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Bankruptcy Cases Can Be Dismissed but Not Undone

Sometimes a debtor will file a New York bankruptcy case and then come to regret it. Or, a debtor will make an incurable mistake and wants to withdraw his or her case. The fear is that a do-over will provide them with fewer options or that if they choose not to refile, then they’ll have a bankruptcy notation on their credit reports and nothing to show for it. What options do debtors in these situations have?

The short answer is none. Once a debtor commits to filing bankruptcy there is no way to completely unwind it to bring things back to where they were pre-filing. When someone files bankruptcy, the court stamps a case number to the debtor’s file and then publishes it to a federal database such as PACER. Creditors and credit-reporting agencies are alerted to the filing, and the latter will place the bankruptcy notation to the debtor’s file. Withdrawing a case, if it were possible, or dismissing it cannot undo this.

That does not, however, mean that all is lost for debtors.

Debtors do have the option to dismiss their cases, but the extent to which they have this power depends on what chapter they filed in. Chapter 13 debtors can essentially dismiss their cases at will, but chapter 7 is different because a voluntary dismissal requires approval of the bankruptcy court. The reason is that chapter 7 liquidates non-exempt assets, so the bankruptcy trustee has an interest in ferreting out those assets and selling them for the benefit of the creditors. If a trustee suspects there are unlisted non-exempt assets, then it’s more likely that he or she will object to dismissal, and the debtor will be stuck. This is not a happy prospect.

What all this means is that debtors who file a chapter 7 bankruptcy initiate a process they will not be able to fully control. Other interested parties to the bankruptcy case can oppose a voluntary dismissal. This is the gist of rule 1017 and section 707(b) of the Bankruptcy Code. In any event, a debtor’s voluntary dismissal can only be for cause and after notice and a hearing. Debtors also have the alternative of converting their cases to chapter 13, if they meet its eligibility requirements.

None of this should intimidate debtors from considering bankruptcy. Indeed, usually the question isn’t, “How can I get out of bankruptcy,” so much as, “How can I stay in chapter 7?” Most debtors are more worried about affording chapter 7 or beating its means test if their incomes are sufficiently high.

It is, though, a reason to not file bankruptcy without talking to a lawyer. If you are facing financial difficulties then talking to an experienced New York bankruptcy attorney will help you more than trying to navigate chapter 7 and the bankruptcy system on your own.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

The post Bankruptcy Cases Can Be Dismissed but Not Undone appeared first on Bankruptcy Attorney in Brooklyn, New York | Rosenberg Musso Weiner.

 

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Social Security Is Exempt From Bankruptcy, Unless…

Older chapter 7 New York bankruptcy debtors almost always ask if cash from their Social Security incomes are exempt in bankruptcy. The general answer is yes, Social Security income is exempt in bankruptcy and won’t count towards means test totals. In other words, bankruptcy treats Social Security income as though it wasn’t there. The policy behind this is that requiring people to pay out their Social Security money to their creditors interferes with the purpose of the program. In fact, this exception is broad and also applies to other legal actions by creditors, except if they’re for recovering tax debts or child support.

But the “general answer” isn’t the only answer. There’s an important exception debtors need to be aware of: comingled funds.

When debtors mix their Social Security payments with money from other sources, then creditors, whether in bankruptcy or other procedures, are not hampered by the broad protection to Social Security payments. Importantly, it’s up to debtors to prove in their filings that they’re entitled to their protected assets.

So how likely is this to be a problem for debtors?

The two-word answer is “direct deposit.” Several years ago, the Social Security Administration stopped sending out paper checks to recipients, requiring them instead to receive them by direct deposit. Most recipients, not expecting to file bankruptcy or face creditors’ judgments in the future, simply link their Social Security payments to their primary demand accounts, which makes sense. Why open a separate bank account just for your Social Security?

Now the comingling problem should be clear. What should debtors do if they are thinking about filing bankruptcy in the future but they suspect their Social Security cash is comingled with money from other sources, e.g. a retirement account?

The main option is to create either a sub-account for the Social Security funds or a separate account entirely. Debtors can then spend down the money in the comingled account on necessities that won’t raise objections by trustees.

Alternatively, debtors can apply a cash or wild card exemption to their comingled accounts, which is better than nothing but not as good as getting the free Social Security exemption. (Click to read more about how New York State’s exemptions compare to the federal exemptions.)

It may seem unfair, tedious, or confusing for debtors to lose the protection to all of their Social Security money just because they comingled it with even a little money from other sources, but that’s the way the law works. At least it’s better than nothing.

If you are experiencing financial difficulties then talking to an experienced New York bankruptcy lawyer can help you strategize your options.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

The post Social Security Is Exempt From Bankruptcy, Unless… appeared first on Bankruptcy Attorney in Brooklyn, New York | Rosenberg Musso Weiner.

 

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12 Ways to Deal With Parent PLUS Loans

Federal Parent PLUS loans are among the most confusing student loans that New York bankruptcy debtors owe. They aren’t like other government student loans because they’re made to the parent (obviously) of the student rather than the student himself or herself. This can lead to difficulties when parents realize they must pay for debts they incurred on their kids behalves while their children may have wider repayment options for their own student loans. Here are twelve ways debtors can either get rid of or reduce their Parent PLUS loans that may be useful to them.

