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Miscellaneous

This section covers various topics pertaining to the various issues that arise due to personal bankruptcy. Click on a topic below to learn more about that particular topic:

A. Converting from Chapter 7 to Chapter 13
B. Prohibition on Discrimination
C. Sense of Obligation to Repay Debts
D. Utility Companies
E. Serial Filings
F. Financial Record
G. Protection for Non-filing Co-debtor under Chapter 13
H. The Discharge
I. Using Exemptions to Avoid Judicial Liens
J. Conclusion

Converting Chapter 7 to Chapter 13

An individual in a Chapter 7 has a right to convert the case to a Chapter 13 case. Likewise, an individual in a Chapter 13 case may convert the case to a Chapter 7 case.

Example 1:

Jack filed a Chapter 13 case in order to protect the equity of $14,000.00 which he had in a boat. Although Jack made plan payments to the Chapter 13 Trustee for a one year period, he later had his overtime reduced and could no longer afford the Chapter 13 plan payments. Therefore, Jack decided that he would convert to a Chapter 7, allow the Chapter 7 Interim Trustee to sell his boat for the benefit of his creditors, and obtain a Chapter 7 discharge for all of his credit card debts.

Example 2:

Marcus filed a Chapter 7 case with the belief that it would be treated as a “no-asset” case. At the 341 Meeting of Creditors, the Interim Trustee inquired about the value of two guns which the schedules to Marcus’ petition identified as having a value of $600.00. The Interim Trustee had an appraiser look at the guns and the appraiser indicated that he believed the guns had a value of $7,000.00. Marcus wanted to keep the guns but could not afford to pay $2,500.00 to the Interim Trustee within a one-year period. Therefore, Marcus converted the case to a Chapter 13 where he will keep the guns and pay a Chapter 13 Trustee at least $7,000.00 for the benefit of unsecured creditors.

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Prohibition on Discrimination

In general, the Bankruptcy Law prohibits discrimination against an individual based upon his or her filing for Bankruptcy relief. A copy of the provision of the Bankruptcy Law which prohibits discrimination against one filing for Bankruptcy relief will be provided to you upon request.

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C. Sense of Obligation to Repay Debts

Many individuals feel compelled to pay their debts and feel badly when they cannot do so and rely upon bankruptcy to avoid hardship for themselves and their family. Sometimes a Chapter 13 case can be proposed where an individual can pay some or even all of their debts over a period of 3 to 5 years. One should keep in mind also that a discharge does not mean that you are prevented from paying your creditors after the bankruptcy case is over. Although your creditors may not have a right to collect from you because of this discharge, you can certainly voluntarily pay your creditors whose claims are discharged in bankruptcy after your bankruptcy case is over.

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Utility Companies

Individuals sometimes are concerned that utility companies which deliver service to them will stop their service if they permit the debt to the utility company to be discharged in the bankruptcy case. Rest assured that this is not the case. For the first twenty days after a petition is filed, no utility company may alter, refuse, or discontinue service solely on the basis of an unpaid debt which was incurred prior to the filing of the petition. Within that twenty day period, you must provide the utility company with adequate assurance of future payment. Typically, there will be an agreement made in which the individual pays the utility company a security deposit (roughly equal to one and a half times the average month’s service for that particular utility company). In extreme cases, where the debtor does not have such funds, court intervention may be necessary to protect the individual from shut off. Any such intervention would almost definitely include some kind of repayment arrangement which the individual can afford and which is sensitive to the rights of the utility company.

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E. Serial Filings

An individual filing Chapter 13 is eligible for a discharge provided he or she did not receive a previous discharge in a Chapter 13 case filed less than 2 years earlier or a previous discharge in a Chapter 7 case filed less than 4 years earlier.

An individual filing Chapter 7 discharge is eligible for a discharge provided he or she did not receive a previous discharge in a Chapter 13 case filed less than 6 years earlier (with some exceptions based on percentage paid to unsecured creditors in prior chapter 13) or a previous discharge in a Chapter 7 case filed less than 8 years earlier.

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F. Credit Record

The filing of a bankruptcy petition will appear on your credit record for up to ten years. It is difficult to say how this will effect your credit in the future. In many cases, individuals considering filing for bankruptcy already have poor credit records. Thus, to some creditors, a bankruptcy which discharges a substantial portion of your debt will be seen as an improvement.

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G. Protection for Non-filing Co-debtor under Chapter 13

Where the individual filing for Chapter 13 relief has a co-debtor (with respect to one or more debts) who has not filed for bankruptcy relief, such co-debtor will be protected from collection efforts by the “co-debtor” stay. Congress found such protection for the non-filing co-debtor to be necessary because, in many cases, creditors would seek collection from the non-filing co-debtor and this would ultimately lead to the failure of the debtor’s case in bankruptcy. Therefore, protection for the co-debtor was found to be necessary.

Example:

The Bankruptcy Court confirms Joan’s Chapter 13 plan which provides that a particular credit card debt she owes to BIG STORE will be paid in full over 5 years. Joan’s friend, Martha (who has not filed for bankruptcy), is a co-debtor with respect to that debt. Martha will be protected from collection attempts by BIG STORE as a result of the co-debtor stay.

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H. The Discharge

The Discharge Order serves to forgive your personal liability with respect to almost all kinds of debts, except certain taxes, debts which were not listed on the schedules, most fines and penalties owed to government units, some student loans, etc. By so doing, the law provides individuals with an escape from permanent discouragement and thereby assists the individual to reestablishing himself or herself.

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I. Using Exemptions to Avoid Judicial Liens

Among the most powerful uses of the Bankruptcy Law is the power to avoid judicial liens. In certain circumstances, judgments which appear as liens against your residence can be avoided to the extent they impair the homestead exemption.

Example:

Alice and William are married and own their own house. Their house is valued at $100,000.00. The house has the following liens against it:

(i) judgment liens — $30,000.00

(ii) mortgage — $90,000.00

Result: Under these facts, Alice and William will be able to obtain an Order avoiding all $30,000.00 worth of judgment liens against their house. This means that all these liens can be removed as marks against the property. The reason this is allowed is to protect a certain amount of equity($75,000 per homeowner under NY exemption law or $22,975 per owner under federal exemption law) in a home which the New York legislature considers necessary.

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J. Conclusion

As seen above, the Bankruptcy Law can provide substantial relief to an individual under pressure from too much debt while still being fair to creditors. By doing so, it provides the individual with an opportunity for a fresh start in life without the discouragement of past debt.

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