Your Quality Guide to Bankruptcy in Brooklyn NY: Know Your Options

I get it. You are facing some serious financial issues. Maybe a creditor is breathing down your neck about a debt. Or perhaps you are staring down the barrel of a foreclosure. This is about more than dollars and cents, it’s about your quality of life. And figuring out if bankruptcy in Brooklyn NY is the right path is not easy.

You have probably heard a lot of scary stories about bankruptcy. You might have friends or relatives warning you about the negative impact. And you’ve also likely heard promises of “fresh starts” from bankruptcy attorneys.  It can get confusing. This is why finding the right attorney is critical.

What Are the Different Types of Bankruptcy?

First, it’s important to understand what bankruptcy is—a legal process where you can discharge debts or reorganize your finances with the oversight of a federal court. There are different “chapters” of bankruptcy, each with its purpose. Let’s discuss the most common types.

Chapter 7: A “Fresh Start”

This chapter is typically what people think about when they hear bankruptcy. It’s often referred to as “liquidation” bankruptcy because a court-appointed bankruptcy trustee gathers your assets and pays creditors with the proceeds. This chapter works best for folks who own mainly essential items because the law protects necessities like furniture and clothing.

Many people assume they will lose all their possessions. This is not always true. Bankruptcy exemptions, both federal and those specific to New York, come into play and shield many belongings.

Chapter 13: Reorganizing and Repaying

This chapter focuses on restructuring debt through a repayment plan. Chapter 13 allows you to catch up on past-due payments, such as mortgages or car loans. You also have to pay for non-dischargeable debt (for instance, domestic support) as well as the value of any unprotected, or “non-exempt”, assets.

This chapter is a lifeline for folks on the edge of foreclosure or facing car repossession. This is because the Chapter 13 payment plan lets you pay off arrears over time, which brings you current on your loans. You’ll need to demonstrate that you have enough income to cover both your regular expenses and the additional plan payments, making it a viable option only if you can afford the commitment.

Other Types of Bankruptcy

There are other types, like Chapter 11, but Chapters 7 and 13 are by far the most common in Brooklyn.

Understanding the “Means Test”

Many individuals aren’t sure if they are eligible to file for bankruptcy. Before 2005, eligibility wasn’t based on income. However, things changed when lawmakers passed the Bankruptcy Abuse Prevention and Consumer Protection Act.

Nowadays, filing a Chapter 7 case requires taking the Means Test. Basically, your income must fall below the median for New York State, a set amount established by the U.S. Trustee’s office. Take your gross income earned during the previous six months, multiply it by two, and then compare it to the median for a family of your size in New York. If you earn less, you pass. You could also still pass if your disposable income (the amount left over after deducting allowable expenses) is insufficient to pay into a Chapter 13 plan.

Exemptions: Protecting Your Assets in New York Bankruptcy

Filing for bankruptcy is never about losing everything you own. Bankruptcy laws protect necessary items. Exemptions vary based on your state of residence.

You’ll see New York bankruptcy exemptions cited with “NYCPLR” at the end of the reference, which is an acronym for “New York Civil Practice Law and Rules”. Keep in mind that your right to keep possessions (also referred to as “property” in legal documents) boils down to equity, not market value.

Example: If your car is worth $20,000, and you owe $18,000, your equity is $2,000. It doesn’t matter if the item is valuable or not—equity determines what you’ll keep or pay for.

Key Bankruptcy Exemptions in New York

It’s important to stay informed about the most important exemptions available in the state, so here’s a breakdown of some vital ones:

Homestead Exemption

You probably know about this exemption if you’ve looked into bankruptcy, even for just a little. The homestead exemption protects your primary residence—like a house, condo, co-op, or mobile home. This exemption has graduated dollar amounts, so the amount you protect depends on the county in which your house is located.

Take a look at the table to determine your exemption amount (figures are for cases filed between April 1, 2021 and March 31, 2024).

You also have to meet certain ownership and residency requirements to qualify for the full amount, or your exemption might be limited by federal law.

Motor Vehicle Exemption

As its name suggests, this one lets you keep a car. A debtor can exempt the equity in one motor vehicle up to $4,825. However, there’s a caveat—if you use the wildcard exemption to protect more equity in your car, you won’t have the wildcard to protect something else. (NYCPLR §§ 5205 (a) (8).

Perhaps the coolest thing about this exemption is that the value increases to $11,975 if you have a disability. Now that’s helpful.

