What can bankruptcy do for me?

What is bankruptcy?

Bankruptcy is a legal process that may help a person who cannot pay their bills get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal bankruptcy court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.

What Can Bankruptcy Do for Me

Bankruptcy may make it possible for you to:

• Wipe out most or all of your debts. We say that a debt has been “discharged,” if the bankruptcy was able to get rid of it. This can give you a fresh financial start.
• Stop foreclosure on your home and give you a chance to catch up on missed payments.
• Prevent repo of a car or other property.
• Stop wage garnishments, debt collection calls, and other creditor actions to collect a debt.
• Restore or prevent termination of utility service.
• Defend you against creditors who are trying to collect money you don’t owe.

What if the creditor sued me in court? What if they have a judgment?

A collection suit in Civil Court will be stopped by the filing of a Bankruptcy case. If the creditor already has a judgment, Bankruptcy will stop them from collecting on that judgment. If the bankruptcy case ends successfully, the debt will be discharged as if there were no judgment.

What debts can bankruptcy take care of?

• Credit card debts
• Medical debts
• Unsecured lines of credit
• Overpayment of government benefits
• School tuition and fees (not student loans)
• Unpaid rent (but you may still lose your apartment if you take advantage of this)
• Secured debts for things you are willing to let go of
• Income taxes—if they are old enough
• Most other unsecured debts
• Bridge and highway tolls (but not the penalties and interest)

A Chapter 13 repayment plan can also discharge:

• Civil fines such as parking tickets and toll penalties and interest
• debts from a property settlement in a divorce
• debts for willful or malicious injury to another
• Even if not discharged in Bankruptcy, licenses suspended because of traffic and parking tickets can be reinstated.

Discharging Student Loans:

Student loans can be discharged in bankruptcy if repaying them would be an “undue hardship.” This is hard to show, but can sometimes be done.

What will I still owe after bankruptcy?

• Money owed for child support or alimony
• Court restitution orders, criminal fines and penalties, such as traffic tickets and toll violations (the unpaid toll IS dischargeable, but the penalty for not paying it survives)
• Mortgages, auto loans and other secured debts—unless you give up the house, car or other collateral.
• Income taxes owed from the past 3 years, or for which a return was not filed
• Debts where a creditor can prove you did something bad—such as lie on a loan application or borrow money you weren’t planning to repay;

What bankruptcy can NOT do:

In addition to not discharging some debt, bankruptcy CANNOT:

• Avoid a foreclosure on a house you cannot afford. Though bankruptcy temporarily stops a foreclosure, it is against the law to file just to “buy time.” You have to have a way of affording the mortgage.
• Avoid an eviction. Although back rent can be discharged in bankruptcy, the landlord will still have the right to evict you for non-payment (this may be different if you live in Public Housing)
• Protect cosigners of your debts. When a relative or friend has co-signed a loan, your bankruptcy relieves you of the debt, but not the cosigner.
• Discharge debts that arise after the bankruptcy was filed.

What Are the Downsides of Filing Bankrupt?

• A chapter 7 bankruptcy filing will remain on your credit report for ten years; Chapter 13 will remain there for 7 years. It will affect your ability to borrow money, rent an apartment, and in some cases, get a job. But if you already had bad credit, bankruptcy will not make this worse, and will allow your credit rating to improve over time.
• Bankruptcy will make you ineligible for a home mortgage for at least three years. After that, you can apply for a government guaranteed FHA mortgage. Once the bankruptcy goes off your credit record (10 or 7 years) you can apply for a regular mortgage.
• Credit may be hard to get after bankruptcy, but not impossible. The first credit offers you will get will have high interest rates and low credit limits. As you develop a new, solid credit history after bankruptcy, you will begin to get better credit offers.
• If you file a Chapter 7 Bankruptcy and get discharge, it will be eight years before you can file Chapter 7 again and still get discharge.
• Government agencies cannot—and generally don’t—discriminate against people who have filed bankruptcy. You cannot be denied a student loan because of having filed bankruptcy.

Who will Know that I filed for bankruptcy?

• Bankruptcy cases are a public record. Usually, however, friends, family, and the general public will not know about a personal bankruptcy unless you choose to tell them or they are listed as creditors on the bankruptcy petition.
• All of your creditors—and anyone collecting a debt for them–will get notice of the bankruptcy.
• Anyone you are in a contract with will get notice. This includes your landlord, if you have a lease. But landlords generally cannot refuse to renew a lease for this reason.
• Anyone you have co-signed a loan with will get notice.
• While bankruptcy is on your credit record (10 years for Ch. 7; 7 years for Ch. 13) anybody who requests your credit report will see that you filed.
• Potential Employers in NYC usually may not ask for credit or bankruptcy info.

What different types of bankruptcy cases should I consider?

Most people filing bankruptcy will want to file chapter 7. Married debtors can file a joint bankruptcy, or choose to file for only one spouse.

