OUTLINE FOR PRESENTATION AT WORLD WIDE LAND TRANSFER
122 EAST 42ND STREET, SUITE 620
NEW YORK, NY 10168
PHONE: (212) 541-6224
FAX: (646) 218-4600
E-MAIL: JSHENWICK@GMAIL.COM
The goal of this presentation is to discuss issues and the law regarding filing for personal
bankruptcy in NYS in 2019.
1. The process begins with the client preparing three pieces of information:
1. A list of assets or property that they own,
2. A list of liabilities or who they owe money to and
3. An after-tax monthly budget.
-With this information and a 45 minute to one-hour consultation with the client, a determination can be made if the client should file for bankruptcy or not, what remedies are available to the client outside of bankruptcy under NYS law and what type of bankruptcy would most help the client.
-What is the goal of personal bankruptcy? To allow the client to keep as much property as possible and to discharge (legally wipe out) as much debt as possible or obtain “the fresh start” for the client.
2. Types of Personal Bankruptcy. There are three (3) types of personal bankruptcy:
chapter 11, chapter 13 and chapter 7
-Chapter 11 is most commonly used to reorganize businesses but is sometimes used by high net worth individuals who have too much debt to qualify for chapter 13. It is a very expensive process.
-Chapter 7 is known as a liquidation and “fresh start.” If you only have credit card debt and exempt assets, you would file a chapter 7 bankruptcy. You can only file for chapter 7 bankruptcy once every eight years.
--Approximately 90 to 95% of our clients file chapter 7 bankruptcy.
-Chapter 13 is known as a “wage earner reorganization”–it is a blend of chapter 7 and chapter 11. If you had a house or a car that you wanted to keep, then you would file a chapter 13 bankruptcy. If your debts were discharged in a prior Chapter 13 case, you cannot receive a discharge in a subsequent Chapter 13 unless it is filed at least two years after the date the first case was filed.
3. Median Income and Means Test. Effective May 1, 2019, if a single person in New York State has income in excess of $55,333, then they fail the Median Income Test and they must take the “Means Test” to determine whether they qualify to file for chapter 7 bankruptcy (liquidation of debts). For a family of two, the income threshold for the Median Income Test is $71,343, for a family of three it is $83,887 and for a family of four it is $102,384. Add $9,000 for each individual in excess of four.
-To perform the Median Income Test, you need to determine your gross monthly income for the last six months, subtract Social Security and Victims of Terror payments, divide this figure by six and multiply the result by 12. This figure is your annualized current monthly income (CMI). Compare your annualized CMI to the applicable Median Family Income as provided above. If you fail the Median Income Test provided above, then you must take the “Means Test.”
-The “Means Test” is an extremely complex test consisting of six pages of calculations! In its simplest form, you take your gross monthly income and subtract certain expenses based on the IRS National Standards, Local Standards and other actual expenses to calculate your monthly disposable income.
-This is one of the most complex calculations under the law; it is very difficult to do without a computer program and it is a six to eight-page calculation!
-If the majority of a Debtor’s debts are “business debts,” then they do not need to take the Means test, even if their income exceeds the Median Income for their state and family size.
4. Chapter 13. There are several requirements to file a chapter 13 bankruptcy-(a) $419,275 or less of unsecured debt; and (ii) $1,257,850 or less of secured debt; (iii) you most devote all of your disposable income (income after taxes and other living expenses) to the plan; (iv) the plan may range from three (3) to five (5) years; (v) your creditors must get $1 more that they would get in a chapter 7 filing (liquidation analysis and best interest of creditors test); and (vi) as a general rule, if you have a lot of equity in your property and not a lot of disposable income. then it is not possible to confirm a chapter 13 plan.
-The Debtor’s attorney must do a liquidation analysis and determine how much the Debtor must pay each month to fund the plan
-The Chapter 13 Bankruptcy Trustee receives a 10% commission on each plan payment.
5. Exemptions-Debtor may choose NYS or Federal Exemptions. Exemptions are calculated at the time a Debtor files a Bankruptcy Petition with the Bankruptcy Court.
