foreclosure – Rochester Bankruptcy and Debt Relief – Rochester, NY Bankruptcy Attorney

Making a Choice Between Bankruptcy and Short Sale

Homeowners who are underwater on their home mortgages (underwater mortgage means that the homeowner owes more than his/her house is worth) often attempt to do a short sale. A short sale occurs when the homeowner sells the home to a third party for less than what is owed on the note, and the mortgage lender accepts the proceeds of the sale in full satisfaction of the note. The mortgage lender must approve the short sale before it can go through. A short sale can be a good option for homeowners who do not want to keep their homes, and are willing to move out almost right away.

However, before going through with a short sale, a homeowner should see if Chapter 7 Bankruptcy would be a better option. In a Chapter 7 Bankruptcy, the homeowner’s liability on the note is discharged and the home does not have to be surrendered right away and the homeowner does not have to immediately move out of the house. The homeowner can continue to live in the house without making any payments while the lender goes through the lengthy process of foreclosure. In New York, foreclosures can take years before the mortgage lender can hold a foreclosure sale. Even after the house is sold at foreclosure sale, the new buyer (which is often the mortgage lender itself) has to start eviction proceedings to evict the homeowner from the home. This may give the homeowner time to save up money for a move or a new home. Any shortfall that may result from the sale of the house is eliminated in the bankruptcy, meaning the homeowner owes the mortgage lender nothing when they move.

A final, and highly significant, difference between Chapter 7 Bankruptcy and short sale is tax advantages of a bankruptcy filing. When a mortgage lender accepts a short sale, the homeowner will have to pay taxes on the amount forgiven by the lender. Under the tax code, debt forgiveness is considered income and the mortgage lender will generally send the homeowner IRS Form 1009-C form for it. The homeowner will have to report it as income on his/her tax return. As a result, the amount of forgiven debt will be added to the homeowner’s income as miscellaneous income, and while not subject to self-employment or social security tax, it will be subject to income taxes. If the amount of the forgiven debt is significant, the debtor may face an unexpected tax liability amounting to thousands of dollars. In a Chapter 7 Bankruptcy, there is no tax liability for the debt that is eliminated as a result of the filing.

Deed in lieu of foreclosure is similar to a short sale. The main difference is that unlike short sale where the property is transferred to a third party, in deed in lieu of foreclosure, the property is transferred directly to the lender. It has tax consequences identical to those of a short sale.

Short sales and Chapter 7 Bankruptcies are both good options for homeowners who want to walk away for their homes and their mortgages. When your home is underwater and you are considering a short sale, it is important to talk to an experienced bankruptcy lawyer first. That way you can review your options and make an informed decision.

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 a Rochester, NY, bankruptcy lawyer.

Rebuilding Your Credit After Bankruptcy

If you were in a difficult financial situation, and were forced to file bankruptcy, you should view your bankruptcy filing as an opportunity for a fresh start in your financial affairs and the first step toward rebuilding your credit. After the bankruptcy, you will be able to rebuild your credit and work toward reestablishing your financial future. After the bankruptcy, many debtors are tired of dealing with credit and debt issues that they delay reestablishing their credit. If you received a discharge in your bankruptcy, or are currently making payments pursuant to a Chapter 13 plan, you can start rebuilding your credit. The first step in doing so is obtaining your credit report and challenging any inaccurate information contained in it. If you eliminate any inaccuracies in your credit report, this is likely to improve your credit score. The next step in reestablishing your credit is to obtain a credit card, and use it responsibly. You have to make sure that you make at least the minimal charges and try to pay off the balance in full every month. Even if you have to obtain a secured credit card, it will help you establish a history of payments demonstrating your financial responsibility. The same is true with respect to any other bills you may have such as utilities, rent, mortgage, or any other form of credit. The more you demonstrate your financial responsibility, the higher your credit score will rise. If you are meeting your bills, you may begin requesting credit increase after 6 months or payments or trying to switch from a secured credit card to unsecured credit card. Since an increase in your credit limit indicates that the lender trusts you to repay the debt, your credit score will continue to rise.

At the same time, you have to be careful to avoid credit traps that may set back this rebuilding process. As you work your way to financial health, make sure you steer clear of these common post-bankruptcy dangers. One very common danger is a simple failure to plan. You will not have any debt if you receive a Chapter 7 bankruptcy discharge, however, that will stay so as long as your expenses do not exceed your earnings. While it seems obvious, many people forget that their continued financial health depends on persistent awareness of those facts.

