As a Bankruptcy Attorney in New York, I encounter many clients who are concerned with how bankruptcy may negatively impact their lives. My goal is to help them realize that depending on the severity of their debt, bankruptcy can actually be an excellent fresh start to rebuilding healthy credit and financial stability. I’ll share three points I extend to my clients, which will help you understand how filing bankruptcy may be a positive step for you.
First Way – The Automatic Stay
One of the most important procedures and protections in the bankruptcy code lies in the automatic stay.
The automatic stay takes effect without any further action when the debtor files the bankruptcy petition. This procedure ceases all collection action against the debtor.
This means that creditors may not engage in further actions such as repossessing property, garnishing wages, levying or sale of any property, and perhaps most importantly, foreclosure action against a primary residence.
However, the bankruptcy petition must be filed before the foreclosure has been completed, an automatic stay does not undo a foreclosure once the sale is final. Furthermore, creditors are not permitted to contact the debtor in any way.
When the debtor files the petition the bankruptcy trustee will hold a creditors meeting and depending on which chapter the debtor filed under, will either sell the debtor’s assets and pay the creditors or will act as an intermediary by collecting the debtor’s payment and distributing it to the creditors.
Second Way – Retaining Possession of Assets
In a Chapter 13 bankruptcy the debtor has the opportunity to retain their assets. Chapter 13 functions as a debt repayment plan and is also known as a “wage earner’s plan”. Under Chapter 13 the bankruptcy trustee will hold the creditors meeting and the debtor will pay all or some of the debts over three to five years.
After that time, most debts are generally discharged. This allows a debtor to restructure payments over a longer term, modify the terms of the debt, and keep important assets such as a residence and vehicle.
Under Chapter 13 all mortgage payments must be made on the primary residence. Chapter 13 acts as a consolidation loan where the trustee will collect the debtor’s payment and distribute it accordingly to the trustees.
The debtor does not have interaction with the creditors after the meeting and the trustee acts as a “middle-man”. This is beneficial as the debtor will not have to engage in any contact with their creditors.
Third Way – A Fresh Start
Filing a bankruptcy petition should not be taken lightly. However, a successful bankruptcy gives debtors a chance for a fresh start after their debts are discharged.
A bankruptcy will typically stay on a credit report for 10 years which will impact the ability to obtain new credit, apply for loans, and in some cases, employment.
Additionally, not all debts may be discharged in bankruptcy.
Some types of secured property, federally guaranteed student loans, alimony, and child support are typically not dischargeable.
Despite these consequences, for those who are essentially buried in debt, a bankruptcy is likely the best course of action.
In a Chapter 7 bankruptcy, the trustee will sell the debtor’s assets and discharge the debts. In a Chapter 13 bankruptcy, the debtor will repay all or some of the debts and the rest will be discharged (except for the non-dischargeable ones) at the end of the repayment period. These allow individuals to start anew.
Contact A New York Bankruptcy Attorney
I have over 30 years of experience in Chapter 7 and Chapter 13 Bankruptcy in the state of New York. While my office is based in the Bronx, I serve clients throughout New York. If you need a fresh start, call today for a free case evaluation. I’ve helped thousands of families through their bankruptcy, and have provided education on credit health that they’ve gone on to use successfully for years. I can put this same experience to work for you. Call today for a fresh start with a New York Bankruptcy Attorney you can trust.