Bankruptcy Options

Bankruptcy cases in the Southern, Eastern and Northern Districts of New York are now filed ELECTRONICALLY. Special passwords and software is required for this. Attorneys are issued passwords by the courts. One effect of this is that Bankruptcy cases can be filed at night, on weekends and on holidays.

Chapter 13 is the primary Bankruptcy option for those trying to save their home from Foreclosure. You have to make current monthly mortgage payments plus make payments into a Chapter 13 Plan. You have to show where the money is coming from, but you can have contributions from others. There are other requirements for this. The mortgage arrears can get paid off through the Chapter 13 Plan. The Chapter 13 Plan can go as long as 60 months. There are a number of other requirements.

In general Chapter 13 is more complex than Chapter 7. Not only must the forms be filled out but a plan must be proposed and confirmed. You have a lot more involvement with the Trustee. It is more important to be represented.

Chapter 11 is used mostly by business entities or by individuals with large and complex financial situations. Much more complex and expensive than a Chapter 13, but it can be more flexible. Chapter 13 also has limits on the maximum amount of unsecured debt and the maximum amount of secured debt you can have to qualify. People coming in over the maximum are ineligible for Chapter 13 and thus should consider Chapter 11.

Chapter 7 requires the Bankruptcy Trustee to sell the Debtor's non-exempt assets in order to pay off creditors. This isn't frequently used to save a home from foreclosure because a Trustee's bankruptcy auction is considered just as bad as a Referee's foreclosure auction. There may be some instances where a Chapter 7 may help. Primarily this would be useful to a homeowner with less than $50,000 in equity in their home and with a lot of burdensome unsecured debts like credit cards. If the credit cards can be discharged, then there may be enough money to save the house.

Chapter 12 is for Family Farmers and has also been extended to Family Fishermen. It appears somewhat similar to Chapter 13. Practicing in the New York metropolitan area, I don't see Chapter 12 cases.  

Chapter 15 is generally used by large foreign business entities who are filing bankruptcy in some other country and want the US Bankruptcy Courts to recognize the foreign proceeding as a Foreign Main Proceeding and co-operate with it.

Chapter 9 is for use by municipalities and municipal entities who file for bankruptcy.

THERE IS NO CHAPTER 20. It is a slang term used to describe the practice of filing a Chapter 7 to discharge the unsecured creditors (credit cards, hospital bills, etc) followed by a Chapter 13 to cure the mortgage default. There are important restrictions on doing this. There is also a problem of telling the Court that you have no extra income to pay your creditors, as you must in Chapter 7, and then filing a Chapter 13 wherein you must tell the Court that you HAVE extra income to fund a repayment plan. Of course, people's incomes may change, but you had best be prepared to document this. As you will be more closely scrutinized, it is even more important that you be represented by counsel.

One reason to choose an attorney is that your attorney GOES WITH YOU to all of the Court appearances. Your attorney stands with you before the Judge. Your attorney goes with you when you have to be examined by the Trustee. If the Trustee or the Judge wants something done in a certain way and by a certain time, your attorney is there with you and can see that it is done or properly object to it.
The "Paid Petition Preparer" is cheaper, but they just take your money, help you fill out the forms and send you off alone. If the Trustee or the Judge have any problem with the way the papers were prepared, or something else, its all on you. I've seen many people having difficulty with the Trustee because, in the Trustee's view, the paid petitioner preparers had not prepared the forms properly. That can happen. I've even had Trustees demand amendments to my papers. But I'm there to hear EXACTLY what the Trustee thinks needs to be addressed. He can tell me and I will understand what he is saying.

Cramdown can be very useful to homeowners whose mortgage is more than their property's value. A cramdown means that a confirmed bankruptcy reorganization plan may force the bank to accept less than what is owing. The amount by which the mortgage exceeds the value gets treated as "un-secured". President Obama campaigned as supporting mortgage cramdown, and he is still supporting it, but there have been problems getting it through the Senate.

If you are in this situation you need to consider what possibilities may be opened up by this. There are various restrictions and requirements being considered. If you want to make this work, you need to do it right, from the beginning. The beginning is even BEFORE you file bankruptcy, as it appears that there will be prerequisite steps. New laws create new issues and some lenders may try to fight these things more aggressively than others. It is important to be represented in this changing area of the law.