(1) Pay them down as quickly as practicable on a standard ten-year repayment plan. For higher income debtors, this is probably the best option, but it can be quite expensive on a monthly basis. The greatest advantage this strategy offers is that it is the quickest conventional way to repay the debt with the least amount of total interest possible.

(2) Consolidate the Parent PLUS loans to place them on an income-contingent repayment (ICR) plan. This is often easier said than done and requires a lot of paperwork, but debtors who consolidate their loans and sign up for this plan can see the unpaid balances on their Parent PLUS loans forgiven in 25 years. In many cases it will be a shorter repayment period, but the plan can reduce monthly payments to make it easier for debtors to repay their loans. Any amount canceled will be taxable income for debtors.

(3) Aim for Public Service Loan Forgiveness (PSLF). Debtors who work for the government or a nonprofit organization can take similar steps to signing on to an ICR plan but have their loans forgiven after only ten years, and the balance won’t be taxed. The problem for debtors is that the first wave of PSLF debtors have not had much luck receiving the benefit: The government rejected 99 percent of applicants. Again, more care and paperwork are necessary.

(4) If the parent borrower dies, then the survivors can petition for loan forgiveness. Naturally, this isn’t a voluntary option.

(5) If the parent becomes totally and permanently disabled, he or she can apply for loan forgiveness. This counts only for the parent and not the child-student.

(6) If the child dies, the debtors can ask the government for loan forgiveness. This option in particular is often unavailable for private student loans, which is a reason to stick to federal loans.

(7) Even less commonly, if the loan is discharged in bankruptcy the government will respect it. (Can you really imagine the federal government violating a discharge order?) Note that this is the parent and not the child filing bankruptcy.

(8) The student withdrew from the program but the school didn’t refund the loan.

(9) The child’s school closed, triggering the rule allowing closed-school forgiveness. (This is a rare opportunity for students who don’t attend for-profit universities, but if it’s offered, take it without hesitation.)

(10) The school falsely certified the debtor for the loan.

(11) Someone stole the debtor’s identity.

(12) Although I remarked on the risks of private student loans, in a sense it is the opposite option debtors have to paying the loan in full or obtaining loan forgiveness: In some circumstances debtors can transfer the obligation to the child by refinancing their Parent PLUS loans through private lenders.

Many of these options are involuntary, not preferred, or very difficult to accomplish. Click to read more information on the specifics of using ICR, PSLF, or refinancing through a private lender to deal with Parent PLUS loans.

As with conventional student debtors, parents may be able to use bankruptcy to free up income to pay for their student loans even if they are not dischargeable. Chapter 13 bankruptcy can provide options as well. If you are experiencing financial problems, talking to an experienced New York bankruptcy lawyer can help you strategize your options.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

The post 12 Ways to Deal With Parent PLUS Loans appeared first on Bankruptcy Attorney in Brooklyn, New York | Rosenberg Musso Weiner.

 

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If I Get Married Will I Owe My Spouse’s Debts?

Debt can cause serious concerns for romantic couples. One question that can create anxiety in one partner is whether getting married will make him or her liable for his or her partner’s debts. Given that it’s not uncommon for many couples to have unequal debts, assets, and incomes, it’s a topic that comes up frequently. No one wants to talk to a New York bankruptcy lawyer shortly after getting married.

Fortunately, getting married (in New York at least) does not cause one partner to become liable for the debts of the other. To a great degree this is because New York, unlike states such as California or Texas, is not a community property state. In those states, when people get married, their incomes become part of their community property rather than their own, and so debts that one spouse brings to the marriage can be paid for out of the community property, which creditors can try to seize.

New York doesn’t work like that (for better or worse). In New York, a spouse’s income remains his or her own property provided it goes into an account under that spouse’s name. Consequently, a spouse that does not wish his or her assets to become liable for his or her partner’s debts need only keep a separate account. Creditors can, of course, try to seize assets held jointly, which can range from joint accounts to real estate in both spouses’ names.

There is an exception to the general rule: If a debt is used for the benefit of the marriage and it’s for necessary items like food, shelter, clothing, or child care, then the spouse whose name is not on the account can be held liable.

Understandably, there can be edge cases for married couples when it comes to what’s necessary and who’s benefiting. But for people who are approaching marriage, the distinction is going to be clearer cut. As a result, significant debts of one premarital partner are not going to be a problem for the other.

The ability of one spouse to avoid liability for the debts of the other is a significant reason why bankruptcy by one spouse alone is possible. So long as spouses keep their incomes separate, a trustee cannot bring a non-filing spouse’s assets into the bankruptcy. Click here to read more about married couples in bankruptcy.

If you are approaching marriage, then you don’t need to worry about your future spouse’s creditors going after your income, and so long as you’re careful with your assets, they won’t be able to. However if you are the one with the debts, then it can be advantageous to file before getting married so that your partner’s income isn’t taken into account, whether you are living together or not. Your partner would only play an indirect role by reducing your expenses in schedule J. Talking to an experienced New York bankruptcy attorney can help you strategize your options, whether your spouse’s names are on the debts or not.

