Most individual debtors file under one of the consumer bankruptcy proceedings known as Chapter 7 and Chapter 13 bankruptcies. In a Chapter 7 case (also known as a “straight bankruptcy” or a “liquidation”), the debtor is asking the Bankruptcy Court to “discharge” (release) him or her from personal liability from specific debts and to prohibit creditors from ever taking any action against the debtor personally to collect those debts. In return, if the debtor owns certain types of valuable property, he or she may be required to surrender it, so it can be sold and the proceeds will be used to pay the creditors. However, there are some items such as basic household furnishings, clothing, pension plans and retirement accounts that may be found “exempt” (protected) to a certain extent and debtors are allowed to keep them. Debtors considering filing for Chapter 7 bankruptcy must pass an eligibility standard known as the “means test” to determine whether they qualify to file for such relief.
Chapter 13 bankruptcy, the lesser-known of the two allows a consumer to keep all of their assets (including such things as real estate) and repay their debts over a three- to five-year period. Unlike Chapter 7, A Chapter 13 bankruptcy is a reorganization of the debt, not liquidation (also known as a “debt adjustment” or “wage earner plan”).
Which of these two types of bankruptcy is best for you depends on your own circumstances, including your income and the type and amount of property you own. Therefore, do not take this matter lightly and always consult with an attorney knowledgeable in bankruptcy law before filing for bankruptcy protection.
There are free legal aid organizations in New York specializing on bankruptcy that may be available for consultation, advise, or full legal representation. Click here for list of NY Bankruptcy legal aid.
In the mean time, check out this very interesting and informative diagram of bankruptcy in the US. Can you believe New York has among the highest rates of bankruptcy filings?