After filing more than 10,000 cases during the past two decades, I decided that it was time to put some of my extensive experience into a written format that would be truly helpful to anyone considering filing bankruptcy in the Western New York region.
Over the years, I have found that most people thinking about bankruptcy will ask remarkably similar questions, such as, “Will I be able to keep my house and car?” “Will I have enough debt to qualify for bankruptcy?” “What are the different kinds of bankruptcy?” “Will I be able to obtain credit after bankruptcy?” These are just a few of the dozen questions that I am asked pretty much every day.
During the course of a one hour consultation, it can be very difficult to explain the entire bankruptcy process to a client and also pay attention to the specific details of the client’s case. So, after many years of reviewing similar information with many different clients, I decided it would make sense to put together a book outlining the most important parts of the bankruptcy process so that every prospective client can make an informed decision. I encourage every person who is considering bankruptcy to read this book.
When I started out to write this guide, I honestly thought it would be only about 20 to 30 pages long. However, as you can see, the final product is well over 100 pages, and at many points I had to stop myself from including even more information. I realize that bankruptcy is not a very exciting or pleasant topic for anyone, but I truly believe that if you understand the process before you first meet with an attorney, you will be much more comfortable with it. Instead of asking general questions about bankruptcy, you will be able to pose very detailed questions about your case.
I have reviewed the website of many other attorneys in the Western New York area. While most websites may devote a page or two to discussing general information about bankruptcy, not a single website appears to provide the comprehensive, detailed information that a potential client should have, to be able to make an informed decision about whether bankruptcy is right for him/her. My goal in providing you with this free e-book is twofold; first, to provide you with a current, detailed description of the entire bankruptcy process, and second, to offer you the added insight of how the bankruptcy process specifically applies to the Western New York region.
While many people think that the bankruptcy process is the same all over the country, this is really not true. Each court (and even each judge) has a slightly different “take” on the bankruptcy process. Also, the level of scrutiny to which a given case will be subject varies significantly from district to district. The goal of this book is to cover not only general bankruptcy issues, but also to review the manner in which bankruptcies are actually handled in the Buffalo and Rochester regions. If you live in any of the 15 counties of Western New York, this guide will give you more information about the bankruptcy process than any other available source.
WHAT IS BANKRUPTCY?
Bankruptcy is a process established under federal law that allows individuals or businesses to reorganize or eliminate debt. The concept of bankruptcy has been around for hundreds of years. In fact, it is important enough that the drafters of the United States Constitution decided to include a specific reference to bankruptcy in the final draft.
The Bankruptcy Laws have undergone significant changes over the years, mostly to keep up with the various types of debts or financial problems prevalent to the time period. For example, in the early 1980s, the bankruptcy laws were amended to allow the modification of certain high-interest-rate mortgages. This was to address the problem that many homeowners were experiencing in having their mortgage payments “called” by their mortgage lender. Most homeowners were not in a position to pay off their mortgages at once, and the Chapter 13 laws were expanded to allow a homeowner to extend their balloon payment for up to five years.
In more recent years, the focus of the bankruptcy laws has been on consumer indebtedness, most particularly unsecured credit cards and loans. Without question, the significant rise in bankruptcy filings during the 1990s was due to the widespread availability of unsecured credit to virtually every American. While people will argue for decades whether the credit crisis of the past few years was caused by overspending by consumers, or by over lending by the banks, the fact is that bankruptcies have been on the rise for nearly two decades. Bankruptcy filings peaked in 2005, just before a major overhaul of the bankruptcy laws.
While many people believe that bankruptcy ceased to exist in 2005, this common misperception was, and is, absolutely untrue. Although, initially, bankruptcy filings did significantly decrease in response to the Courts’ interpretations of the new bankruptcy laws enacted at the time, statistics subsequently confirmed that, by 2009, bankruptcy filings had once again surpassed the one million per year mark. Even with the more restrictive provisions contained in the new bankruptcy laws, people still found themselves burdened with overwhelming amounts of unsecured debt. Debt problems have been compounded by the uncertainty in the job market, skyrocketing health and fuel costs, and the increasing burdens of student loans placed upon younger members of our society.
Although bankruptcy is a legal process, it is not typically adversarial. In most cases, creditors do not oppose the filing of bankruptcy cases because they recognize that the people filing bankruptcy cannot afford to pay the debts due to unforeseen circumstances, such as job loss, illness, or divorce. Even in cases where bankruptcies are caused by overspending, the creditors recognize that there is not much that they can do to collect the debts given the bankruptcy filer’s financial situation.
A bankruptcy case is commenced by the filing of a bankruptcy petition with the United States Bankruptcy Court. The bankruptcy petition is about 30 pages long and contains very detailed information about the filer’s assets, liabilities, income, expenses and recent financial history. The bankruptcy petition is intended to give your creditors and the Court an idea of your present financial situation and the circumstances leading up to your bankruptcy filing.
After the filing of the bankruptcy case, a trustee is appointed to review your bankruptcy petition and meet with you to ask questions. In a Chapter 7 case, this meeting with the trustee lasts about 10 minutes, and if there are no problems in the case, it is the only interaction you are likely to have with anyone other than your own lawyer. You will never have to appear in front of the Bankruptcy Court in a Chapter 7 case, except in the most extreme situations. In a Chapter 13 case, there is also a case trustee appointed by the Court, who will meet with you after the filing of the bankruptcy. While you will have to appear before the Bankruptcy Judge, this is not a particularly stressful situation and in most cases takes no more than about 10 minutes.