Wildcard Exemption

New York’s laws offer you flexibility, too, thanks to the wildcard exemption. Although you can’t protect equity in real estate using this exemption, the wildcard protects almost any other item of personal property—things like furniture, clothes, household items, electronics, or even cold, hard cash, up to a value of $1,175.

But remember that important caveat. This is where knowing a great bankruptcy lawyer can make all the difference, as they can advise on strategic exemption planning to help safeguard what’s most important to you (NYCPLR §§ 5205 (a)(9)).

Federal Nonbankruptcy Exemptions: Another Layer of Protection

As if the state exemptions weren’t enough, individuals filing bankruptcy in Brooklyn (and nationwide, too) also enjoy the protections offered by the federal nonbankruptcy exemptions.

Although these exemptions only apply if you choose the New York exemption list and not the federal exemption list, that’s exactly what you should do if these will help you protect more of your property.

Protect Even More Property When You’re Disabled

There are different benefits for different life experiences, and I love these. Some are limited to injured, ill, or elderly debtors, and those with a disability have access to the following exemptions:

• A disabled debtor’s right to receive social security, veterans benefits, or other benefits relating to a disability up to an unlimited amount. This allows people who rely on disability payments to support themselves the ability to avoid creditors taking their support. You’ll want to research those amounts through other governmental websites, and FTC guidelines might be helpful, too. (42 U.S.C. §§ 407, and 1383).
• The right to receive payments from an annuity, pension, profit sharing, stock bonus, or other similar plan on account of illness, disability, death, age, or length of service, to the extent necessary for the debtor’s support.

When Are You Able to Claim the Exemptions?

Each state determines bankruptcy residency requirements. New York residents must live there for more than 180 days to qualify to file a bankruptcy petition.

But you must also live in New York for at least two years to use New York bankruptcy exemptions. During that period, the two years before your case starts, New York uses a “look back” period. If, during those two years, you lived somewhere else for a majority of any 180-day stretch, you would be required to use the previous state’s bankruptcy exemption list. Although state exemptions can get quite complicated,  I find most people have lived in the same place for a couple of years.

Quality Matters When It Comes to Bankruptcy Filings

The bankruptcy process starts when you file the required documents with the federal bankruptcy court serving your location. It’s similar to other court filings – forms and detailed schedules provide information about your financial circumstances. In Brooklyn, it’s the Bankruptcy Court for the Eastern District of New York. Although some folks may think a “Do It Yourself Bankruptcy” saves money, many fail to protect their assets adequately. It’s just not worth losing property trying to save a few dollars.

Many times, debtors fail to realize a Chapter 7 bankruptcy trustee can bring legal actions (also known as an “adversary proceeding” in federal bankruptcy court) against family and friends in several instances. And if the trustee finds unreported assets after the petition gets filed? The judge could deny you a discharge and then you’ll still have all that debt but will have also incurred significant costs.

The court takes inaccurate statements in your filing seriously, especially those that could constitute fraud. A Chapter 7 trustee can uncover questionable pre-bankruptcy transfers of money and assets by looking back at your financials during the six-year lookback period that covers most types of pre-bankruptcy transactions.

Here Are Examples of Common Mistakes

I want you to have success, so here are some ways debtors accidentally give the trustee reason to object:

• Paying back a family member shortly before the case begins rather than paying unsecured creditors.
• Gifting items of value to someone or selling them below market value (for instance, a piano).

Protect Your Finances—Choose a Seasoned Bankruptcy Attorney in Brooklyn NY

I can’t emphasize this enough. Quality matters when it comes to getting sound legal guidance. You’ll need a seasoned bankruptcy attorney, someone like William Waldner in Brooklyn NY. Your financial future is riding on your decisions and an experienced attorney understands what’s required for an excellent result. 

You will file various bankruptcy forms when starting your case. Don’t worry about learning the bankruptcy forms as this is just part of the service provided by a competent bankruptcy lawyer.

Important Aspects of Bankruptcy Law You Should Know About

Many things that make bankruptcy less painful aren’t included in New York bankruptcy law or federal bankruptcy law but they are essential nonetheless. And the federal courts oversee the bankruptcy process and make local rules to provide information and guidelines to bankruptcy debtors and creditors.

Rebuilding Credit after Bankruptcy

The majority of my clients rebuild credit surprisingly fast. Sometimes, scores increase by a couple of hundred points in just a few short months.

Several things that aren’t obvious can influence credit scores during a bankruptcy case. First, there’s a chance your scores might even go UP after filing. Because once you notify a creditor of your bankruptcy case number, debt collectors must stop reporting.

