August 1, 2011
Chapter 13 Bankruptcy can help you get back on your feet financially. But there are five principles you must know, before you file to prevent surprises and new problems down the road.
Chapter 13 is designed for individuals with debts and who have houses or other assets they want to preserve. If assets or debts are jointly held by husband and wife, you can file one joint petition to cover both spouses.
Whereas, under Chapter 7 bankruptcy, if you qualify, you can write off or walk away from all of your debts. Under Chapter 13 bankruptcy, you must establish a Chapter 13 Plan to pay back all or part of you debt.
Principle 1:
Under Chapter 13, you must pay back 100% of you secured debt. An example of secured debt is your home mortgage. If you are behind in your mortgage, you have to include 100% of your arrears in your Chapter 13 Plan.
The good news here is that you may not have to pay back any or all of you unsecured debts. Unsecured debt includes credit cards, medical bills and personal loans not secured by real estate. The amount required to pay back will depend on your available income.
Principle 2:
Duration of Chapter 13 Plan is either Three years (36 months) or Five years (60 months). This timetable depends on your mean income by family size. If your income exceeds the mean income as established by the US Bureau of Labor Statistics, then you may be required to establish the longer 60 months plan. This would depend on the size of your debt as well as your total family income. Make sure you calculate your Chapter 13 Plan before you file your Petition.
Principle 3:
Non-dischargeable debt may be included in a Chapter 13 Bankruptcy. You are probably aware that certain debts, such as taxes and student loans are non-dischargeable under Bankruptcy. But you can include these debts in your Chapter 13 Plan. The net effect may be beneficial as you be able to reduce the amount of your unsecured debt includable in you Chapter 13 Plan. In fact, a Chapter 13 Plan may be confirmable with as little as 5-10% of unsecured debt included in ones plan.
Principle 4:
Annual reviews could cause your Chapter 13 Plan to be revised downward or upward, pending on the change in your income.
Whether you initially establish a three years or five year Plan, you are required to submit tax returns, W-2s and paystubs, upon request by your Chapter 13 Trustee. If you benefit from a significant increase of your income, compared to your income at the time of your filing, the Trustee may compel you to revise your Plan. Naturally, this would only apply to you if your approved Plan is less than 100%. A 100% Plan is a Plan whereby you are paying back 100% of your debt.
Conversly, if you experience a drop in your income you may make a motion to modify your plan downward, to pay your creditors a lower amount. A downward modification would only be approved, if the revised Plan is deemed feasible by the Court. To be feasible, secured creditors would have to be paid 100% of all arrears and non-dischargeable debt must be paid in full, as well as all administration expenses if your income changes. Inform your Bankruptcy attorney if your income should fall to see if you can benefit from these changes.
Principle 5:
Generally your Federal and State Income Tax Refunds must be turn over to your Bankruptcy Trustee, in most situations. The exception to this turnover requirement is if your initial plan covers 100% of your outstanding debt.
Thus, in most cases all future Tax Refunds go to the Trustee while during the life of your Plan. If you anticipate receiving tax refund at the end of the year, you should be aware that while your Chapter 13 Plan is in effect, you may be required to surrender both Federal and State returns to the Court Trustee. Prior to filing a Chapter 13 Petition and Plan, you should consult with your attorney to ascertain the tax implication of filing a Chapter 13 Petition. A taxpayer does have some control over the size of a Tax refund. A good bankruptcy attorney can assist you in preventing loss in income at the end of the year.
For more information email me at j.weinstein@jlwlawoffices.com or call me at 212-693-3737.
August 1, 2011
While filing a Bankruptcy will likely affect your credit in the short term, the long term effects, with a few exceptions, will be minimum. Today the financial and credit world runs on “credit scores”. If an individual has a high credit score, 680 or higher, having a personal bankruptcy in one’s credit history will have little or no impact on getting a loan after a year.
