New York bankruptcy laws: What are the Laws Regarding Bankruptcies in the State of New York?
A person can be insolvent without being bankrupt, but cannot be bankrupt without being insolvent. It is a common misunderstanding that bankruptcy and insolvency are the same. When an individual is unable to pay the debts, he/she is insolvent. Bankruptcy is designed to solve the problem of insolvency. It is a gateway to clear the debts when all other attempts fail.
New York bankruptcy laws
New York is governed by federal bankruptcy law. All bankruptcy cases are handled in the federal court. Though the federal bankruptcy laws govern New York, some information specific to the state is required to complete the paperwork. Before the debtor files for bankruptcy, he/she should try to correct the financial problem that caused the debt with the help of a legal credit counselor.
How to file for bankruptcy in New York
Filing for bankruptcy is a critical decision that will have a lasting impact on the debtor's financial condition.
Means test: The first step while filing bankruptcy is to determine whether the debtor must file bankruptcy under chapter 7 or chapter 13. The court analyzed the debtors and compared it with the state median income. If the debtor income is lower than the New York state income, the debtor need not take the means test. He/she will qualify to file under chapter 7. If the debtor's average income is higher than the state income, the debtor must file under chapter 13. The means test helps determine if the debtor can pay a part or in full, the unsecured debt to the creditor. The means test exemption includes disabled veterans who incurred debt during active duty.
Gathering paperwork: Once the means test is done, the debtor is required to collect the documents needed to file bankruptcy. They include
- Proof of current income sources
- Evidence of significant financial transactions for the last two years
- Tax returns for the past
- Monthly living expenses
- Secured and unsecured debts
- Property including all assets and possessions
- Real estate deeds
Filing bankruptcy: The next step after gathering the paperwork is to file a petition at the New York district bankruptcy court. With the help of an attorney or exemptions. The de, the debtor must determine the property that is exempt from a seizure concerning New York or the attorney must file a two-page petition document and several forms that describe the debtor's current financial situation.
Discharge of debts: Once the debtor files the petition, the court sends a notice to the creditors and imposes the automatic stay. The automatic stay halts all action by the creditors against the debtor. If the debtor has filed under chapter 7, a ‘notice of discharge is sent to the debtor unless the case is considered unusual. If the case is unusual, it goes to court, and the discharge notice is sent after the case is judged. A ‘notice of confirmation' is sent to the debtor who has filed under chapter 13. Once the repayment plan is structured and the agreement signed, a ‘notice of discharge' is sent to the debtor.
Chapter 7 and chapter 13 bankruptcy
Taking the means test determines where the debtor falls, whether he/she qualifies to file under chapter 7 or chapter 13. Under chapter 7, a trustee assigned liquidates the debtor's assets, and the proceeds are distributed to the creditors. The debtor receives a part of the proceeds to start fresh without any debts. Another part goes to the trustee as commission.
Under chapter 13, the debtor proposes to repay a part or whole of the debt which is determined by the means test — the debtor signs a voluntary ‘repayment agreement' promising to pay the debt with future income. Under chapter 13, the debtor must have a steady income and disposable income to be able to repay the debt.
Before filing bankruptcy, it is advised to understand the process. Seeking help from a legal attorney proves to be helpful as filing bankruptcy can prove to be very confusing and tedious.