Chapter 7 – Page 5 – Rochester Bankruptcy and Debt Relief

Utility Services After Bankruptcy

There are times when debtors need to discharge debts owed to their local utilities. However, often the debtor has to come back to the same utility after discharging the debt owed to it in either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. The utility has to provide services to the debtor, provided that the debtor complies with applicable provisions of the Bankruptcy Code. The following will describe applicable law and practices common in Rochester, New York, area.

In general, the Bankruptcy Code requires utilities to continue to provide service after a bankruptcy filing, since debtors need electricity and heat as much as anyone else. The Bankruptcy Code authorizes utilities to charge a security deposit in exchange for providing their services.

In Rochester, Rochester Gas & Electric (RG& E) is the largest utility company. When RG&E receives a notice that they have been listed as a creditor on a bankruptcy, RG&E will close the existing account and open a new account (with a new account number) for the debtor. RG&E will calculate what is owed on the account as of the date the bankruptcy petition was filed. If RG&E is listed as a creditor in a bankruptcy case, they will request that a debtor provide them with a security deposit. They calculate the amount of the deposit at two months of average utility bills, with the deposit being due within 30 days of after RG&E sends out the security deposit request. The deadline for the deposit cannot be changed. After the debtor has made timely payments for a year, his deposit will be returned.

The above guidelines were discussed in a decision by the Bankruptcy Court Judge, John C. Ninfo II, which addressed these issues in In re Spencer. Judge Ninfo decided that:

1) Absent extraordinary circumstances, public utilities, pursuant to Bankruptcy Code Section 366(b) may require a Ch. 7, 11 or 13 residential customer to pay a security deposit equal to the highest two months, without late charges, of the previous twelve months.
2) While a case is still open, if a post-petition utility payment is more than 10 days late, the utility may apply to the court (on two business days notice to debtor and attorney) for an order authorizing termination of service should the debtor fail to pay any two consecutive monthly statements by the due date. The attorney for the debtor can set up a telephone conference and oppose the application if circumstances warrant it.
3) Should a residential customer who has made a two month security deposit be late in paying any statement, the utility may commence “whatever procedures are available to it under applicable state law and regulations to terminate service, so that it will be in a position to terminate service at the earliest permissible time before or after the debtor’s case is closed.

My concern as attorney representing debtors is that it may be difficult for my clients to come up with a substantial deposit. At the same time, I recognize that my clients have to pay for the service they receive, and that they already benefited from discharging their prior utility bills in bankruptcy.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with aRochester, NY, bankruptcy lawyer.

What Are the Benefits of Bankruptcy?

I am often asked during initial bankruptcy consultations about negative implications and benefits of filing either Chapter 7 or Chapter 13 Bankruptcy. My usual answer is that in most cases, benefits associated with a bankruptcy far outweigh its negative aspects. Debtors who are dealing with significant amounts of debt that they cannot repay should not fear filing. There are many benefits to filing; some readily obvious and some surprising.

Top 3 obvious benefits of filing for bankruptcy

1. Assuming you are filing Chapter 7 bankruptcy, your bills will be discharged and you will not need to repay them. In Chapter 13 bankruptcy, you will be repaying either all or a portion of your debts through the plan that will be based on your ability to pay. Ultimately, bankruptcy will eliminate most or all of your credit card debt, loans, medical bills and other unsecured debt.

2. Once you file for bankruptcy, your creditors will stop contacting you. You will no longer receive letters or phone calls from the creditors. Once the bankruptcy is filed, creditors have no right to contact you and can be punished by the bankruptcy court for doing so.

3. After the bankruptcy is completed, debtors have an opportunity to have a fresh start without paying old bills and concentrate on rebuilding their financial health. They will not need to choose which bills to pay first, or chose between paying for their home or paying credit card debt.

Top 3 surprising benefits:

1. Debtors get their dignity back. They are able to sleep better at night knowing that they will not be harassed by creditors and they do not have to worry about the debt they are unable to repay. Once the bankruptcy is filed, there is an immediate sense of relief.