The key to success is to rehabilitate your credit after you go bankrupt. As you restore your credit, your credit score will gradually rise to an acceptable level. How do you restore your credit rating? First you must pay all your bills on time, cell phone, utilities and credit cards. If you build a history of “no lates, no charge backs, and no disputes”, after a period of 6-9 months, you will start to see your credit score improve.
If you retain one or two credit cards after filing a bankruptcy, start using those cards, prudently. But, you must pay the cards in full every month. If you stopped using all your cards before Bankruptcy, open one or two credit cards accounts for the sole purpose of building up your credit. In other words, do not charge anything on your credit cards you cannot pay off at the end of the month.
If you think that the banks will not issue you a new credit card after bankruptcy, think again. You will be amazed how quickly the banks will be willing to open a new account for a person who recently filed bankruptcy. They are in the business of lending money and they know, (1) You are no longer in debt and (2) You cannot file bankruptcy for another eight (8) years. So now you have become a good risk to the bank. For most banks, the scourge of bankruptcy is gone.
How will filing bankruptcy affect your present job or job prospects?
As for the effect of filing a bankruptcy on one’s present employment, it is highly unlikely that there will be any repercussions. In fact, unless you owe your company or your boss any money, they will never know you filed for bankruptcy.
There is no law that requires one to notify their employer if they file for bankruptcy. However, there may be a company policy in some financial institutions that require notifications. This would likely be limited to positions that involve the handling of monies for clients. That policy information must be easily ascertainable from your company.
As for a new employment, some companies may require a credit score report as part of the employment application. But not every company will disqualify an applicant if he has filed for Bankruptcy in the past. Obviously, the more time has passed since the bankruptcy, the less of an impact there will be on the job prospect.
In most cases, an explanation for the bankruptcy will satisfy the employer. This is especially true if the reason for giving Bankruptcy is beyond the control of the individual. Examples are, medical problems, divorce, the current financial crisis or torts against the debtor.
For more information email me at j.weinstein@jlwlawoffices.com or call me at 212-693-3737
July 19, 2011
Many real estate owners are confronting the worst housing market in decades. Foreclosures and loan defaults are at an all-time high and refinancing is difficult even for credit worthy home owners. As a result, bankruptcy has become the favorable choice for many property owners facing foreclosure. Here are some of the ways bankruptcy can help:
- The filing of a bankruptcy petition stops a foreclosure dead in its tracks:
The “automatic stay” provision of the bankruptcy code will temporally stop all litigation and any attempt to collect a debt the moment the bankruptcy case is filed with the court. In fact, filing a bankruptcy petition can immediately stop a foreclosure sale. A federal bankruptcy case filing trumps many state rights of creditors to proceed against a debtor, with few exceptions.
- A bankruptcy case can serve to cure a default and reinstate a mortgage:
Most property owners that have fallen behind on mortgage payments have few remedies available to them that do not include either the full payment of their mortgage arrears in one lump-sum or redemption of the property through payment of the entire balance due to the lender. But in this credit-tight market, these options are rarely available. For that reason, a Chapter 11 Bankruptcy or chapter 13 bankruptcy case is often the only solution available to save real estate. These cases enable a property owner to cure a mortgage default by repaying the mortgage arrears through a monthly payment plan. Once the property owner completes the plan, the mortgage is reinstated and the default is cured.
- Some mortgages can be eliminated or modified in bankruptcy:
The bankruptcy code permits a debtor to modify the terms of mortgage if the property is worth less than the amount due to the lender. A second mortgage on a residence and any mortgage on any other property may be modified or reduced. In some instances, if the first mortgage exceeds the value of the property, a second mortgagee can convert the lien from secured to unsecured status. The second mortgage holder then is treated as a general creditor with no rights against the real estate. This bankruptcy procedure has become a powerful tool for homeowners with no equity in their homes. Relieving homeowners of the burden of paying second mortgage often provides the additional income needed to save the home.
Thus, bankruptcy can serve as a tool for a homeowner to level the playing field against big banks, and assist individuals to get back on the road to financial stability.
