Individuals are eligible to file bankruptcy under chapter 7, 11, 12 or 13.
Chapter 7 -- Liquidation -- provides for the liquidation of a debtor's assets by a trustee to raise cash to pay off creditors' claims. The stages in a chapter 7 case are discussed below. Individual consumer debtors are subject to eligibility requirements, discussed below. Spouses can file a joint-case. The 2005 Amendments to the Bankruptcy Case have increased the complexity of individual consumer chapter 7 cases (discussed further below).
Chapter 11 - Reorganization - provides for reorganization of a debtor under a reorganization plan that is voted on by the debtor's creditors. Chapter 11 is typically not suitable for individual or consumer debtors unless they have a high net worth or high income. The stages in a chapter 11 case are discussed below.
Chapter 12 - Family Farmer or Fisherman Debt Adjustment - provides for adjustment of debts of a family farmer or fisherman with regular income and subject to certain debt caps.
Chapter 13 - Wage Earner Debt Adjustment - provides for adjustment of debts of an individual with regular income (spouses can file a joint-case). Total unsecured debt cannot exceed $465,275 and secured debt cannot exceed $1,395,875 as of April 1, 2022 and subject to adjustment every three years. Chapter 13 is discussed further below.
The Bankruptcy Code defines consumer debts as debt incurred by an individual primarily for a personal, family or household purpose. There are special provisions of the Bankruptcy Code that are only applicable to individuals having consumer debts. The "means test" (discussed below) only applies to an individual debtor in a chapter 7 case whose debts are primarily consumer debts. Debt that an individual incurred for a business, trade or profession that he or she was engaged in would not be consumer debt.
As a result of the 2005 amendments to the Bankruptcy Code a "means test" was introduced for eligibility for chapter 7. An individual who is unable to pass the means test will have his or her chapter 7 case dismissed (subject to certain exceptions), or must convert his or her case to a case under chapter 11 or chapter 13.
An individual chapter 7 debtor with primarily consumer debts will be subject to the means test if his or her "current monthly income" (based on average monthly income for 6 months prior to bankruptcy) is above the median income for a family of the same size. For cases filed after April 1, 2023 (updated yearly based on the consumer price index) in New York this means the debtor's income on an annual basis cannot be greater than $68,814 for an individual with no dependents ($84,958 for a family of 2, $103,444 for a family of 3 and $126,167 for a family of 4, plus $9,900 for each additional dependent above 4). As of April 1, 2023 in New Jersey the debtor's income on an annual basis cannot be greater than $83,898 for an individual with no dependents ($99,056 for a family of 2, $122,540 for a family of 3 and $155,510 for a family of 4, plus $9,900 for each additional dependent above 4). Current monthly income includes regular contributions to household expenses from a nondebtor and includes income for the debtor's spouse whether or not the petition is a joint petition (husband and wife both filing bankruptcy), but does not include social security income.
If the debtor's income is below the median listed above for the states listed above (each state has its own requirements), the debtor is eligible for chapter 7 bankruptcy. If the debtor's income is greater than the median income listed above, the debtor must pass the "means test". The means test starts with the debtor's monthly current income (based on income for last 6 months) and subtracts (1) expenses for food, clothing, utilities, transportation and housing based on permitted monthly expenses specified by IRS standards (not the debtor's actual expenses), (2) average monthly secured debt payments, (3) average monthly priority debt payments, and (4) a few other expenses in certain limited categories, such as educational expenses of dependents of the debtor, and expenses to care and support elderly, chronically ill, or disabled household members. The remaining net amount after deducting these expenses is the debtor's "disposable income" and depending on the amount the debtor either eligible for chapter 7 or is not.
When a consumer debtor files bankruptcy, he or she gets to keep certain property from the bankruptcy estate that is created by the bankruptcy filing. This property the debtor gets to keep is called "exempt" property and is based on specific laws exempting certain types of property to encourage the debtor's fresh start. The exemption laws vary from state to state and New York and New Jersey are not nearly as generous regarding exemptions as some other states. In New York there are exemptions for equity in a debtor's home ($179,975 or single debtor, $359,950 for joint debtors), life insurance, annuities, and pension plans, among others. Debtors who file bankruptcy without the assistance of a competent bankruptcy attorney risk losing property of significant value by failing to claim the exemptions to which they are entitled. Maximizing the exemptions to which you are entitled is part of what we do at Starr & Starr, PLLC when we represent you in a personal bankruptcy filing.
Certain types of debt automatically do not get discharged in bankruptcy, such as many types of taxes, student loans (unless the debtor can show undue hardship would result from failure to discharge the loans), most government fines and penalties, court restitution orders, domestic support obligations (such as alimony, child support, etc.), and debts in connection with divorce decrees, among others.
There are other types of debts that the creditor has the right to bring a lawsuit in the Bankruptcy Court (called an adversary proceeding) against the debtor to determine the dischargeability of the debt. The creditor can sue the debtor for a judgment determining that the debt will not be wiped out in bankruptcy.
Some examples of debts that can be excepted from discharge upon court order are:
An experienced bankruptcy attorney, such as the bankruptcy attorneys at Starr & Starr, PLLC, can analyze a consumer debtor's debts to determine if there is a risk of certain debts being automatically nondischargeable, or of potentially being found nondischargeable by the Bankruptcy Court. Pre-bankruptcy planning may facilitate the dischargeability of certain types of debt.
- Pre-Filing Stage -
- Filing & Post-Filing Stage -
Shortly after your case is filed we will learn the date and time your meeting of creditors has been scheduled. We will send you a letter advising you of the date and time, along with a map and directions and some information about the type of questions most commonly asked by the chapter 7 trustee. A day or so before the meeting we will have a telephone conference with you to prepare you for the meeting of creditors and discuss any questions you may have about it.
