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ItalianPrincess1217's avatar

Have bankruptcy laws changed recently so that the debt needs to be paid back now?

Asked by ItalianPrincess1217 (10135 points ) February 24th, 2011 from iPhone

I’m very interested in filing for bankruptcy. I live in NY state. Once I file and pay the lawyer, what happens? Do I still have to repay the debts? Please no information on how destroyed my credit will be. I’m well aware of the effect bankruptcy has on my credit. I’m only interested in how it all works. Thanks!

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12 Answers

markferg's avatar

The whole point of bankruptcy is that your assets cannot repay the debts you have, so complete debt repayment is not required. The major point that many people miss is that bankruptcy offsets any assets you do have against the debts, so you cannot lose your debts and keep any assets. You release yourself from all debts but also relinquish all your assets ( well, there are some exceptions but not many). For example, your mortgage is $100K less than the value of your property, so you have $100K value in the property. You own $200K. Thus the house is sold and the $100K value is given to your creditors. You do not have to repay the additional $100K, but you have lost your house. Some states allow you to keep the house. I know that is the situation in Florida, I think you do not have this protection in NY. Maybe you should move to Florida before declaring bankruptcy.

You didn’t want to go into this, but for other readers it needs to be said…
In this current climate, the major problem with bankruptcy is that your credit rating will be ripped up and thrown away for many years. Today people with perfect credit records cannot get credit without some balancing assets, so someone with bankruptcy on their credit reference file will struggle to get any kind of credit in the foreseeable future.

ItalianPrincess1217's avatar

@markferg Very good information. I do not have any assets. I don’t own a home, I don’t have a car payment, etc. What happens in this situation?

Zaku's avatar

George W. Bush passed a nasty change to bankruptcy laws, which makes it harder to completely remove all debt by filing bankruptcy.

The court handling the bankruptcy decides what assets the filer keeps. They can keep a fair amount of assets. It’s not no assets. It’s mainly assets that have a large sellable value that get liquidated to pay off debts. E.g. you wouldn’t lose your car unless it were very valuable.

bkcunningham's avatar

@ItalianPrincess1217 what kind of bankruptcy are you filing?

bkcunningham's avatar

Here’s information on Chapter 13 bankruptcy. You must complete credit counseling by an agency approved by the United States Trustee’s office.

http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter13.aspx

ItalianPrincess1217's avatar

I would assume I’d file chapter 7… Not really completely sure of the differences.

ItalianPrincess1217's avatar

Is my best bet to get a free consultation with a lawyer and take it from there? I have to take immediate action on this matter. I’m being harassed daily by creditors and payday loan people threatening to sue.

bkcunningham's avatar

Here’s the difference in two types of bankruptcy: Chapter 7, entitled Liquidation, contemplates an orderly, court-supervised procedure by which a trustee takes over the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. Because there is usually little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor’s assets. These cases are called “no-asset cases.” A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. In most chapter 7 cases, if the debtor is an individual, he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts. The debtor normally receives a discharge just a few months after the petition is filed. Amendments to the Bankruptcy Code enacted in to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require the application of a “means test” to determine whether individual consumer debtors qualify for relief under chapter 7. If such a debtor’s income is in excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.

Chapter 13, entitled Adjustment of Debts of an Individual With Regular Income, is designed for an individual debtor who has a regular source of income. Chapter 13 is often preferable to chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a “plan” to repay creditors over time – usually three to five years. Chapter 13 is also used by consumer debtors who do not qualify for chapter 7 relief under the means test. At a confirmation hearing, the court either approves or disapproves the debtor’s repayment plan, depending on whether it meets the Bankruptcy Code’s requirements for confirmation. Chapter 13 is very different from chapter 7 since the chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor’s anticipated income over the life of the plan. Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect. The discharge is also somewhat broader (i.e., more debts are eliminated) under chapter 13 than the discharge under chapter 7.

http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Process.aspx

bkcunningham's avatar

This might help you more @ItalianPrincess1217

Although bankruptcy eliminates some debt, it doesn’t eliminate all types of debt. Before you file for bankruptcy, make sure you know which debts will be wiped out and which will remain. For the most part, you can get rid of credit card debt through Chapter 7 and Chapter 13 bankruptcy. But you may not be able to eliminate other types of debt, including child support, alimony, most tax debts, student loans, and secured debts. In some situations, Chapter 13 can help, whereas Chapter 7 cannot.

Read on to learn how different types of debt are treated in bankruptcy.

What Bankruptcy Can DoIf you are facing serious debt problems, bankruptcy may offer a powerful remedy. Here are some of the things filing for bankruptcy can do:

Wipe out credit card debt and other unsecured debts. Bankruptcy is very good at wiping out credit card debt. Unless you have a special “secured” credit card, your credit card balance is an unsecured debt—that is, the creditor does not have a lien on any of your property and cannot repossess any items if you fail to pay the debt. This is precisely the kind of debt that bankruptcy is designed to eliminate. Besides credit card debt, you may have other unsecured debts, and bankruptcy can wipe these out as well.

If you file for Chapter 13 rather than Chapter 7, you may have to pay back some portion of your unsecured debts. However, any unsecured debts that remain once your repayment plan is complete will be discharged.

Stop creditor harassment and collection activities. Bankruptcy can stop creditor harassment, but if the “harassment”’ is simply phone calls and letters, there are simpler ways to stop it; see Nolo’s article What to Do If a Bill Collector Crosses the Line. If the harassment is more serious—for instance, if the creditor is about to repossess your car or foreclose your mortgage—bankruptcy can help; see Nolo’s article How Bankruptcy Stops Your Creditors: The Automatic Stay.

Eliminate certain kinds of liens. A lien is a creditor’s right to take some or all of your property and will survive bankruptcy unless you invoke certain procedures during your bankruptcy case. For more information, see How to File for Chapter 7 Bankruptcy, by Stephen Elias, Albin Renauer, and Robin Leonard (Nolo).

What Bankruptcy Can’t DoHere’s what bankruptcy cannot do for you:

Click here and read more.

http://www.nolo.com/legal-encyclopedia/chapter-7-13-bankruptcy-limits-benefits-30025.html

http://www.nolo.com/legal-encyclopedia/bankruptcy/

ItalianPrincess1217's avatar

My car is a 1999 Saturn worth no more than $500. I don’t own a home. I have no other assets that are worth anything. I make about $17,000 a year and my debt is a little over $10,000. The debt includes credit cards (unsecured), payday loans, medical bills, and overdrafted checking accounts that are now in collections. In my situation what is recommended? Chapter 7 or 13?

bkcunningham's avatar

You need to talk to a credit counselor first and they can answer all of your questions. That is required for bankruptcy anyway. Good luck.

Here’s a list of approved agencies for New York:

http://www.justice.gov/ust/eo/bapcpa/ccde/DE_Files/DE_Approved_Agencies_HTML/de_new_york/de_new_york.htm

Zaku's avatar

Talk to a bankruptcy attorney, but that sounds like Chapter 7 to me. You will keep your car and possessions, and the debt should all go away, I think.

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