Chapter 7 (Liquidation)

Also called “Straight Bankruptcy” This is the most common form of bankruptcy. It is best for people with little property of value, and lower-than-average income. Most people are able to protect all their property and file Chapter 7 without losing anything. It takes about 3 months to run its course.

Chapter 13 (Reorganization)

Also called the “wage earner” or the “repayment” plan. It requires a debtor to make monthly payments that they can afford for three to five years. At the end of the payment plan, any remaining debt is discharged. Chapter 13 allows you to:

• catch up rent or mortgage payments that are behind, or remove second mortgages as secured debts, or to refinance a secured debt—such as a car note;
• keep property you would lose in Chapter 7—such as a home with little or no mortgage debt;
• repay what you can afford to repay, and be protected from your creditors while you do so.

To file under chapter 13, you need to have enough income to resume making your monthly mortgage or rent payments AND pay the monthly chapter 13 payment.

Some people have to file chapter 13 because their income is higher than the rules for chapter 7 allow. For example, in 2024, a single person who’s income was above $5,761 per month, or a family of 4 who’s income was above $10,949 per month, might need to file a Chapter 13.

Isn’t it better to avoid bankruptcy with debt consolidation?

Sometimes people can avoid bankruptcy with the help of an agency that negotiates repayment plans with creditors for you. These “debt consolidators” can be helpful if you can pay some or most

of your debts, but need help getting the creditors to talk to you. The problem is that while many debt consolidation agencies are legitimate, many are rip-offs. Even good agencies won’t be able to help you much if you’re already too deep in financial trouble.

Most of these agencies offer debt management plans to repay some or all of your debts. You send them a monthly payment and they distribute it to your creditors. One problem is that many counselors will pressure you into a debt management plan–as a way of avoiding bankruptcy– whether it makes sense for you or not.

Bankruptcy should NOT be thought of as “the last resort.” In particular, you should consider bankruptcy before spending your retirement savings or borrowing against your home to pay debts.

What does it cost to file for bankruptcy?

It costs $ 338 to file for bankruptcy under chapter 7 and $313 to file for bankruptcy under chapter 13, whether for one person or a married couple. In 2024, If you file Chapter 7 and your income is low—less than $1883/month for 1 person, or less than $3,900/month for a family of 4—you might not have to pay the filing fee. If you do have to pay, the court may allow you to pay the fee over 4 months.

If you hire an attorney you will also have to pay the attorney’s fees you agree to. If you qualify for assistance from NYC BAP, it is free.

What are the classes I have to take?

You must complete a credit counseling course before you file bankruptcy; you must complete a debt management course after the case is filed. You listen to a recorded presentation, then answer questions—either over by Internet or by telephone.

Most lawyers, including NYC BAP, have an approved credit counseling agency they’ll want you to work with. If a volunteer at NYC BAP is assisting you with preparing a bankruptcy petition, the volunteer will let you know how and when to take the courses.

Will I have to go to court?

You must complete a credit counseling course before you file bankruptcy; you must complete a debt management course after the case is filed. You listen to a recorded presentation, then answer questions—either over by Internet or by telephone.

Most lawyers, including NYC BAP, have an approved credit counseling agency they’ll want you to work with. If a volunteer at NYC BAP is assisting you with preparing a bankruptcy petition, the volunteer will let you know how and when to take the courses.

What property can I keep? (This information is accurate for New York State only.)

In a chapter 7 case, you can keep all property which the law says is “exempt.” As of 2024, New York and federal exemption laws allows you to protect over $200,000 of home equity, and up to $15,000 of personal property. If you don’t own your home, you can protect even more personal property.

These numbers double for a married couple filing together, if they jointly own the property.

“Equity” is what you would get if you sell the property. So if you have a house that sells for $500,000, and you owe a $300,000 mortgage on it, that mortgage gets paid off first, and you get the rest: $200,000. That is your “equity.” In that example, you would be able to use the homestead exemption for New York City–$204,825—to protect all of your home equity and keep your home. But if you had a lot more equity—say, $250,000—when the exemptions can only protect $204,000, that property might be sold in a Chapter 7 bankruptcy to pay your other debts.

The exemption rules are complex; for example, not all of the exemptions above can be taken at the same time. It is best to have an attorney figure out what can and cannot be protected. But for most filers, the exemptions are enough to protect everything they own.

Can I Keep Property in Bankruptcy If I Owe Money for it?

In most cases you will not lose your home or car during your bankruptcy case as long as it is not worth more than what the exemptions can protect (see: What Property Can I Keep?—above). Also, if the car or house is collateral for an auto loan or mortgage, you will need to keep paying that auto loan or mortgage in order to keep the car or house.

There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. You can often use a Chapter 13 repayment plan to restructure a secured debt, making the monthly payments more affordable, or even making them part of the Chapter 13 plan payments.