The most important part of your involvement in the bankruptcy process is the preparation of the bankruptcy petition and making sure that your attorney has all of the necessary information to file your case.
WHEN SHOULD PEOPLE FILE BANKRUPTCY?
I have represented clients from literally all walks of life. My clients have included doctors, lawyers, school teachers, government employees, police officers, firemen, factory workers, salespeople, service industry employees, and even collection agents (ironically, for all the harassment they cause people with debt problems, collection agents often are paid so little that they cannot pay their own debts). I realize that most people try to resolve their debt problems on their own (for example, by enrolling in credit counseling or debt settlement programs) before talking to a bankruptcy attorney. However, if you are confronted by financial problems, you should learn more about the bankruptcy process before making any final decisions.
I believe strongly in the bankruptcy process. In my opinion, it simply is not
true that bankruptcy hurts the economy. In fact, I believe the opposite to be true. When people are just making minimum payments on their credit cards, they are doing nothing but putting interest payments in the hands of the shareholders who own the credit card companies. Basically, they are making the rich even richer. After filing Chapter 13 or Chapter 7 bankruptcy, people have the money available to purchase items that truly drive economic growth, such as homes, automobiles, clothing, furniture, etc.
In some cases, the need to file bankruptcy is caused directly or indirectly by
a life altering event, such as job loss, illness or divorce. In other cases, there may indeed be some element of financial mismanagement, which is in large part caused by the lack of adequate financial education at the high school and college level. In my opinion, the accumulation of credit card debt is very much the fault of the credit card companies that have deliberately misled people into believing that they are financially solvent if they are able to make minimum payments on credit cards. The reality is that a person who can only afford minimum payments is probably no more than just a few paychecks away from bankruptcy. The statistics I have studied show that for every person who files bankruptcy, there are probably seven others who have significant financial problems. If this figure is accurate, it means that at any given point, there are as many as 10,000,000 people in the United States who are in serious financial trouble.
Once debt is created, it either has to be paid or eliminated. It cannot simply be ignored. You cannot allow feelings of pride, ideology or morality to stop you from making practical decisions in your life. It is completely normal for you to have regret, sadness and embarrassment about decisions (financial or otherwise) you have made in the past. However, it is much more important that you learn from your mistakes than that you torment yourself for them. You are legally and morally entitled to be relieved of your debt when you cannot pay it. That is why the bankruptcy laws exist. Use the laws to help you move forward in your life.
HOW THIS BOOK IS ORGANIZED
My idea in organizing this book was to take the prospective client through all steps of the bankruptcy process. As indicated above, the most important step is the preparation of the bankruptcy petition, and this requires significant communication between the client and the attorney regarding the client’s assets, income, and other information. Therefore, the first four chapters of this book deal exclusively with the actual contents of the bankruptcy petition. Chapter 1 covers all of the assets that most individuals are likely to own and describes how each asset is treated in the bankruptcy process. Chapter 2 covers the different types of debts that people owe. Chapters 3 and 4 address the household budget and the information that has to be disclosed about your relationship with your creditors during at least the two years prior to your bankruptcy filing.
Chapter 5 takes you through the actual process of filing bankruptcy, from the date of your first consultation with the attorney until the actual filing of your bankruptcy case. This Chapter provides information about the process of hiring an attorney and the general costs involved in a bankruptcy filing. It explains how the client and attorney must cooperate in preparing the bankruptcy petition so that it is as accurate and detailed as possible when it is filed in the Court.
Chapter 6 discusses the general procedures applicable for all bankruptcy cases, and Chapter 7 (appropriately titled) covers the specific procedure for Chapter 7 cases, including interaction with the trustee appointed in your case and the steps necessary to obtain your bankruptcy discharge. It also explains the difference between cases where all assets are protected from creditors (the vast majority) and those cases where creditors may receive a distribution as the result of the trustee’s selling a non-essential asset that you may own. Finally, the Chapter talks about the different kinds of debts that cannot be discharged in a Chapter 7 case.
Chapter 8 deals solely with the Chapter 13 process. It explains in detail the reasons why people typically file Chapter 13 rather than Chapter 7. It explains the content of the Chapter 13 plan and how the plan is presented to the Court and your creditors. It also reviews the types of problems that typically arise after confirmation of a bankruptcy case, such as a change in income or problems with particular creditors. This chapter discusses the steps necessary to obtain a bankruptcy discharge and, as in a Chapter 7 filing, specifies which debts cannot be eliminated.
Chapter 9 discusses life after bankruptcy. It explains why people are likely to see a much faster improvement in their credit after they have filed a bankruptcy than if they continue to struggle with debt or deal directly with their creditors. It provides information on how your credit score is impacted by different types of financial problems, such as late payments, lawsuits and judgments. Most importantly, this chapter provides you with concrete steps that you can take to improve your credit after the bankruptcy filing. The improvement in a client’s credit rating after a bankruptcy filing is directly related to the effort devoted by the client in paying all debts on time in the future, taking on new credit obligations in a responsible manner, and reviewing the client’s credit report to make sure that the bankruptcy is properly reported in the least damaging way.