Miscellaneous Topics
This section covers various topics pertaining to the various
issues that arise due to personal bankruptcy. Click on a topic below to
learn more about that particular topic:
A. Converting from Chapter 7 to Chapter 13
An individual in a Chapter 7 has a right to convert the case to
a Chapter 13 case. Likewise, an individual in a Chapter 13 case may
convert the case to a Chapter 7 case.
Example 1:
Jack files a Chapter 13 case in order to protect the equity of $6,000.00
which he had in a boat. Although Jack made plan payments to the Chapter 13
Trustee for a one year period, he later had his overtime reduced and could no
longer afford the Chapter 13 plan payments. Therefore, Jack decides that
he will convert to a Chapter 7, allow the Chapter 7 Interim Trustee to sell his
boat for the benefit of his creditors, and obtain a Chapter 7 discharge for all
of his credit card debts.
Example 2:
Marcus files a Chapter 7 case with the belief that it would be treated as a
"no-asset" case. At the 341 Meeting of Creditors, the Interim
Trustee inquired about the value of two guns which the schedules to Marcus'
petition identified as having a value of $200.00. The Interim Trustee had
an appraiser look at the guns and the appraiser indicated that he believed the
guns had a value of $2,500.00. Marcus wanted to keep the guns but could
not afford to pay $2,500.00 to the Interim Trustee within a one-year
period. Therefore, Marcus converted the case to a Chapter 13 where he will
keep the guns and pay a Chapter 13 Trustee at least $2,500.00 for the benefit of
unsecured creditors.
B. Prohibition on Discrimination
In general, the Bankruptcy Law prohibits discrimination against
an individual based upon his or her filing for Bankruptcy relief. A copy
of the provision of the Bankruptcy Law which prohibits discrimination against
one filing for Bankruptcy relief will be provided to you upon request.
C. Sense of Obligation to Repay Debts
Many individuals feel compelled to pay their debts and feel
badly when they cannot do so and rely upon bankruptcy to avoid hardship for
themselves and their family. Sometimes a Chapter 13 case can be proposed
where an individual can pay some or even all of their debts over a period of 3
to 5 years. One should keep in mind also that a discharge does not mean
that you are prevented from paying your creditors after the bankruptcy case is
over. Although your creditors may not have a right to collect from you
because of this discharge, you can certainly voluntarily pay your
creditors whose claims are discharged in bankruptcy after your bankruptcy case
is over.
D. Utility Companies
Individuals sometimes are concerned that utility companies which
deliver service to them will stop their service if they permit the debt to the
utility company to be discharged in the bankruptcy case. Rest assured that
this is not the case. For the first twenty days after a petition is filed,
no utility company may alter, refuse, or discontinue service solely on the basis
of an unpaid debt which was incurred prior to the filing of the petition.
Within that twenty day period, you must provide the utility company with
adequate assurance of future payment. Typically, there will be an
agreement made in which the individual pays the utility company a security
deposit (roughly equal to one and a half times the average month's service for
that particular utility company). In extreme cases, where the debtor does
not have such funds, court intervention may be necessary to protect the
individual from shut off. Any such intervention would almost definitely
include some kind of repayment arrangement which the individual can afford an
which is sensitive to the rights of the utility company.
E. Serial Filings
A Chapter 13 discharge is available to one who has earlier
received a Chapter 7 discharge within the previous six years prior to
filing. A Chapter 13 discharge is also available to one who could not
obtain a discharge in a Chapter 7 case for some other reason.
F. Credit Record
The filing of a bankruptcy petition will appear on your credit
record for up to ten years. It is difficult to say how this will effect
your credit in the future. In many cases, individuals considering filing
for bankruptcy already have poor credit records. To some creditors, a
bankruptcy which discharges a substantial portion of your debt will be seen as
an improvement.
G. Protection for Non-Filing Co-Debtor Under Chapter 13
Where the individual filing for Chapter 13 relief has a
co-debtor (with respect to one or more debts) who has not filed for bankruptcy
relief, such co-debtor will be protected from collection efforts by the
"co-debtor" stay. Congress found such protection for the
non-filing co-debtor to be necessary because, in many cases, creditors would
seek collection from the non-filing co-debtor and this would ultimately lead to
the failure of the debtor's case in bankruptcy. Therefore, protection for
the co-debtor was found to be necessary.
Example:
The Bankruptcy Court confirms Joan's Chapter 13 plan which provides that a
particular credit card debt she owes to BIG STORE will be paid in full over 5
years. Joan's friend, Martha (who has not filed for bankruptcy), is a
co-debtor with respect to that debt. Martha will be protected from
collection attempts by BIG STORE as a result of the co-debtor stay.
H. The Discharge
The Discharge Order serves to forgive your personal liability
with respect to almost all kinds of debts, except certain taxes, debts which
were not listed on the schedules, most fines and penalties owed to government
units, some student loans, etc. By so doing, the law provides
individuals with an escape from permanent discouragement and thereby assists the
individual to reestablishing himself or herself.
I. Using Exemptions to Avoid Judicial Liens
Among the most powerful uses of the Bankruptcy Law is the power
to avoid judicial liens. In certain circumstances, judgments which appear
as liens against your residence can be avoided to the extent they impair the
homestead exemption.
Example:
Alice and William are married and own their own house. Their house is
valued at $100,000.00. The house has the following liens against it:
(i) judgment liens -- $30,000.00
(ii) mortgage -- $90,000.00
Result: Under these facts, Alice and William will be able to obtain
an Order avoiding all $30,000.00 worth of judgment liens against their
house. This means that all these liens can be removed as marks against the
property. The reason this is allowed is to protect a certain amount of
equity in a home which the New York legislature considers necessary.
J. Conclusion
As seen above, the Bankruptcy Law can provide substantial relief
to an individual under pressure from too much debt while still being fair to
creditors. By doing so, it provides the individual with an opportunity for
a fresh start in life without the discouragement of past debt.