For more information email me at j.weinstein@jlwlawoffices.com or call me at 212-693-3737
July 11, 2011
Do You Qualify to File Chapter 7 Bankruptcy?
Not everybody can, do you?
In 2005, the Republican Congress and President Bush passed sweep new changes in the US. Bankruptcy Laws. Under the old rules, just about anyone who wanted to file Chapter 7 Bankruptcy in New York could no matter what their income was maybe.
The new law set income caps on those who qualify. The debtor’s income must be at or below the mean income. The US Bureau of Labor Statistics issues annual schedules of mean income by region and city, and family size.
The mean income for an individual, living alone in New York City is approximately $46,000, whereas the mean income for a family of four (4) living in Long Island is approximately $82,000.
If your income is above the mean income, you could still pass the “Means Test”, and could qualify under Chapter 7 bankruptcy.
The “Means Test” is a 12 page form. You list both your monthly income and “necessary and deductible” monthly expenses over a six (6) months period. If your “qualifying” overall “expenses” exceed the mean “expenses”, then you could and will “pass” the Means Test with an elevated income.
Not all “expenses” are acceptable in the means test calculation. For example, you may not include income support payments for an elderly parent, not living in your household, or non-court order child support, or expenses that are deemed non- essential or luxury items.
However, “high” rent or mortgage payments, student loan payments, child education expense and any medical expenses for members of the household are acceptable.
An experienced bankruptcy lawyer or paralegal will know how to include all acceptable “expense” to ensure that a debtor who “legally” qualifies under the new rules will pass the “Means Test”, even if that individual has a “high” income. Do not be discouraged, you may qualify for Chapter 7 Bankruptcy in New York even with your present income. After all, most people who are considering bankruptcy have expenses that exceed their income.
For more information email me at j.weinstein@jlwlawoffices.com or call me at 212-693-3737.
July 6, 2011
NY State Doubles Homestead Exemption
Filing a Chapter 7 Bankruptcy in New York has just gotten easier for hundreds of thousands of homeowners in New York. In December 2010, the state increased the homestead exemption from $50,000 to as much as $150,000, per individual, $300,000 per married couple in some New York jurisdictions.
This means that if an individual owns a home or apartment – and the home is his primary residence – he can file Chapter 7 bankruptcy, and he can shelter up to $150,000 ($300,000 for a couple) in homestead equity from creditors. The New York legislature is finally catching up with inflation, although still far behind many other states.
New York has long been deemed a “creditor-bias” state because the exemptions are among the lowest in the Country. Whereas, other states, like Florida in particular is a debtor-friendly state. Florida has an unlimited homestead exemption. A Floridian filing a Chapter 7 bankruptcy may be able to discharge all his unsecured debt, and creditors cannot touch his home, even if it is worth millions of dollars.
In addition the increase in homestead exemption, other increases include raising the vehicle exemption from $2,500 to $4,000.
Thus, contrary to popular belief, you don’t have to be totally broke to file Chapter 7 bankruptcy. You are legally able to claim certain “exemptions”, which allow the debtor, to shelter certain assets from your creditors. The most favorable clause allows a debtor to keep 100% of all retirement accounts, 401K, IRA’s , etc.
Let me illustrate how the NY homestead exemption works. Say you live in New York City, you have a Condo with a FMV (Fair Market Value) of $900,000. You currently have an outstanding principle balance of $600,000 on your mortgage. Together you and your spouse have a combined $300,000 homestead exemption. The exemption covers 100% of your equity in the condo.
Thus, if you file a joint Chapter 7, your Condo is 100% protected from your creditors.
Under the old law, only $100,000 of your equity was protected and $200,000 would be vulnerable if you filed a Chapter 7 Bankruptcy, your creditors could force the sale of your condo to collect up to $200,000 of debts.
For more information on New York exemption or on filing Chapter 7 or 13 Bankruptcy, email your questions at j.weinstein@jlwlawoffices.com or call me at 212-693-3737 for free consultation.
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