which protects debtors from creditors. Non-bankruptcy debt relief often involves debt settlement where the debt is repaid over time or by settling for less than the total amount.

​Many debt relief programs do not stop the creditors from continuing to collect or filing lawsuits for non-payment. It can be tricky if you owe more than one creditor. Debt settlement can be much more expensive than most bankruptcy options. Non-bankruptcy debt settlement can also have a tax consequence since paying a creditor less than what is owed may cause you to be taxed on the amount you save