For answers to more questions about marriage and bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

The post If I Get Married Will I Owe My Spouse’s Debts? appeared first on Bankruptcy Attorney in Brooklyn, New York | Rosenberg Musso Weiner.

 

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Who Were Chapter 13 New York Bankruptcy Debtors in 2017?

2017 is pretty far in the rearview mirror, but it’s still the most recent year for which the federal courts have provided data via the Bankruptcy Abuse Prevention and Consumer Protection Act Report (BAPCPA Report). The tables in this report can help New York bankruptcy lawyers and debtors get an idea of just who chapter 13 debtors are and if there have been any significant changes in chapter 13 New York bankruptcy and Brooklyn bankruptcy since 2016. (Click to read “Who Are Chapter 13 Bankruptcy Debtors?” for more information from the 2016 report.) Looking at the data can help us understand what the typical debtor looks like in the Southern (SDNY) and Eastern (EDNY) districts of New York.

To begin with, we learned from the Statistical Tables for the Federal Judiciary (“Statistical Tables”) that in 2017 bankruptcy filings were down nationwide but not in new York. Noticeably, the total number of chapter 13 filings in the EDNY rose from 3,202 to 5,404 (+2,202), and they went from 1,680 to 1,966 (+286) in the SDNY. However, this shift might not be reflected in the BAPCPA Report because a similar look into chapter 7 filings did not show them.

Turning to the BAPCPA Report’s Table 1D, which depicts debtors’ assets and liabilities, the numbers appear about the same as those in the Statistical Tables. In the EDNY, chapter 13 bankruptcies rose from 3,171 to 5,353 (+2,182), and in the SDNY they went from 1,631 to 1,906 (+275). Along with the growth in chapter 13 cases, aspects of the average cases have changed as well, as illustrated in this table.

Circuit and DistrictCasesMean AssetsMean LiabilitiesMean Net Scheduled Debt (in $s)
TotalWith Complete SchedulesTotal (in $s)Real Property (in $s)Personal Property (in $s)Total (in $s)Secured Claims (in $s)Unsecured Priority Claims (in $s)Unsecured Nonpriority Claims (in $s)
TOTAL285,680248,047$168,431$109,244$59,187$185,253$132,169$4,629$48,455$168,576
NY, E5,3531,458$659,488$426,477$233,010$485,521$433,540$6,789$45,192$473,257
NY, S1,9061,185$367,702$309,503$58,199$680,477$621,177$5,563$53,737$658,864

In the EDNY, the most prominent shifts are in average personal-property assets (+$185,023) and secured liabilities (+45,062). In the SDNY, the amount of assets are about the same in the average case, but the liabilities are much higher as well: nearly $300,000 in secured claims in the average case. These are pretty remarkable swings, but they may be due to a handful of outliers and not shifts in the typical case. It would help if the BAPCTA Report reported the median case in this table.

Table 2D tracks chapter 13 debtors’ incomes and expenses. Unlike chapter 13 debtors’ assets and liabilities, the averages were about the same for both the EDNY and SDNY. In the EDNY, the median debtor’s current monthly income was $6,706 ($80,472 annually), and in the SDNY it was about $5,850 ($70,200). The median EDNY debtor’s monthly expenses were $4,440 ($53,280), and for SDNY they were $4,900 per month ($58,800).

Next, Table 3 lists time intervals from filing to closing for debtors whose cases closed in 2017. In the EDNY, the interval of the median case was shorter, shrinking from 99 to just 90 days. In the SDNY, however, the interval grew significantly from 989 to 1,759 days. This is nearly five years indicating that SDNY debtors are completing their plans.

Speaking of plan completion takes us to Table 6, which measures the number of chapter 13 debtors whose cases closed either by dismissal or plan completion in the twelve months preceding December 31, 2017. Although this information is given in raw numbers, it’s more intelligible as percentages of plan completions of total cases closed. In the EDNY in 2016, that was 20 percent, but in 2017 it was just 10 percent. By contrast, chapter 13 debtors in the SDNY had a plan completion percentage of 47 percent in 2016, but that rose to 60 percent in 2017.

In short, compared to 2016, chapter 13 cases in EDNY in 2017 grew, tended to have more personal-property assets and secured liabilities, were shorter, and were less likely to result in plan completion. Meanwhile, in the SDNY, there were a similar number of cases with much higher secured claims, and cases closing in 2017 tended to last longer and were much more likely to reach plan completion.

The 2017 BAPCPA Report is here.

It’s possible there was some misreporting in the data that caused some of the wilder swings in the statistics, but even so, not all bankruptcies are like the average or even the median one. Nevertheless, the data should give debtors an idea of what chapter 13 bankruptcy looks like in New York, Brooklyn, and Long Island. If you are experiencing serious financial difficulties then talking to an experienced New York bankruptcy lawyer can help you decide whether chapter 13 is the best course of action for you.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

The post Who Were Chapter 13 New York Bankruptcy Debtors in 2017? appeared first on Bankruptcy Attorney in Brooklyn, New York | Rosenberg Musso Weiner.

 

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