Often, collectors report negatively until you file, but reporting generally halts when collections cease. And filing also keeps judgment liens off your credit report, because creditors generally can’t seek a judgment against you (that is, if you are a New York debtor and use New York bankruptcy exemptions) during a bankruptcy case.

Also, bankruptcy can be an opportunity to establish good credit habits—like managing spending. Paying your existing debts on time and not accumulating more debt are key. Plus, bankruptcy stays on your credit report for ten years (for a Chapter 7 bankruptcy case) but lenders will see that those bills are gone. With less overall debt, it will become much easier to start repairing your credit and obtaining loans in the future.

Student Loans and Bankruptcy: New Hope for Borrowers?

You may already know it’s been difficult to eliminate student loans in bankruptcy. In most instances, a debtor could discharge educational debt only by filing a lawsuit against the student loan creditor (known as an “adversary proceeding” in the Eastern District of New York, but a judge in the Brooklyn Bankruptcy Court oversees all matters) to demonstrate it would be an “undue hardship” to pay off the loan balance. This “Brunner Test” makes wiping out student loan debt extremely difficult.

Thankfully, this is changing, and we now have easier ways to seek this relief. Steps are now underway to improve the process with the adoption of a simpler form—the new student loan bankruptcy form (Student Loan Discharge Fact Sheet) that should eliminate the burden of filing a separate adversary proceeding. While the specifics haven’t been completely sorted out (at least yet.) I’m optimistic about these reforms.

How Long Does a Bankruptcy Case Take?

A Chapter 7 case wraps up in around four to six months in Brooklyn, as in most jurisdictions. After the petition is filed, there will be a 341 Meeting of Creditors (a formality that only involves answering some questions) in about 30 to 40 days and after another couple of months, you’ll receive a “Discharge Order,” your official notice the bankruptcy is over.

While a Chapter 13 repayment plan lasts for three or five years (this is set by the Bankruptcy Court), you’ll typically receive the discharge only a few days after completing all of the payments. Chapter 13 takes much longer than Chapter 7 because this is what’s necessary for repayment and confirmation.

Conclusion

Considering a bankruptcy case can bring stress. Choosing whether to file is just the beginning. Find the right legal advocate and understand all options before moving forward. Make this chapter about growth and positive change. To schedule your free consultation, contact The Law Office of William Waldner. 

FAQs About Quality for Bankruptcy in Brooklyn NY

How much does bankruptcy cost in NYC?

In the Eastern District of New York, Chapter 7 bankruptcy fees are $338 and Chapter 13 bankruptcy fees are $313, and this is set by federal law, not New York State (updated August 2023). Although this cost only covers the initial filing, you must also take pre-filing credit counseling and post-filing debt management courses, which cost about $50 to $75. Additionally, if you choose to hire legal representation, attorney’s fees vary by firm and case complexity, ranging from $1,500 to $2,500 for Chapter 7.

What is the best bankruptcy to file for?

Determining whether to file Chapter 7 (a “fresh start”) or Chapter 13 (“reorganization”) depends on various individual factors. If your income is below the median for your household size, you can probably use Chapter 7 to discharge all qualifying debts, wipe out your credit card bills and start rebuilding credit (if you have few assets you want to protect or exemptions protect everything you own). If you earn more, you will have to repay creditors what you can afford using a Chapter 13 payment plan, however this offers benefits such as catching up on late house or car payments. An experienced bankruptcy attorney can discuss these pros and cons with you and offer tailored advice based on your financial situation. I always recommend seeking a free initial consultation before making big decisions.

How long does it take to file bankruptcy in NY?

Actually, it typically takes a few weeks, but depends on your circumstances and diligence in collecting required information. The actual process of submitting all the required forms and schedules through the electronic filing system only takes a few hours. However, before you start, you’ll need to complete a credit counseling course (this has to be done with a court-approved agency) and gather six months worth of paystubs, tax returns, bank statements, etc. Although some may be tempted to go the “DIY” bankruptcy route to save money, this could prove a very costly decision. Having a lawyer by your side allows you to get this process right.

How do you qualify for bankruptcy in NY?

Bankruptcy qualification requirements hinge on two key factors—the chapter filed and applicable laws, such as exemptions. In New York, you can file bankruptcy if you live there and will also use their exemptions after living there for two years (see our “When Are You Able to Claim the Exemptions” section above to see why you might have to use another state’s list.) You must take and “pass” the Means Test to file a Chapter 7. You don’t have to pass a test to file for Chapter 13 but instead must show that you have enough income to support both living expenses and required plan payments over a three- or five-year period.