2. Bankruptcy gives you a chance to rebuild your credit score. Your credit score is greatly affected by such negative items as judgments and late payments. While a bankruptcy will not rebuild your credit right away, it gives you a chance to make future debt payments on time which will lead to a better credit score.

3. Your life becomes easier. Concerns about debt can damage personal and business relationships, make work more difficult and can lead to depression. If those concerns are eliminated, debtors can go on with their lives.

Rather than being something negative, a bankruptcy is a solution to problems that otherwise cannot be resolved. It can help and it usually results in both financial and intangible benefits, and can lead to a life free of debt.

Tax Refunds and Chapter 7 Bankruptcy

It is that time of the year again. Starting in the beginning of the year and until April 15, debtors are filing their federal and New York State income tax returns. For those debtors who are thinking about filing Chapter 7 Bankruptcy, it is usually a good idea to receive and use their income tax refunds prior to filing for bankruptcy. For those debtors who filed for Chapter 7 Bankruptcy during the past year, it maybe the time to provide copies of their income tax returns to the bankruptcy trustee.

Debtors who filed for Chapter 7 Bankruptcy usually learn during their meeting of the creditors whether the bankruptcy trustee will want to see their income tax returns for the past year. The reason that the bankruptcy trustee will want to see the income returns because it will allow him to figure out what portion of the income tax refunds, if any, is the property of the bankruptcy estate.

Tax refunds are probably the largest single type of asset which debtors lose in bankruptcy. In New York, the tax refund may protected by your cash exemption up to $2,500, if the bankruptcy was filed prior to January 24, 2011, and up to $6,000, if Chapter 7 Bankruptcy was filed after January 24, 2011, and if you are not claiming a homestead exemption.

The trustees’ goal is to see whether or not a portion of the income tax refund can be pro rated from the beginning of the year to the date of filing bankruptcy. If this prorated portion of the income tax refund is large enough, the trustee may make a demand that a portion fo the refund be turned over to the trustee. If only one spouse is filing for bankruptcy, and they file a joint tax return, Rochester Chapter 7 trustees usually take position that one half of the refund belongs to the trustee, subject to the applicable exemption.

It is important to disclose the tax refund to your lawyer and the bankruptcy trustee, since a bankruptcy trustee can simply write to the Internal Revenue Service and have it send the tax refund directly to the trustee, and a deliberate failure to disclose information can be a basis for a denial of discharge. Some of the Rochester bankruptcy trustees will ask debtors to sign a stipulation at the meeting of the creditors, requiring the debtors to provide copies of their income tax returns as well as a portion or all of the income tax refunds to the trustee. If debtors fail to do so, their bankruptcy discharge may be revoked.

Debtors Get More Time to Take Personal Financial Management Course

One of the basic procedural requirements that the debtors have to satisfy before receiving their discharge in Chapter 7 Bankruptcy and Chapter 13 Bankruptcy is completing the personal financial management course.

Starting on December 1, 2010, the new rules went into effect giving the debtors in Chapter 7 Bankruptcy 60 days to file a statement of completion of a course in personal financial management. The statement of completion is also known as Official Form 23.

After December 1, 2010, debtors must complete the course within 60 days from the first date set for the meeting of creditors, also know as 341 Hearing. This is an increase of 15 days, up from the prior 45 day time limit.

If debtors fail to satisfy this requirement, they are denied a discharge of their debts. If debtors do not receive their discharge, their bankruptcy was not successful in discharging their debts, and they will not be able to file for bankruptcy again for a long time.

The rules for individuals in Chapter 13 cases were not changed, and still provide that the personal financial management course has to be completed no later than the date when the last payment was made by the debtor as required by the plan or the filing of a motion for discharge.

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Changes to New York’s Bankruptcy Exemptions

Back in July I have written about a pending bill which would have changed New York’s bankruptcy exemptions and allowed debtors to use the current federal exemptions or the exemptions in New York Law. At the time, it was impossible to predict whether the bill would ever become law.

On December 23, 2010, the bill was signed into law and will become effective in 30 days. This is the biggest change in New York’s bankruptcy exemptions in years, and will make a tremendous impact on the debtors filing both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.