Another solution to common post-bankruptcy problems is developing a budget and following it. Since all filers are required to take the financial management course during the bankruptcy, the suggestions given in the course should be followed to stay out of debt.

Avoid over-reliance on credit since it is what pushed you into bankruptcy in the first place. After bankruptcy, you should avoid costly sources of credit and to try to pay off any credit balances every month.

It is also important to avoid credit repair scams that promise to wipe out bad credit, erase your credit history or achieve anything else that seems too good to be true. It takes time to rebuild your credit and if you follow the steps outlined above, your credit will improve. Any quick fixes or schemes will likely cost you money and hurt your credit. Instead, pay off your bills every month, don’t open more credit cards than you need and stick with your budget. Over the course of a couple years, you should see your credit improve.

As you are working on rebuilding your credit, be careful selecting credit card offers. Make sure that you are fully aware of the interest rates and fees. You can visit a site like bestcreditcards.com to see different options available to you.

With some planning, discipline and determination, you will be able to rebuild your credit and even improve your credit score after filing bankruptcy.

If you are dealing with debt problems in 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.

Bankruptcy Basics – The Process of Filing and Completing Chapter 13 Bankruptcy

Chapter 13 has helped many to resolve their debts and save their homes from foreclosure. The following is a short description of a typical process that someone filing Chapter 13 bankruptcy goes through, from the initial meeting and until a discharge is received.

The initial stage of a Chapter 13 bankruptcy usually involves meeting with your bankruptcy attorney and discussing the case. The attorney will typically ask you to prepare a bankruptcy questionnaire, in which you will be asked to list your income and expenses, assets and liabilities, and describe your financial dealings over the past few years. Once the questionnaire is completed, your bankruptcy lawyer will be able to review and identify various exemptions applicable to your assets, determine whether certain of your debts are dischargeable or not, and will try to do bankruptcy planning to preserve as many of your assets as possible.

Your next step will be taking the credit counseling course. Under the bankruptcy law, you must complete the course before your bankruptcy petition can be filed with the bankruptcy court. The course must be taken from an authorized provider and can be done in person, over the telephone or internet. You will also have to provide your bankruptcy attorney with copies of your pay stubs for 60 days preceding the filing, and a copy of your most recent tax return.

Once the above steps are completed, your petition will be prepared and filed with the bankruptcy court. Concurrently with the petition, a copy of your credit counseling certificate and copies of your paystubs will be filed. Once the bankruptcy petition is filed, the automatic stay begins and protects you from all collection activities by your creditors. The automatic stay will last until the end of your bankruptcy case, unless it is lifted by the bankruptcy court. Your petition will include a repayment plan pursuant to which your disposable income will be used to repay creditors.

Within 45 days of your filing, a meeting of the creditors, also known as 341 hearing, will take place. You will have to come to the bankruptcy court in Rochester, if you reside in Monroe County, and answer the questions posed to you by the bankruptcy trustee. The trustee will typically ask you questions about your financial affairs, your income, expenses, assets and liabilities. You also may have to answer questions from your creditors who have the right to appear at the hearing. You will have to swear under oath that the information you provided in your petition is complete and accurate. After the hearing the trustee will issue a report to the bankruptcy court stating whether he recommends that your repayment plan be confirmed.

A typical Chapter 13 plan involves using your disposable income to repay all or a portion of your debts to the creditors over the next three to five years. The plan provides a repayment schedule that you’ll comply with to catch up on your past-due balances while staying current with other payments. Filing of a Chapter 13 bankruptcy can stop foreclosure and allow you to repay any mortgage arrears over the duration of your plan. Your plan can include such debts as mortgage and other secured and unsecured loan arrears and any other debts. You must make your first payment (as part of the repayment plan) within 30 days of filing your petition. If such payment is not made, the court may dismiss your case.

Within 45 days after the meeting of the creditors, you will have to complete the financial management course. If you will not complete it, you will not become eligible for discharge. The course is designed to help you make the most of your bankruptcy and includes tips on saving, managing money and handling credit.