-NYS law determines what property is exempt from creditors and what property is not exempt. Non–exempt property can be reached by your creditors and exempt property can be kept after the discharge.
-Common exemptions include up to $1,150 for jewelry, a watch and art;
-$1,150 in personal property, bank account or cash (if no homestead exemption is taken); $3,400 for tools of trade, necessary working tools and implements necessary for profession or calling; and
-$170,825 of equity for a homestead (or $341,650 in equity for joint debtors).
However, debtors can also choose to use a federal exemption scheme instead of the NYS exemption scheme. We sometimes advise debtors to use the federal exemption scheme when they do not own real estate and have other assets that they need to protect, since the federal “wildcard” exemption can exempt up to $1,325 plus up to $12,575 of any unused federal homestead exemption, for a total of $13,900.
6. Automatic Stay. When a bankruptcy petition is filed, the automatic stay pursuant to § 362 of the Bankruptcy Code comes into effect-and no creditors can sue you, garnish your wages or restrain your checking or savings account.
7. Bankruptcy Trustee. When a bankruptcy petition is filed, a trustee is appointed to administer the estate, and his or her job is to liquidate the non–exempt assets; most chapter 7 cases are no asset cases. There are chapter 7 and chapter 13 Trustees. In a chapter 13 case, the trustee will review the plan and related documents and make a recommendation as to whether the plan should be confirmed. If the plan is confirmed, he or she collects the debtor’s payments into the plan and distributes them to creditors.
8. Benefits of Bankruptcy. (A) Discharge-the goal of a chapter 7 filing is to get a discharge, which means that all the dischargeable debts listed in the bankruptcy petition are wiped out-it is important to list all creditors on the petition with the correct addresses; and (B) It may improve a person’s creditworthiness. Certain debts such as recent taxes, student loans, fraud and drunk driving awards are non-dischargeable. See section 727 and 523 of the Bankruptcy Code.
9. Property of the Estate-(1) tax refunds, (2) causes of action where Debtor is the plaintiff (such as a personal injury lawsuit); and (3) inheritances within 180 days of the filing are subject to the reach of your creditors.
-Under the NYS exemption scheme, a personal injury payment up to $8,550 for bodily injury, not including pain and suffering or compensation for actual pecuniary loss, is exempt from the Debtor’s bankruptcy estate.
10. Taxes-as a general rule “old” “income taxes” can be discharged. Trust fund taxes such as sales taxes and the employee’s portion of employment taxes (FICA/FUTA) are non-dischargeable.
The following conditions all need to be met for taxes to be dischargeable in bankruptcy:
(a) The tax year in question is more than three years prior to filing the bankruptcy (counted from last date the return is due for that year, including extensions);
(b) The tax in question has been assessed more than 240 days prior to the filing the bankruptcy;
(c) The tax return for the year in question was filed at least more than two years prior to the bankruptcy filing (substitute returns don’t count);
(d) The tax return was non-fraudulent and there is no showing of willful evasion of payment of a lawful tax; and
(e) The claim is unsecured: if secured, the tax is discharged as to the debtor personally (in personam liability) but the lien is still valid as to any property it has attached to (in rem liability).
-To discharge taxes client will need to obtain a tax transcript from IRS, which lists the nature of taxes owed and year for which taxes are due
11. Student Loans-In the 2nd Circuit and many other circuit courts of appeal, courts follow the Brunner “undue hardship” test (based on Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2nd Cir. 1987)), which requires a three part finding for a student loan to be dischargeable in bankruptcy: (1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.
-Recently many judges, law professors and bankruptcy practitioners have started advocating for a more liberal test to discharge student loans other than the Brunner test.
12. Exception to discharge under § 523(a)(2)(C)–purchase of more than $725 in luxury goods or services in 90 days prior to filing or cash advances aggregating more than $1,000 in the 70 days prior to filing.
