Frequently Asked Questions (FAQs)

Bankruptcy Questions

Answers to your Questions

I heard that it's getting tougher to file for bankruptcy. How has the law changed?
The flow of would-be bankruptcy filers engaging the services of the law firm Ziff, Weiermiller, Hayden and Mustico has intensified in the past few months, and the phenomenon is not unique to Elmira, NY. It is part of a national increase in filings since April of this year, when a federal bankruptcy reform bill was signed into law. With the October 16th deadline fast approaching to file bankruptcy under the current law, people across the country are heading to law offices in greater numbers to get their applications underway.

The new law will change the bankruptcy filing process, making it harder to file under Chapter 7, which, after liquidation of certain assets, completely erases the filer’s debt. Come October 17, a greater percentage of filers will have to seek protection under Chapter 13, which puts them on a payment plan whereby a portion of the debt is repaid over a period of time, and the rest of the debt is then cancelled.

“Currently, filers can make a case to the court and be granted access to Chapter 7 filing based on the court’s interpretation of the circumstances leading to the decision to file for bankruptcy,” notes Mark Weiermiller, a bankruptcy attorney with Ziff, Weiermiller, Hayden and Mustico. Under the new law, filers no longer will be able to pursue Chapter 7 filing based solely on a court’s consideration of their predicament. Instead, explained Weiermiller, filers will undergo a two-way “means test” to determine the extent to which they are able to repay some portion of the debt. For some, depending on their monthly income, this will mean that they are ineligible for a Chapter 7 debt discharge and will have to file under Chapter 13, which is considered less desirable since it requires the filer to pay back all or some of the overall debt. For many others, it still will be possible to file under Chapter 7, though it will require more rigorous substantiation of income. One change affecting all bankruptcy filers is that they must complete credit counseling within 6 months prior to filing in order to file at all.

Bankruptcy attorney Matthew Hughson, also of Ziff, Weiermiller, Hayden and Mustico, suggests that those considering bankruptcy aim to file in advance of the new law’s effective date of October 17.

“After the law goes into effect, people still can file for bankruptcy, but the process will become more cumbersome for the filer,” Hughson said. “Therefore, it makes sense to go ahead and begin the course of action soon if you are considering it.”

Bankruptcy, long a debt-cancellation method employed by businesses in financial straits, has become increasingly common among individuals in recent years. In fact, according to statistics from the U.S. Bankruptcy Court, 95% of the bankruptcy filings made in New York State in 2004 were classified as “non-business” and, of those, 81% were Chapter 7 filings. Many correlate the rise in personal bankruptcy to a parallel rise in personal debt.

“I find that many of my clients try to resolve a personal financial crisis — such as the loss of a job or major medical expenses — by using credit cards in the hope of being able to pay back the debt over

time,” observed Weiermiller. “The real problems begin when the client defaults on their credit card payments and their interest rate skyrockets resulting in unaffordable monthly minimum payments.”

For those eligible, a Chapter 7 debt discharge provides a chance to put the troubling financial situation behind them and start fresh with a clean slate.

Consumer Bankruptcy Law Changes

Current

Effective October 17, 2005

There are no requirements for credit counseling prior to filing.

Prospective filers must finish credit counseling from an approved course within 6 months prior to filing, and provide documentation of the counseling, as well as any resulting re-payment plans, to the bankruptcy court.

A filer may be permitted to pursue Chapter 7 filing based on a judge’s decision to allow it. The judge is not beholden to any guidelines when making this decision.

Filers must pass a two-way “means test” to decide the extent to which they can repay their debt. A judge must consider the result of this test when determining whether a filer may pursue Chapter 7 or must file under Chapter 13.

Debtors must submit to the bankruptcy court a statement of financial affairs and schedules of assets, liabilities, income and expenses.

In addition to the current requirements, debtors will also be required to file with the bankruptcy court their federal tax returns, and a host of additional documentation regarding payments from employers and monthly income and expenses. If adequate documentation is not submitted on time, the court must dismiss the case.

No financial management instruction is required.

An approved financial management course must be taken by filers under either Chapter 7 or Chapter 13 prior to receiving a debt discharge.

A filer must reside in a state for 91 days before being able to take advantage of the states’ homestead exemption in bankruptcy. There is no requirement for the length of time the homestead must be owned.

A filer must live in a state for at least 2 years and own the homestead for at least 40 months in order to take advantage of the state’s homestead exemption in bankruptcy. This closes a loophole that could allow an abuser to quickly move to a state allowing a high equity exemption, and to then file bankruptcy there.