Within 30 days after the 341 hearing, your confirmation hearing will be scheduled. On that date, you will appear with your attorney before Hon. John C. Ninfo, United States Bankruptcy Judge for the Western District of New York, who will make the ultimate decision whether to approve your Chapter 13 bankruptcy.

Once the plan has been approved, the trustee will typically enter a wage deduction order pursuant to which, all or a portion of your plan payments will be taken out of your wages and paid directly to the bankruptcy trustee. The trustee, in turn, will be making the payments to your creditors. You are required to make your final payment under the plan within five years of filing your petition. After doing so, you will receive your bankruptcy discharge and officially be out of Chapter 13 bankruptcy.

You will not be eligible for Chapter 13 bankruptcy protection if you had filed for bankruptcy in the past four years, so make sure you tell your bankruptcy lawyer whether you had past bankruptcy filings.

New York Bankruptcy Exemptions

If you are filing Chapter 7 bankruptcy in New York, your property becomes a part of bankruptcy estate, which will be administered by the bankruptcy court. In Chapter 7, certain property is exempt and you can keep it. Federal bankruptcy exemptions are not available in the State of New York.

Under New York law, you can exempt or protect certain property from creditors when you file bankruptcy. After filing for bankruptcy, this property is safe. There are some limits on certain exemptions such as equity that you have in a home or in a vehicle. The difference between the cost of the item and the amount owed on the item is the definition of equity. If the item, such as home or vehicle, secured by a loan and payments made on time, the equity is protected by your exemptions. A debtor must generally pay the trustee the value of the non-exempt property to keep the property. If you choose to keep the property, continual timely payments ensure protection of the property through bankruptcy.

The following lists most important New York exemptions applicable in Chapter 7 Bankruptcy cases:

Homestead

Real property, including mobile home, condominium, or co-op, up to $50,000 per filer.

Personal Property

Clothing, furniture, refrigerator, TV, radio, sewing machine, security deposits with landlord or utility company, tableware, cooking utensils and crockery, stoves with fuel to last 60 days, health aids (including service animals with food), church pew or seat, wedding ring, bible, schoolbooks, pictures; books up to $50; domestic animals with food to last 60 days and up to $450; watch to $35; spendthrift trust fund principal; 90% of trust fund income if not created by debtor; college tuition savings program trust fund; recovery for injury to exempt property up to 1 year after receiving. Exemptions cannot exceed a total of $5,000 including tools of trade and limited annuity.

Burial plot up to 1/4 acre without a structure on it.

Savings and loan savings up to $600.

Motor vehicle up to $2,400; lost future earnings recoveries needed for support; personal injury recoveries up to 1 year after receipt; wrongful death recoveries for a person you depended upon for support.

IN LIEU OF Homestead exemption, the lesser of the following: up to $2,500 cash or up to $5,000 after exemptions for personal property taken

Wages

90% of earned but unpaid wages received within 60 days of filing for bankruptcy; 90% of earnings from milk sales to milk dealers; 100% for a noncommissioned private, officer or musician in the U.S. or N.Y. state armed forces.

Pensions

Tax exempt retirement accounts; Traditional and Roth IRAs up to $1,095,000 per person.

ERISA-qualified plans, Keoghs and IRAs needed for support.

Public Benefits

Unemployment benefits; veterans’ benefits; Social Security; aid to blind, aged, and disabled; crime victims’ compensation; home relief, local public assistance; public assistance; worker’s compensation.

Tools of Trade

Professional furniture, books, instruments, farm machinery, team and food for 60 days, up to $600 total; arms, swords, uniforms, equipment, horse, emblem and medal of a military member.

Alimony and Child Support

Alimony and child support.

Insurance

Annuity contract benefits due to the debtor if he or she paid for the contract up to $5,000, if purchased within 6 months of filing for bankruptcy and not tax-deferred.

Life insurance proceeds left at death if policy prohibits use to pay creditors.

Disability or illness benefits up to $400 per month; life insurance proceeds, dividends, interest, loan, cash, or surrender value if beneficiary is not the debtor or if the debtor’s spouse has taken out the policy.

Miscellaneous

Business partnership property.

To keep non-exempt property, a debtor must generally pay the trustee the value of the non-exempt property.

