If you do not have any major assets and need to file bankruptcy in NYC, you may think you are limited to a Chapter 13 bankruptcy – in which you’ll still have to pay back your creditors through a trustee. Chapter 7 bankruptcies, which involve a total wiping of the slate, generally work by liquidating assets to pay creditors at least some percentage of what they are owed.
However, there is such a thing as an asset-free Chapter 7 bankruptcy. These are called “no-asset cases”, and generally are a very good thing for the debtor. Here’s how they work.
No-Asset Cases in the Court
To qualify for a Chapter 7 bankruptcy, a person’s income has to be below the median income level for New York. If this is the case, and the person has no assets, then the court will hold the discharge hearing as usual. If no creditors file any objections to the no-asset case, then the debts will be canceled with no plan for repayment necessary. The debtor is simply excused from paying these debts at all.
That sounds simple enough, and for the most part it is. However, there are multiple types of debt, and not all can be discharged in this manner. If a no-asset case includes debts that cannot be excused, there are certain other steps that have to be taken.
Types of Debt in a No-Asset Case
The first, and simplest, type of debt is called unsecured debt. This includes things like credit cards – anything that is not connected to a tangible piece of property, and does not fall under a law about exemption. In Chapter 7 bankruptcies, unsecured debts are considered the least important to pay off. If there are assets that can be used to pay them off, and those assets are not needed to pay off other creditors, then they will receive payment. If not, then the debt is simply excused, and those creditors have no way of receiving any more payment.
Priority debts include everything else, but there are two types of priority debts. The first type is called secured debt, which means debt connected to property, such as a mortgage. If there is an asset that can be repossessed to pay back this debt, it will be. However, if there is no asset that can be taken any longer, the debt will be excused and the creditors cannot receive any more payment.
The second type of priority debt includes debts that cannot legally be discharged, such as taxes, student loans, or child support payments. Even in a no-asset case, these debts cannot be excused, and the debtor will continue to owe these debts.
Many Assets Can Be Excused
When you hear the term “no-asset case”, you may think that means you need to be totally destitute and living on the streets. This is not at all the case. Courts allow certain assets to be exempt from bankruptcy hearings, to ensure that you can continue to survive, work, and eventually rebuild your financial situation. This includes things such as your clothing and your car, particularly if you have a job in which you need your car to continue working.
It is still possible to file a no-asset Chapter 7 bankruptcy in NYC when you have basic amenities such as these. There may be a way to exempt other assets as well. It is important to seek out an experienced lawyer to be sure that you protect as much of your property as possible during a bankruptcy. Call my office at 212-244-2882 to learn how I can help.