Homestead Exemption Increases to $75,000 per person for those in Rochester and Western New York

Right now each homeowner can protect only $50,000 worth of equity in a house. However, for those living in Rochester and Western New York Counties, that amount will increase to $75,000. Since a married couple can combine their exemptions, that means that a couple will be able to protect a$150,000 worth of equity in their home.

This will enable almost any typical Rochester middle class family to file bankruptcy to eliminate their credit card debts while protecting their home. In my Rochester, New York, bankruptcy practice, I periodically meet with homeowners who are forced to file for Chapter 13 Bankruptcy instead of Chapter 7 Bankruptcy because they have too much equity in their homes. Now, almost everyone will be able to seek Chapter 7 Bankruptcy relief and keep and protect their homes.

Amounts for Almost All Other New York’s Exemptions Categories Are Being Increased and New Categories Are Being Added

The new law also increases the exemptions for many other assets such as cars, and adds some new categories like home computers and vehicles for the handicapped.

Comparison of New York’s Old and New, 2011 Bankruptcy Exemption Statutes

Existing New York State Bankruptcy Exemptions

NEW New York State Bankruptcy Exemptions

Homestead Exemption (note: this can be combined for married couples filing jointly, who own the real estate together)

$50,000

Homestead Exemption (note: this can be combined for married couples filing jointly, who own the real estate together)

$150,000 for property in the downstate New York (Counties of Nassau, Suffolk, Kings, Queens, Bronx, Richmond, Rockland, Westchester and Putnam)

$125,000 for property in the Counties of Dutchess, Albany, Columbia, Orange, Saratoga and Ulster

$75,000 for all other counties

Motor Vehicle

$2,400

Motor Vehicle

$4,000

Motor Vehicle equipped for use by a disabled person (new category)

$10,000

Cash Exemption if Homestead Exemption is taken

None

Cash Exemption if Homestead Exemption is taken

$1,000. (Note: New exemption. Can also be used for personal property. However, the Federal Exemption is much greater and allows debtors to protect much more in appropriate situations.)

Jewelry and Art

a wedding ring

a watch worth up to $35

Jewelry and Art

a wedding ring

a watch, jewelry and art worth up to a total of $1,000 (Notes: New exemption. This will make it much more difficult for trustees to seek payment for engagement rings)

Tools of Trade (these are the working tools and implements that are necessary to carry on one’s business)

$600

Tools of Trade (these are the working tools and implements that are necessary to carry on one’s business)

$3,000

Aggregate Individual Bankruptcy Exemption for Cash, Household Goods and Clothing

$5,000

Aggregate Individual Bankruptcy Exemption for Cash, Household Goods and Clothing

$10,000

The New and Increased Exemptions Will Benefit Future Bankruptcy Debtors

Not only will more consumers be able to file for Chapter 7 Bankruptcy, but it will also help those debtors filing Chapter 13 Bankruptcy since they may be paying substantially less through their monthly Chapter 13 plan. In addition, existing Chapter 13 Bankruptcy debtors may be able to convert their cases to Chapter 7 and eliminate all future monthly payments.

I have attached a copy of the actual bill here.

Upcoming Changes In the Means Test

Once again, the means test figures for median income are changing as of November 1, 2010. Unfortunately, for a lot of jurisdictions it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to decrease.

Through October 31, 2010, a single debtor in New York could have $46,320 in income and still be able to file Chapter 7 Bankruptcy. Starting November 1, 2010, that figure is dropping to $45,548. Similar declines will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$46,320 $57,902 $69,174 $82,164

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$45,548 $56,845 $67,292 $82,587

* Add $7,500 for each individual in excess of 4.

While the income limit for a family of four has gone up slightly, for smaller families, the income limit has declined. For a family of three, the income limit will decline by nearly two thousand dollars.

The reason for a reduction in the median income is the decline in the American economy. Since the economy is down, employers pay less and employees earn less. As a result, the American median family income has dropped once again. As the income declined, so do the income limits for Chapter 7 Bankruptcy. The unfortunate problem resulting from the recession is that as debtors make less money and have more financial problems, it becomes harder for them to qualify for Chapter 7 Bankruptcy.