The exemptions are also relevant if you are filing a Chapter 13 bankruptcy since your bankruptcy has to pass the “good faith” test. The good faith test involves making sure that unsecured creditors will be paid at least as much under Chapter 13 bankruptcy, as if a Chapter 7 bankruptcy had been filed. Generally, this involves valuing of all the nonexempt property the debtor owns.

Bankruptcy Basics – A Brief Summary

Under Title 11 of the United States Bankruptcy Code, an individual, corporation or partnership, can obtain relief from certain debts under the law.

When filing for bankruptcy, your property becomes a part of bankruptcy estate, which will be administered by the bankruptcy court. In Chapter 7, certain property is exempt and you can keep it. The New York bankruptcy exemptions are discussed in this post. In Chapter 13, you can keep your property, subject to passing the “good faith” test. When filing, you will be required to list all the property that you own, regardless where that property is located. If you fail to disclose the property, there may be serious consequences, including criminal charges.

Exemptions are used to protect your property. There is always a chance that you may lose some of your property in a Chapter 7, because it is a liquidation type of Bankruptcy. In a Chapter 7 bankruptcy, the trustee (who is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors) can sell your non-protected property to pay your debts. In a Chapter 13 bankruptcy, you will have to pay a portion of your income to the trustee in order to keep your non-exempt property. If you are thinking about filing for bankruptcy, it is critical that you discuss these issues with a bankruptcy attorney in advance so that you protect your assets.

As a part of your bankruptcy petition, you will be required to list all your creditors. If a creditor is not listed, you will take a chance of either not having your debt not discharged or having your entire case being dismissed.

Chapter 7 is the liquidation chapter of the Bankruptcy Code and those cases are commonly referred to as “liquidation” cases. Under Chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain exempt property. Upon the completion of the bankruptcy, the debtor will receive a discharge of the debts. If you are filing bankruptcy for your corporation or partnership, the debts of that entity are discharged, but you may still be personally liable for the debt. It is possible that you may have to file a personal bankruptcy to protect yourself.

Chapter 11 is called the reorganization chapter for either businesses or individuals who have too much debt to file a Chapter 13. The creditors get to vote as to whether or not they will accept the plan to reorganize. It is very costly to file a Chapter 11 and it is very complex.

Chapter 12 is used by individuals, corporations or partnerships who derive their income from family farming. There are certain debt limits that apply. The plan must be proposed to repay the creditors over time and it must be approved by the Court.

Chapter 13 is the debt repayment bankruptcy for individuals but those who are sole proprietors can use this chapter also. It is usually considered if the filer has regular income to fund the plan and if the debt is less than $336,900 in unsecured debts and $1,010,650 unsecured debts. Your plan can only last 60 months.

Almost without any exception, the bankruptcy under Chapter 7 or 13 will stop garnishment or any other collection activities by your creditors.

If you have been sued on a consumer debt, like a credit card or a personal loan, I can usually stop the garnishment with a bankruptcy filing. Creditors have to obey the automatic stay imposed by a bankruptcy filing.

The automatic stay gives the debtor protection from his creditors, subject to the oversight of the bankruptcy judge. The automatic stay prohibits beginning or continuing law suits, collection calls, repossessions, foreclosure sales, and garnishment or levies. The automatic stay remains in effect until a judge lifts the stay at the request of a creditor; the debtor gets a discharge; or the item of property is no longer property of the estate. Anyone who willfully violates the stay, in the case of an individual is liable for actual damages caused by the violation, and sometimes for punitive damages. Some courts confine the right to damages to individual debtors and deny damages for stay violations as to corporate debtors.

There are some limited exceptions. You can’t stop deductions for a child support payments. Child support payments are not dischargeable in bankruptcy, but under some circumstances, a bankruptcy filing may be used to stop the additional payment for overdue support payments but it will not eliminate them altogether. In most cases, you will typically need to file under Chapter 13 in order to address overdue support payments owed through a payment plan. If the debt can’t be discharged (such as child support, maintenance, or other domestic support obligations, or most student loans) the garnishment could resume after your case is concluded, or if the automatic stay is lifted.

For most people, garnishments and executions come as a result of old consumer debts. Creditors’ actions in enforcing such debts tend to make consumers fall behind on their rent or mortgage and car payments. Bankruptcy will allow you to change the order of payments — to allow you to decide who gets paid and who does not.