13. Other exceptions to discharge under § 523-intentional torts, fraud, defalcation and alimony, maintenance and support for a spouse or child in connection with a separation agreement or divorce decree.
14. Negatives of a chapter 7 Bankruptcy Filing-chapter 7 can only be filed once every eight years and a filing will stay on a credit report for 10 years.
15. Reaffirmation Agreement-if you want to retain an asset and money is owed to a creditor with respect to that property, you can file a form with the Bankruptcy Court and reaffirm the debt-which means that you agree to repay the debt as if you had not filed for bankruptcy. The Bankruptcy Judge will review the Reaffirmation Agreement to determine if the Debtor needs to retain or keep that asset (is there a business reason for the reaffirmation?). Example reaffirming a car lease or a car loan for a car that the Debtor needs for business reasons.
-You can keep a credit card with a zero balance.
16. Credit Rehabilitation-Earn as much as you can, save as much as you can, get a securitized credit card, charge on it, pay it down and then get the credit limit increased.
17. Adversary Proceeding-an action in your bankruptcy case by your creditors objecting to your discharge with respect to a debt-potential grounds include fraud, false financial statements or constructive fraud-when was last time the debtor took a cash advance or purchased luxury goods or services?
18. Fraudulent Conveyances and Preferences.
-A fraudulent conveyance is where you transfer property to a third party without fair consideration, and the statute of limitations under NYS law is six years.
-A preference is where one creditor is preferred over another similar creditor, and the key time periods are 90 days (for general creditors) and one year (for creditors that are “insiders” of the debtor-individuals or entities with close relationships to the debtor).
19. Fees and Getting Started-The filing fee for a chapter 7 bankruptcy is $335 and the filing fee for a chapter 13 bankruptcy is $310.
20. The Process:
-When a potential client contacts us, we schedule an hour-long meeting and ask for the following documents to be brought to the meeting: (1) a list of assets; (2) a list of liabilities; and (3) an after–tax monthly budget.
-At the meeting, we review the documents and discuss their finances, debtor and creditor law and pre–bankruptcy planning. Our goal in a chapter 7 filing is to discharge as much debt as possible (giving the client a “fresh start”) and exempting as many assets as possible from the bankruptcy estate that’s created when their petition is filed.
-When the client retains us, we send him or her a link to enter the financial data we need to prepare the bankruptcy petition and information about the mandatory credit counseling course.
-We draft the petition, review and review it with the client, and finally electronically file the petition and pay the filing fee.
-Shortly after the petition is filed, we receive notice of the § 341 meeting of creditors
-We attend the meeting with the client (who must bring an original Social Security card and a current photo ID) to the 341 meeting.
-Before the meeting, we prepare the client on how to dress and questions that he or she can expect from the chapter 7 bankruptcy trustee.
-Creditors may also attend the meeting and have 60 days from the date of the meeting to object to a discharge of their claim in bankruptcy or the debtor’s discharge. Our goal is to have the chapter 7 trustee close the case at the end of the meeting, which happens in about 90% of our cases. Within 60 days after the meeting, the debtor needs to take a post–bankruptcy debtor education course.
The process usually takes about two to six months from start to finish.
Other Bankruptcy Filing Requirements:
1. Have you filed for bankruptcy in the past? As stated above, a chapter 7 debtor can only file another chapter 7 case eight years after a prior chapter 7 case was filed and if your debts were discharged in a prior Chapter 13 case, you cannot receive a discharge in a subsequent Chapter 13 unless it is filed at least two years after the date the first case was filed. However, the issue of multiple filings is complex depending on chapters filed and sequencing, so each situation needs to be reviewed individually.
2. Have you resided in the district for the last 730 days?
Documents Needed:
i. Valid NYS Driver’s License or Photo ID with current address
ii. Original Social Security Card
iii. Tax Return (last year federal, but bankruptcy trustee may request additional returns)
iv. Real Estate-if you own real estate, you need a recent appraisal for the real estate and mortgage statement showing the mortgage balance.
v. Last 60 days of pay stubs or payment advices
JHS
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