Does the Debtor Need to Be Employed to File Chapter 7 Bankruptcy?

It is not necessary to have a job to file for Chapter 7 Bankruptcy. In fact, the filing of Chapter 7 Bankruptcy is probably one of the few instances in the debtor’s life where it helps the debtor not to be working.

One of the basic requirements of the Chapter 7 Bankruptcy is that the debtor must show that he or she does not sufficient income available to pay their creditors any money under Chapter 13. Whether the debtor has sufficient income that would require him to be in a Chapter 13 Bankruptcy or in a Chapter 7 Bankruptcy is determined though by the “Means Test.”

A simple explanation of the Means Test is as follows. The Means Test takes the debtor’s income for the six month before the filing of a bankruptcy and compares that income to the average income for a person in the debtor’s state with the same family size. As an example, in New York, where I practice, if a single debtor makes $46,320.00 per year or less, he qualifies to be in a Chapter 7 Bakruptcy. So someone who is not working can file under Chapter 7.

The above is only a part of the Means Tests requirements since the amount of income is only a beginning when the means test calculations are done. Other factors and calculations also have to be considered when making a decision under which Chapter of the Bankruptcy Code the debtor should file .

Sometimes, the debtor can benefit from a loss of a job, usually in a situation where he earns more than the median income for his State, after the loss of the job, once a sufficient period of time passes, the debtor’s average monthly income will be reduced and the debtor will qualify for Chapter 7 Bankruptcy.

The only time the debtor needs a job to file for bankruptcy is when he is filing for a Chapter 13 Bankruptcy.

Second Mortgage In Chapter 7 and Chapter 13 Bankruptcy

It is common for someone who is about to file Chapter 7 Bankruptcy to have a pending or upcoming foreclosure action. It is also common for the debtors to have a house that is “under water”, i.e., to owe more on their first mortgage than their house is worth. It is also common for the debtors to have a second mortgage such as a standard mortgage, line of credit or a home equity line of credit. If the first mortgage exceeds the value of the home, it is clear that the second mortgage has no equity in the house to support it, and is fully unsecured.

Once the debtors or their bankruptcy attorney realize the above, the debtors have a choice to make. They can file a Chapter 7 Bankruptcy, assuming that they can pass the means test. If the debtors are eligible for Chapter 7 Bankruptcy, their personal liability under both mortgages can be eliminated. Then, the debtors can decide to pay the first mortgage only. They may also decide to take a calculated risk that the second mortgage holder would try to foreclose on its mortgage. But would the lender actually commence a foreclosure? Initially, unless the second mortgage holder acquires the first mortgage, it would end up with a house subject to a first mortgage that exceeds what the house is worth. That would likely make any such attempted foreclosure a money losing proposition. Also, if the first mortgage holder forecloses, that foreclosure would eliminate the second mortgage.

Another option that the debtors have is to file Chapter 13 Bankruptcy. While Chapter 13 will carry with it a repayment plan that may last as long as 5 years, it also allows for “lien stripping”, otherwise known as “Pond” motion. In Chapter 13 Bankruptcy, the totally unsecured mortgage is wiped away and no longer a lien on the debtors’ home. Then, the second mortgage is treated as unsecured debt that gets repaid in the bankruptcy in accordance with the terms of their repayment plan. According to bankruptcy courts’ decisions, the debtors have to receive a Chapter 13 discharge before the lien is stripped.

Most of the decisions addressing Chapter 7 Bankruptcies hold that the debtors cannot “strip” their fully second unsecured mortgage in a Chapter 7 Bankruptcy case.

One important reason for many debtors to stay in their house after Chapter 7 is that it may cost them less to pay the mortgage than to rent another place to live. The second mortgage becomes a lot less important since the debtors may be able to strip it right away in Chapter 13, and, if economic conditions don’t improve, the debtors might be able to strip it 4 years from the date they filed their chapter 7 case – when they are eligible for a discharge under Chapter 13.