Only an individual with regular income can file chapter 13. You can be self employed if you can show you have a regular income and only operate as a sole proprietor under your own name or under a trade name (i.e., "doing business as" or "d.b.a."), and do not have a separate business entity, such as a corporation or a limited liability company. Total unsecured debt cannot exceed $465,275 and secured debt cannot exceed $1,395,875. In chapter 13 the debtor repays creditors over time based on the money left over each month after expenses. The debtor pays the chapter 13 trustee each month who then mails checks to each of the debtor's creditors. In chapter 13 the debtor gets to keep all of his or her property. Chapter 13 is commonly used to stop a foreclosure and cure defaults over time. The typical chapter 13 plan is 3 years. However, it can stretch as long as 5 years. As a result of "means testing", chapter 13 debtors with income above the state median must submit 5 year plans. Creditors do not get to vote on a debtor's chapter 13 plan, but get to object. The plan is subject to Bankruptcy Court approval at a confirmation hearing. In a chapter 13 case the chapter 13 trustee plays an important role in reviewing chapter 13 plans and raising objections to such plans.
The main benefit of chapter 13 compared to chapter 7 is that in a chapter 13 bankruptcy case the debtor gets to keeps all of his or her property and satisfies creditors claims through the chapter 13 plan. So, by way of example, if a debtor owned a house and wanted to keep living in it but is behind on mortgage payments, the debtor could cure the arrears (the payments that have fallen behind) through the plan and keep living in the house. Alternatively, in a chapter 13 case the debtor could seek to refinance or sell his or her house (subject to Bankruptcy Court approval). That is not usually possible in a chapter 7 case.
If the debtor is a renter and has fallen behind on rent payments (but an eviction order has not yet been entered), for instance, due to a period of illness or unemployment, the debtor could use a chapter 13 plan to cure the defaulted portion of rent through the plan.
Chapter 13 can also be used to keep a car where the debtor has fallen behind on payments.
In addition, in a chapter 13 case there is a co-debtor stay. So if one spouse files bankruptcy and the other does not, joint creditors cannot pursue the non-filing spouse. This can be beneficial to help preserve the credit standing of the non-filing spouse.
Chapter 13 is a complex area of bankruptcy law and requires the assistance of an experienced bankruptcy attorney.
You do not have to have an attorney to file bankruptcy. The law allows you to represent yourself. However, if you represent yourself you are still held to the same standard as if you had an attorney. You will need to be able to analyze and decide how to answer all of following questions, among others, yourself, and correctly complete and file the required documents:
The list above is not a complete list of the things that must be considered in personal bankruptcy case.
In addition, as the result of the amendments to the Bankruptcy Code in 2005 there are particular pre-filing and post-filing obligations that a debtor in bankruptcy must comply with that an attorney would usually take care of.
Finally, if you don't hire an attorney you will also have to represent yourself at the Meeting of Creditors held pursuant to Section 341(a) of the Bankruptcy Code.
There are paralegal services that claim to assist people with bankruptcy filing. They are not lawyers and not knowledgeable about bankruptcy law. By law they are not allowed to provide any legal advice. All they are allowed to do is fill out the numerous forms and schedules required to be filed with the Bankruptcy Court based on information you provide. Basically, they are just expensive "typing services" that can't advise you whether or not to file bankruptcy, what chapter of bankruptcy to file if you decide to file bankruptcy, or how to fill out the forms and schedules needed in your bankruptcy case. The United States Trustee, in the Southern District of New York and elsewhere, has filed lawsuits against paralegal services prohibiting them from engaging in the unauthorized practice of law. See, Martini, as the United States Trustee v. We the People Forms and Service Centers USA, Inc., et al. (U.S. Bankruptcy Court S.D.N.Y., Adv. Pro. # 05-01434, and Stipulated Final Judgment entered). Many debtors have had bad results from using paralegal services for bankruptcy filings, such as having their cases dismissed or losing homes that could have been saved had the debtor hired a competent bankruptcy attorney.
The filing fee charged by the Bankruptcy Court is currently $338 for a chapter 7 case, $313 for a chapter 13 case, and $1,738 for a chapter 11 case (as of 3/18/23). The fee for the mandatory pre-bankruptcy Credit Counseling program from a provider approved by the U.S. Trustee is approximately $50. The fee for the mandatory post-bankruptcy Financial Management program from a provider approved by the U.S. Trustee is also approximately $50.
The fee to hire Starr & Starr, PLLC to represent you varies depending on which chapter of bankruptcy you are filing (chapter 7 or chapter 13), how many creditors you have, your property situation and how much complexity will be involved in claiming your exemptions and completing your property schedules. Once we have this information we can quote you a binding flat fee. If you hire us we will enter into an Attorney-Client Engagement Letter with you in writing that will specify our total fee and any costs that we will collect from you and pass through (i.e., Court filing fee, two mandatory programs mentioned above) in your case.
Our fee may be paid in installments, but in a chapter 7 case it must (by law) be paid in full before we file your bankruptcy petition with the Bankruptcy Court. In a chapter 13 case we may agree to receive some part of our fee through your chapter 13 plan, depending on the circumstances of the case.
By law attorneys are required to disclose the fee they charge to represent debtors in chapter 7 and chapter 13 bankruptcy cases on disclosure forms filed in each debtor's bankruptcy case. We regularly review these filings in the Southern District of New York Bankruptcy Court (which includes New York County and Bronx County) and the Eastern District of New York Bankruptcy Court (which includes Kings County, Queens County, and Richmond County). We set our fees to be competitive with those of other experienced bankruptcy attorneys in New York City.