Child support and alimony debts are 7th priority for re-payment.

Child support and alimony debts will have highest re-payment priority.

 

Will the bankruptcy stop bill collectors from calling?
Yes. Once a creditor or bill collector becomes aware of a filing for bankruptcy, it must immediately stop all collection efforts. After you file the bankruptcy petition, the court mails a notice to all the creditors listed in your bankruptcy schedules. This usually takes a couple of weeks. Creditors will also stop calling if you inform them that you filed the bankruptcy petition, and supply them with the docket number for your case. In some cases, you or your attorney should contact the creditor immediately upon filing the bankruptcy petition, especially if a lawsuit is pending. If a creditor continues to use collection tactics once informed of the bankruptcy, they may be liable for court sanctions and attorney fees for this conduct.

What should I do to prepare for filing bankruptcy?

  • First, you should consult with an attorney. An attorney can help you plan for the bankruptcy, decide when to file a bankruptcy petition, or even avoid filing for bankruptcy.
  • If you intend to file bankruptcy, you should stop using your credit cards immediately.
  • Do not transfer your assets to friends, family or business associates to protect the assets from your creditors. The transfer may be considered a fraudulent conveyance. If it is, you may lose both the property and your right to a bankruptcy discharge.
  • Do not destroy any business or financial records.
  • Carefully choose the creditors you pay. Some creditors, such as landlords, secured creditors, and some utilities should be paid under most circumstances. If you pay a credit card debt that eventually will be discharged, you may be throwing money away. Your attorney should advise you on what debts should and should not be paid while you prepare to file a bankruptcy petition.

What are some alternatives to bankruptcy?
Sometimes payment plans can be negotiated with creditors. Obtaining loan extensions, compromises and workout agreements require negotiation skills and the experience of an attorney. It is in your best interest to contact an attorney. These alternatives may alert your creditors to the existence of nonexempt property that the creditor could reach and can involve considerable expense. You also have the option of doing nothing. In any event, you should seek professional advice in dealing with most of these alternatives.

Will I have to go to court?
About 30 to 40 days after filing the bankruptcy petition, you will have to attend a hearing presided over by a bankruptcy trustee. This hearing is called the First Meeting of Creditors. The trustee is not a judge, but an individual appointed by the United States Trustee to oversee bankruptcy cases. At the First Meeting of Creditors the trustee will ask you questions under oath regarding the content of your bankruptcy papers, your assets, debts and other matters. Creditors will also be permitted to ask you questions, although in the majority of cases creditors do not appear or ask questions at the First Meeting of Creditors. After the initial meeting, you normally do not need to return to court. However, if a creditor or the trustee files a motion or an adversary action you may have to appear in court with your attorney.

What happens to my personal property, real property and other assets?
Once the bankruptcy is filed, all of your property at the time of the filing and certain other property to be received in the future, becomes the property of the bankruptcy estate. This means that the bankruptcy trustee may take control of this property and sell it to satisfy your creditors. You are required to file a schedule with the court describing all of your assets. Certain property is either "excluded" from the bankruptcy estate or "exempt," which means you will be able to keep that property. Often, all of your assets can be protected. An experienced attorney will review your bankruptcy case and asset schedules to determine what will happen during the bankruptcy proceeding.

Do I need an attorney to file bankruptcy?
Individuals may file a bankruptcy petition without an attorney. This is called appearing "pro-se." However, the Bankruptcy Code is very complex and filing a bankruptcy petition requires a thorough knowledge of both the Bankruptcy Code and other Federal and State laws. In addition, bankruptcy practice differs from court to court. Experienced bankruptcy attorneys are familiar with the local rules, both written and unwritten, so it is in your best interest to consult an attorney before filing.

Will the fact that I filed bankruptcy appear on credit reports?
The bankruptcy is treated as a judgment and will be listed in credit reports for a period of up to 10 years. However, the fact that you filed bankruptcy, if properly explained, is less damaging than a history of unpaid accounts.

How can I re-establish my credit rating after bankruptcy?
The best way is to obtain new credit and make the payments on time. Sometimes an existing creditor may continue to grant you credit based upon a reaffirmation agreement made during the bankruptcy. You may also be able to obtain a secured credit card, where the credit limit is based upon the amount of security given, or obtain credit using a co-signer.

Please see our webpage on Bankruptcy for more information.