Bankruptcy is a legal procedure that provides relief to individuals and businesses struggling with overwhelming debt. It allows them to restructure or wipe their debts and get a fresh financial start. However, not all bankruptcy cases are approved. In New York, there are instances where bankruptcies can be denied, leaving debtors in a precarious situation.
In this article, we’ll explore the reasons why bankruptcies may be denied and what you can do to increase your chances of a successful filing. For legal assistance in your particular situation, reach out to New York bankruptcy attorney John D’Amato.
Success Rates of Bankruptcies: How Many Are Denied?
When it comes to Chapter 7 bankruptcies, the success rate for those who make it to the discharge phase is remarkably high. According to US Bankruptcy Court data, approximately 99% of Chapter 7 cases that reach the final stages result in debt discharge. This statistic excludes cases that are dismissed or converted to Chapter 13 bankruptcies.
However, it’s important to note that this high success rate doesn’t tell the whole story. Many individuals who initiate the bankruptcy process face challenges in the early stages and may not reach the point of discharge, for reasons which will be tackled in this article. The US Bankruptcy Court doesn’t maintain statistics on the number of cases that don’t make it through the filing and court process.
Common Reasons for Bankruptcy Denial in New York
Failure to Meet Eligibility Requirements
To file for bankruptcy, you must meet certain eligibility requirements. In New York, these requirements include:
- Residency requirement: You must have lived in New York for most of the past 180 days before you can file for bankruptcy – that is to say, you’ve resided in this state for at least 91 of the last 180 days. Additional residency requirements apply if you want to exempt certain property in a Chapter 7 bankruptcy case.
- Income requirement: If your income exceeds a certain threshold, you may not qualify for Chapter 7 bankruptcy. Instead, you may choose to file for Chapter 13, which involves a repayment plan.
- Credit counseling requirement: Before filing for bankruptcy, you must complete a credit counseling course from an approved agency.
If you fail to meet any of the above requirements, your bankruptcy case may be dismissed.
Failing The Chapter 7 Means Test Challenge
To qualify for Chapter 7 bankruptcy, you must pass the means test, which assesses your ability to pay your debts. This two-part process involves:
- Income comparison: Your gross household income for the six months prior to filing is compared to your state’s median income. If you’re below the median, you automatically pass.
- Detailed financial analysis: If your income exceeds the state median, you must undergo a more comprehensive evaluation of your income, assets, and expenses.
The means test is complex, involving numerous forms and intricate IRS rules. It distinguishes between necessary expenses (such as housing and transportation) and non-essential items (such as luxury goods).
Given the complexity of the means test, many individuals benefit from hiring an experienced bankruptcy attorney to navigate the process and maximize their chances of qualifying for Chapter 7.
If you don’t pass the Chapter 7 means test, Chapter 13 bankruptcy may still be an option. This involves a court-approved repayment plan over three to five years based on your income. Any remaining unsecured debt is discharged upon successful completion of the plan. It’s worth noting that about half of Chapter 13 filers successfully complete their plans.
These eligibility requirements underscore the importance of careful timing and thorough preparation when considering bankruptcy. They also highlight why working with a knowledgeable bankruptcy attorney can be crucial in navigating these complex rules and increasing your chances of a successful filing.
Improper Filing
One of the most common reasons for bankruptcy denial in New York is improper filing. If you file for Chapter 7 bankruptcy but are not eligible, your petition will be dismissed. Here are some key reasons for improper filing:
- Ineligibility for debt discharge: Debt discharge is only available to individuals, not corporations or partnerships. While corporations and businesses can file for Chapter 7, it’s solely for liquidation and paying creditors, not for discharging debts.
- Documentation errors: Mistakes or omissions in filing documents can lead to dismissal. It’s crucial to ensure all paperwork is complete and accurate.
- Recent dismissals: The court may deny a bankruptcy petition if it is filed within 180 days of a bankruptcy dismissal caused by failure to appear in court or comply with court orders.
