Bankruptcy 101

What happens to the collectors in a New York bankruptcy? 

Filing bankruptcy halts collections activities. This is known as the automatic stay.  The bankruptcy trustee or court notifies all creditors of a debtor’s petition and details their rights to object, or question the debtor, on the bankruptcy. The debtor’s petition lists all of the creditors.  If a creditor does not get notice, the debtor may end up having to pay the creditor’s claims.  Objections to discharge by creditors can be taken care of by negotiating with a creditor, lawsuit, converting a case filed under Chapter 7 to Chapter 13, or voluntary case dismissal.  In converting a case to Chapter 13, the debtor pays the creditor off over time according to a repayment plan.

Creditors who continue to collect after a debtor files bankruptcy violate bankruptcy laws.

The automatic stay is a court order that is effective immediately upon filing bankruptcy and stays in effect unless a creditor obtains relief from the automatic stay. Sometimes if a debtor files more than once within a certain time period, an automatic stay may expire prior to case closing, and require the debtor to request an extension.  The automatic stay gives the debtor a “breathing spell” and time for the debtor to decide what to do about an asset, whether to sell it, or find a way to pay it off.

Who can assist a debtor with the court documents? 

A debtor may file a petition in pro per, and not have an attorney represent the debtor in court.  There are non-lawyer services that help a debtor complete the bankruptcy petition, but they are not allowed by law to give legal advice.  The debtor stays responsible for the documents.   Trustees may question debtors if they received legal advice from non-lawyer services.

If a debtor engages an experienced New York attorney, the attorney will advise on bankruptcy alternatives.  Bankruptcy may not be the right route if a negotiated settlement on debts can be had with creditors.  Bankruptcy may not be the way to go if the debt is not dischargeable.  For example, student loans and taxes are not usually dischargeable.  The attorney ensures a debtor files under the right Bankruptcy Code chapter, and applies exemptions according to the New York or federal exemption systems so a debtor keeps as many assets as possible.  

Can a debtor keep property if s/he files bankruptcy? 

Debtors usually keep most of their property after bankruptcy because a trustee may not see any value in the property or the property qualifies for exemptions.  Whether a debtor files Chapter 7, 11, or 13, depends on the assets a debtor has.