Can I own anything after bankruptcy?

Yes! Many people believe they cannot own anything for a period of time after filing for bankruptcy. That is not true. You can keep your exempt property and anything you buy or get after the bankruptcy is filed. However, if you receive an inheritance or life insurance proceeds from someone who dies within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.

If, before you file bankruptcy, you have any kind of claim where you could get money—for example, a personal injury case, a wrongful death case, a medical malpractice claim, or other such claim—even if you haven’t even talked yet to an attorney about it—that claim can be taken over by the Bankruptcy Court and settled for the benefit of your creditors. It is extremely important that you tell a bankruptcy attorney about such a claim before you file bankruptcy.

Will bankruptcy affect my credit?

This depends on how good your credit is now. If you’ve been paying all your bills on time, bankruptcy will hurt your credit rating. But if you have already defaulted on some of your debts, your credit will already be bad, and bankruptcy will probably not make it any worse. Bankruptcy will appear on your credit record for ten years (7 years for Chapter 13). But it’s effect on your credit rating fades over time. And because bankruptcy wipes out your old debts, you are likely to

be in a better position to pay your current bills, and you may be able to get new credit. Many people receive credit offers soon after filing for bankruptcy.

What happens if I discharge a Utility bill in Bankrupt

Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which come due after bankruptcy is filed.

Can bankruptcy help me get back a suspended license?

If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, or unpaid parking or traffic tickets, bankruptcy can allow you to get your license back. But some license was suspensions for dangerous traffic violations and other serious matters cannot be undone with bankruptcy.

If I get a loan discharged in bankruptcy, how does that affect the loan’s co-signor?

If someone has co-signed a loan that you discharge in bankruptcy, the debt can still be collected from the co-signer.

What does the New York City Bankruptcy Assistance Project do?

NYC BAP provides free bankruptcy assistance for low-income New Yorkers. Assistance is mostly provided by volunteer lawyers and law students. People filing Chapter 7 will represent themselves after the case is filed. To find out if you are eligible for our services, call the Legal Services NYC Access Line at 917‐661‐4500.

Our Intake Process:

If you call the Access Line, a paralegal will screen you for eligibility, then transfer you to the bankruptcy paralegal, who will set you up with an online questionnaire and a list of documents that we need. At that point, we will not have agreed to take your case. Completing the questionnaire and getting us the requested documents is the best way to increase the chance that your case gets assigned to an advocate. If and when we have a volunteer that we can assign your case to, they will contact you and complete the intake process.

The amount of time it takes us to prepare your case can vary greatly, depending on the complexity of your case, and how hard it is to get the documents and information we need.

Bankruptcy petition filing:

When the bankruptcy petition is complete, you and the person who is assisting you will meet and “finalize” the petition. Then, we will file it. Finally, the person assisting you will give you instructions on what to do after the petition has been filed.

What does it mean that I will “represent myself” in a Chapter 7 case?

Our assistance generally ends with the filing of your bankruptcy case. If you get notices from the Court or a creditor, we won’t know about it—unless you tell us. You will need to participate in a Meeting of Creditors by Zoom, by yourself. Note that if we are your attorney—

as in a Chapter 13 case—we will be on that Zoom conference, but we still won’t be allowed to answer the questions for you.

If NYC BAP Can Not Assist Me, How Do I Find a Bankruptcy Attorney?

For a referral to a fee-charging bankruptcy attorney, you may wish to call the City Bar Lawyer Referral Service (212-626-7373). The attorneys referred through this service have been screened to insure they have bankruptcy experience and have generally not gotten into serious trouble with client relations. In bankruptcy, as in all areas of life, remember that the person advertising the cheapest rate is not necessarily the best. Many of the best bankruptcy lawyers do not advertise at all.

Bankruptcy petition preparation services also known as “typing services” or “paralegal services” involve non-lawyers who offer to prepare bankruptcy forms for a fee. Problems with these services often arise because non-lawyers cannot give you advice that you may need about problems that could come up in your case. They offer no services once a bankruptcy case has begun.

There are many shady operators in this field, who give bad advice and defraud consumers.

An online program called “Upsolve,” allows some people to file bankruptcy without an attorney. Because no human is involved, this can be even riskier than the petition preparation services.

Can I File Bankruptcy Without an Attorney?

Yes. But while it is possible to file Bankruptcy without an attorney, it is very difficult to succeed without one—especially in Chapter 13. Even if you obtain a bankruptcy discharge, you could lose property or other rights that an attorney could have protected. Note that hiding, or misrepresenting things in a bankruptcy petition can be a serious crime with prison and high fines.

For free legal help, call Legal Services NYC at 917-661-4500 Monday through Friday from 9:30 a.m. to 4 p.m. Learn more about our intake process here.

* The information does not constitute legal advice. You should always consult an attorney regarding your matter. Legal help subject to capacity and location.