- Recent voluntary withdrawals: If you file within 180 days of voluntarily withdrawing a case after creditors with liens on property filed to recover it, your new petition may be dismissed.
Filing for Bankruptcy Too Soon
Federal law imposes strict waiting periods between bankruptcy filings. If you’ve previously filed for bankruptcy, you must wait:
- Eight years after filing a Chapter 7 to file for another Chapter 7
- Four years after filing a Chapter 7 to file for Chapter 13
- Two years after filing a Chapter 13 to file for another Chapter 13
- Six years after a Chapter 13 discharge to file for Chapter 7
Filing before these periods elapse will result in your case being denied. These waiting periods are designed to prevent abuse of the bankruptcy system and ensure that individuals use bankruptcy as a last resort rather than a frequent financial strategy.
Repeat Bankruptcy Filing for Dismissed Chapter 13
If you’ve filed for Chapter 13 bankruptcy before but your case was dismissed, you may or may not need to wait for a certain period before you can refile.
You’ll need to wait 180 days after dismissal if any of the following applies to your situation:
- The court dismissed the case for failure to appear in a meeting or court date.
- You dismissed the case voluntarily.
- The court dismissed the case with prejudice.
“With prejudice” means the case was dismissed based on its merits – in other words, the facts of your filing did not meet certain requirements or qualifications. This further means you cannot refile immediately. Consulting with an attorney is indispensable in this situation.
By contrast, dismissal “without prejudice” typically means there was an error in the procedure – for instance, you may have missed filing a certain document or form. If your filing was dismissed without prejudice, or if none of the above items apply to your case, you may refile for Chapter 13 bankruptcy immediately.
Fraud and Abuse of the Bankruptcy System
When filing for bankruptcy, it’s crucial to resist any temptation to manipulate your financial information or conceal assets. For instance, you might be tempted to transfer ownership of a cherished asset, like a classic car, to a family member before filing. However, such actions can be interpreted as fraudulent and lead to serious repercussions. The Court may dismiss your case, and worse, you may face criminal charges or fines.
Debtor dishonesty is a common reason for bankruptcy denial. Some debtors, feeling embarrassed about their debts, may lie or attempt to hide assets from the Court. However, this is always ill-advised and constitutes fraud. Common forms of bankruptcy fraud by debtors include:
- Withholding financial information
- Concealing assets or income
- Making false statements
- Violating court orders
- Filing bankruptcy to evade a specific creditor
- Failing to disclose previous bankruptcies
- Defrauding creditors by hiding or destroying unpaid items.
While the process of laying bare your financial life can be uncomfortable, any attempt to “fudge the numbers” or hide assets can have severe consequences. If you would like to be strategic about bankruptcy filing, it’s wise to plan with a bankruptcy lawyer instead. An experienced attorney can offer smart legal strategies to help you manage your debt while protecting your assets within the framework of the law.
Lack of Good Faith
The bankruptcy court expects debtors to file in good faith. If the court determines that you are not acting in good faith, your case may be denied. Examples of bad faith include:
- Running up debts before filing: If you incurred significant debts shortly before filing for bankruptcy, the Court may view it as an attempt to take advantage of the system.
- Failure to make payments: If you have the ability to make payments but choose not to, the Court may see it as a lack of good faith.
- Lack of cooperation: If you fail to cooperate with the bankruptcy trustee or provide requested information, the Court may deny your case.
Failure to File Tax Returns for Chapter 13
For Chapter 13 bankruptcy filings, failure to file tax returns can be a significant obstacle. The Bankruptcy Court requires proof of adequately filed tax returns for the past four years. Copies of filed returns must be submitted to the trustee before the meeting with creditors.