Another option that may be available to some debtors is to have their mortgage recast under the new Home Mortgage Modification Program. In my experience, here in Rochester, lenders are willing to work with debtors to recast their mortgages. Assuming that the debtors have ability to pay their mortgage, and meet other financial requirements, their mortgage may be modified by their lender.

Who Qualifies For Bankruptcy?

Do I qualify to file a bankruptcy? This is one of the most common questions I am asked as a bankruptcy lawyer when I meet with debtors who are hoping to obtain relief from their debts in bankruptcy court. My answer is usually yes, since almost everyone qualifies for bankruptcy under either Chapter 7 or Chapter 13 of the Bankruptcy Code.

I think that this question is often asked because of common myths and misinformation that people hear with regard to what bankruptcy is and what it does for the debtor. Unfortunately, there is much misinformation being passed around. It is rare that someone would not qualify for a filing under either chapter of the Bankruptcy Code. If there are horror stories, they typically arise out of situations where someone did not disclose accurate information to the bankruptcy court.

In order to qualify for a bankruptcy relief, the debtor needs to have a reason to file. The primary reason for most debtors is their inability to pay their debts. Whether or not the debtor owns assets is not a a consideration in qualifying to file for bankruptcy. Under New York’s bankruptcy exemptions, a single filer can protect $50,000 in home equity, $2,400 of equity in the vehicle, and there are other exemptions available for other classes of assets.

There are no minimal requirement as to how much debt a debtor must have before filing, nor does this debt has to be reduced to a specific figure. Also, if you are filing Chapter 13 Bankruptcy, you are not limited with respect to the property that you can own, but the amount of property may be a factor in the amount of payments under the plan. While there are maximum limits of the amount of debt that can be discharged under either Chapter 7 or Chapter 13, the vast majority of debtors will not even approach them. In Chapter 7, there are no maximum debt limits. As a result, that Chapter 7 Bankruptcy is available to the debtors regardless of how much debt they owe, and its availability is only limited by the means test. In Chapter 13, you may not have more than $1,010,650 in secured debt and $336,900 in unsecured debt.

Paying For a Bankruptcy

If you are thinking about filing bankruptcy, you are likely having serious financial problems. Eventually, you decide that you decide to have a consultation with a consumer bankruptcy attorney. During your consultation, you and the bankruptcy lawyer discuss the positives and negatives of filing bankruptcy and decide that you will be filing either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Then you ask the final question, how much will it cost me to file my bankruptcy case?

The attorney will tell you about his attorney’s fee and disbursements for filing fee, credit counselling and debtor education. Then you are likely to ask the following question: where can I get the money and when do I have to pay it?

Initially, lets talk about where that money can come from.

If you are filing a bankruptcy under either Chapter of the Bankruptcy Code, you are generally advised to stop making any payments on unsecured debt, such as credit cards, bank loans, past due medical bills, etc. Debtors are often advised to continue making payments for any asset that they are keeping, such as a car, house, pension loans, rent, etc. As a result, this is likely to improve their cash flow by freeing up the money that was being paid to the unsecured creditors.

If you are not working, or already stopped all payments to creditors, you may need to ask relatives or friends for partial or full payment of the fees and disbursements required in a bankruptcy. While those loans would generally be dischargeable, they can be repaid after the bankruptcy.

Most bankruptcy lawyers offer payment plans. On average, a bankruptcy takes several weeks to prepare and the payments can be spread over that period. Alternatively, you can request additional time prior to the filing while the bankruptcy petition is being prepared.

Paying for bankruptcy is also different depending on whether you are filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy.

In Chapter 7 Bankruptcy, I cannot collect any money from the client against fees or disbursements after the filing of the bankruptcy. It is prohibited by the Bankruptcy Code. Therefore, all fees and disbursments must be paid prior to the filing of the petition.

In a Chapter 13 Bankruptcy, which results in a repayment plan, with payments of part or all of the debts paid through the bankruptcy court, a portion of the fee can be put into the Chapter 13 plan payment, making it easier on the client and expediting the filing of the bankruptcy petition.