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What Happens When You File for Bankruptcy in NY?

Various actions occur when you file for bankruptcy in NY state. To set the stage for this article, bankruptcy serves as a legal mechanism enabling those unable to repay their debts to seek relief from their financial obligations.

Let’s first explain the kinds of bankruptcy and which one could be right for you. And then we’ll explain what happens when you actually file. Remember, though – only an experienced bankruptcy attorney like John D’Amato can give you the right advice to make this life changing decision.

Determining the Right Bankruptcy Chapter for You

There are many types of bankruptcy, but the most common for individuals are Chapter 7 and Chapter 13. The best bankruptcy option for you will depend on your particular situation.

Chapter 7 bankruptcy

Chapter 7 bankruptcy is a “liquidation bankruptcy,” which means that, in a small percentage of cases, your assets are sold to pay your creditors. This type of bankruptcy is often a filer’s first choice because it is quick and relatively inexpensive. However, it is important to note that you may lose some of your assets in a Chapter 7 bankruptcy, especially if you own luxury items or have too much equity in your assets (such as your home or car).

Chapter 13 bankruptcy

Chapter 13 bankruptcy is a reorganization bankruptcy, which allows you to keep your assets and repay your debts over a period of time. This type of bankruptcy is often a better option for people who have a job, equity in their assets, and can afford to make monthly payments for up to 3 to 5 years.

Here are some additional things to keep in mind when considering bankruptcy:

  • Bankruptcy can have a negative impact on your credit score. Your credit score will start to recover after a few years, but it may take several years to reach your pre-bankruptcy level.
  • Bankruptcy can make it difficult to get a loan or credit card. Lenders are less likely to lend money to people who have filed for bankruptcy.
  • If you are struggling with debt, bankruptcy may be a good option for you. However, it is important to understand the risks and consequences of bankruptcy before you file.

Bankruptcy can be a complex process. It is important to work with an experienced bankruptcy attorney to ensure that you file the correct paperwork, comply with all of the requirements, and, significantly, have the best outcome possible for your circumstances.

Credit Counseling Before Filing Your Bankruptcy Petition

Prior to initiating the bankruptcy process, it is a requirement to undergo credit counseling from an approved agency within 180 days of filing. This counseling service assists in assessing your financial condition, exploring alternatives to bankruptcy, and offering guidance on budgeting.

To start the bankruptcy proceedings, you must submit a bankruptcy petition to the U.S. Bankruptcy Court in the relevant district in New York. The petition necessitates comprehensive details regarding your financial status, including income, assets, expenses, debts, and recent financial transactions.

An Automatic Stay Takes Effect

Upon filing for bankruptcy, an automatic stay goes into effect, which prevents creditors from pursuing collection actions against you. These actions can include lawsuits, foreclosure proceedings, wage garnishment, or asset repossession. The automatic stay serves to shield you from such actions while your bankruptcy case is in progress.

A Bankruptcy Trustee is Appointed

In the process of your bankruptcy case, the court will assign a bankruptcy trustee to supervise the proceedings. The trustee will carefully assess your financial information and assets, and subsequently provide a recommendation to the Court regarding the discharge of your debts.

Under Chapter 7 bankruptcy, the assigned trustee will thoroughly review your case, identify non-exempt (unprotected or partially unprotected) assets, and distribute any proceeds obtained from liquidating those assets to your creditors. In Chapter 13 bankruptcy, the trustee’s role does not involve selling your assets but does involve overseeing the implementation of your repayment plan and ensuring that you adhere to its requirements.

A Meeting of Creditors is Scheduled

After filing for bankruptcy, a meeting known as the 341 meeting or “meeting of creditors” is arranged. You are required to attend this meeting, where you will be placed under oath and required to respond to the trustee’s inquiries regarding your financial matters.  Creditors seldom attend these meetings to ask questions.

Repaying Your Creditors Through Asset Liquidation or Repayment Plan

In Chapter 7 bankruptcy, non-exempt assets may be sold to repay your creditors. However, some or all of your specific assets can be safeguarded through exemptions permitted by federal or New York State law. On the other hand, in Chapter 13 bankruptcy, you present a repayment plan that spans three to five years to gradually pay off some of your debts (with other debts discharged or (“erased”). The plan is structured based on your income and expenses.

Completing a Required Financial Management Course

Following your filing for bankruptcy, you will be required to finish a financial management course offered by an approved agency. The purpose of this course is to equip you with the necessary tools and knowledge to effectively manage your finances in the future. Its aim is to enhance your financial literacy and empower you to make informed decisions regarding your future financial well-being.

Debts Discharged

Upon satisfying the obligations of your Chapter 7 or Chapter 13 bankruptcy case, you will likely be granted a discharge order. This discharge relieves you from personal responsibility for the majority of your debts, absolving you of the legal obligation to repay them. However, it is essential to be aware that specific types of debts, such as student loans, child support, and some tax debts, are typically not eligible for discharge.

It is important to acknowledge that bankruptcy laws and procedures can be intricate, and the particulars of various cases will differ. Seeking advice from a bankruptcy attorney is strongly recommended as they can offer personalized guidance, ensuring that you navigate the process within the bounds of the law while obtaining the very best results for you.

Speak With an Experienced Buffalo Bankruptcy Attorney

If you’re struggling with debt, consult with a bankruptcy attorney who can provide personalized guidance and ensure you navigate the process correctly. For a free and confidential consultation, call John D’Amato, PLLC today at 716-706-0000 to help you make the right decision when considering filing for bankruptcy.

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