Debt Limits Or Having Too Much Debt
One often overlooked reason for bankruptcy denial in New York is exceeding the debt limits set by the United States Bankruptcy Code for Chapter 13 filings. These limits are designed to ensure that Chapter 13 bankruptcy remains a viable option for individuals with manageable levels of debt, while directing those with more substantial debts to other bankruptcy chapters or debt relief options.As of June 21, 2024, the debt limits for Chapter 13 bankruptcy are:
- Secured debts: $1,395,875
- Unsecured debts: $465,275.
These figures are not static. The United States courts regularly adjust these limits to account for inflation, ensuring that the bankruptcy system remains responsive to economic changes. If your debts exceed these limits, you may be ineligible for Chapter 13 bankruptcy. This can be particularly challenging for individuals in high-cost-of-living areas like New York City, where mortgages and other secured debts can easily surpass the million-dollar mark.
Increasing Your Chances of a Successful Bankruptcy Filing
To increase your chances of a successful bankruptcy filing in New York, consider the following tips:
- Hire an experienced bankruptcy lawyer: An experienced bankruptcy attorney can guide you through the process, ensure you meet all eligibility requirements, and help you avoid potential pitfalls that could lead to denial.
- Be honest and transparent: Provide accurate and complete information on your bankruptcy petition. Disclose all assets, income, and debts to avoid any suspicion of fraud or abuse.
- Demonstrate good faith: Show the Court that you are filing for bankruptcy in good faith by making efforts to pay your debts, cooperating with the trustee, and not incurring unnecessary debts before filing.
- Complete credit counseling: Ensure you complete the required credit counseling course from an approved agency before filing for bankruptcy.
- Consider alternative debt relief options: If you do not qualify for bankruptcy or if your case is denied, explore alternative debt relief options such as debt consolidation, debt settlement, or debt management plans.
FAQ On Chapter 7 Or Chapter 13 Bankruptcy Denial
Can a bankruptcy case be denied after it has been filed?
Yes, a bankruptcy case can be denied even after it has been filed. The Bankruptcy Court has the authority to dismiss a case due to reasons such as the debtor has failed to meet the eligibility requirements or has acted in bad faith.
What happens if my bankruptcy case is denied?
If your bankruptcy case is denied, you will remain responsible for your debts. Creditors can resume collection efforts like wage garnishment, bank account levies, and foreclosure proceedings. It’s essential to explore alternative debt relief options or refile for bankruptcy if your circumstances have changed.
Can I appeal a bankruptcy denial?
Yes, you can appeal a bankruptcy denial. The appeals process varies depending on the specific circumstances of your case and the reasons for the denial. It’s advisable to consult with an experienced bankruptcy attorney to understand your options and the likelihood of success on appeal.
How long do I have to wait before refiling for bankruptcy after a denial?
The waiting period before refiling for bankruptcy depends on the reason for the denial. Generally, if your case was dismissed “with prejudice,” you must wait at least 180 days from dismissal before you can refile. If the dismissal was “without prejudice,” you may refile immediately without going through a waiting period.
Can I file for bankruptcy again if my previous case was denied due to fraud?
If your previous bankruptcy case was denied due to fraud, you may face significant challenges in refiling for bankruptcy. The court may view any subsequent filing with heightened scrutiny, and you may need to provide substantial evidence that you are acting in good faith. It’s crucial to consult with an experienced bankruptcy attorney to assess your options.
Increase Your Chances of Bankruptcy Success with John D’Amato, Bankruptcy Attorney
While bankruptcy can provide much-needed relief from overwhelming debt, not all bankruptcy cases are approved in New York. To increase your chances of a successful bankruptcy filing, work with an experienced bankruptcy attorney. Contact John D’Amato today for experienced guidance and representation.
With over 29 years of experience in bankruptcy law, John D’Amato, Esq. will ensure that you receive the highest quality legal advice and personalized attention. He can help you navigate complex eligibility requirements, properly complete all necessary documentation, and ensure you’re filing at the right time and under the right chapter.
Call John D’Amato PLLC at (716) 703-9099 for a free, confidential consultation.