Will The COVID-19 Crisis Stimulus Check Affect My Bankruptcy Case?

There are many different types of stimulus checks, but the most common one people received was a $1,200 check. These checks are not going to affect your bankruptcy case at all, because the CARES Act stated they will not be considered as income.

Is My Stimulus Money At Risk If I File Bankruptcy Before I Get The Funds?

No. Your stimulus money is definitely not at risk at all, as the CARES Act declared it is not considered as income. Either way, you can exempt up to $10,000 in cash so that a trustee is not entitled to take that money. If you have more than $10,000 in your account, there are legal ways to use some of that money to bring it down to $10,000 or less. Doing this is called exemption planning, and includes things such as purchasing retirement accounts, paying rent, tuition, loans, or other expenses.

Is There Anything In The CARES Act That Protects My Stimulus Check From Bankruptcy And Creditors?

Yes. Any money that you get through the CARES Act will be excluded from the calculation for current monthly income.

I’m Already Working With A Debt Consolidation Company Or A Debt Settlement Agreement Company. Can I Still File For A Bankruptcy And Include This Debt?

Absolutely. We get a lot of clients who come to us from debt consolidation companies and we regularly help them file for bankruptcy protection, which includes all of the debts that that debt consolidation company was working on in addition to any fees that the debt consolidation company was charging. Debt consolidation companies usually set up a bank account and ask the client to fund it, and then they take their fee from it. Then, the debt consolidation company will begin attempting to settle some of the debts. The problem with that model is that interest continues to accrue, and collection activities continue all the way through lawsuits. Typically, if it takes too long for the company to settle a debt, the creditor may choose to file a lawsuit against the debtor. This confuses many debtors because they assume that if they’re paying the debt consolidation company and funding the account, they are avoiding lawsuits, but they are incorrect. Once they realize they can still be sued, they typically file for bankruptcy, and we help them file all debts in that bankruptcy.

What If I’m Several Months Behind In Rent In New York? Is There Any Amount Of Rent Arrears That Could Be Relieved By A Bankruptcy?

Yes. The rent arrears can be included in a chapter 7 or chapter 13 bankruptcy. In a chapter 7, the rent arrears will be discharged, which means that the debtor will no longer be responsible for paying them. However, when the lease is up, if it’s not a rent stabilized or rent controlled unit, the landlord would have the option not to renew the lease.

So, while it may give a debtor some relief in terms of not having to pay a large amount of arrears, it’s going to jeopardize their possession of the apartment or home they are renting. If the person has an alternative housing situation they can move to, I would recommend including the arrears in the bankruptcy. However, if they do not have an alternative housing opportunity, I would recommend exploring other options.

New York City just passed a law with a safe harbor provision, stating that if a tenant can’t pay rent due to loss of income stemming from COVID situations, the tenant cannot be evicted. However, this does not mean that the landlord can’t file an eviction proceeding against that tenant. The law does not prevent the landlord’s entitlement to a money judgment for the arrears, even if they are not allowed to evict the tenant. If the landlord obtains a money judgment, they can garnish the wages and freeze the bank accounts of the debtor. That judgment can be included in your bankruptcy, and it will stop the wage garnishment, unfreeze the bank accounts, but give the landlord the opportunity not to renew your lease.

Will Filing A Bankruptcy Delay An Eviction In New York?

Before 2005, one could delay an eviction by filing for bankruptcy, but in 2005, a law passed stating that if you file for bankruptcy before a landlord obtains a judgement against you, it will place a halt on the tenancy proceeding through the duration of the bankruptcy. However, if the landlord/tenant case has already received a judgement, the bankruptcy will not stop the proceeding.

If a bankruptcy petitioner files before or right at the beginning of a landlord/tenant proceeding, the landlord can petition the bankruptcy court to lift the stay, and those requests are often granted. The typical amount of time for a stay on a Chapter 7 bankruptcy is about 3-4 months, but lifting the stay could cut that time down to 3-4 months.

Should I Be Selling Things Before Filing For Bankruptcy?

You should definitely not sell things before filing for bankruptcy, because there is a look- back of approximately 6-12 months in chapter 7 bankruptcies. When you file for bankruptcy, all of your assets become property of your bankruptcy estate, and the court appoints a trustee to manage all of the assets. If the trustee finds out about sold assets, they can claim they had a right to those assets.

Typically, as a bankruptcy debtor, there are a number of ways to get those assets back into your own estate. However, if you sell your assets, the trustee can state that they have a right to them, and have them transferred to the bankruptcy estate. They can use a legal tool called Fraudulent Conveyance Proceeding, where the trustee identifies assets that could have been distributed to creditors but were instead liquidated for the benefit of the debtor.

There are some exemptions, such as items that are worth $100 or less, but if you sell stuff in the thousands, the trustee would likely identify those items and use legal action to retrieve them.

Can I Pay Back Any Family Or Friends I Owe Before Filing Bankruptcy?

There is something in bankruptcy law called Preferential Payment, which is preferential payment to insiders (friends and family). The trustee has a look-back period of up to a year, where he or she can examine preferential payments to insiders, so it is not advised to pay back friends or family prior to bankruptcy, as the trustee can take the money back from those individuals and distribute it for the benefit of the creditors.

Can I Transfer Money Or Assets Before I File For Bankruptcy To Friends Or Family?

Transferring money or assets to friends and family is treated almost the same as paying them back. It is not advisable, as the trustee has a look-back period of up to a year, and can treat those transfers as preferential payments to insiders, and take that money back.

Should I Consolidate Debt Or Explore Other Options Before Filing For Bankruptcy?

While debt consolidation companies are an option, I do not know if it is truly the best option for most people, particularly those with large amounts of debt. If the amount owed is high, the interest will continue to build, and it will be difficult for the debtor to pay off all the creditors as the amount builds.

When filing for bankruptcy, there’s usually a flat fee ranging from $1,500 to $3,500. When you’re doing debt consolidation, that number can grow exponentially if your debt is large and your fee agreement is percentage-based. Another benefit of bankruptcy versus debt consolidation is that your case will likely be closed within 3-4 months, while debt consolidation can last years. The federal bankruptcy code rules that your forgiven debt is taxable in a debt consolidation, but not in a bankruptcy.

Does The Kind Of Debt I Have Determine Whether Or Not I Should File For Bankruptcy?

Absolutely, and especially in a chapter 7 bankruptcy. When you file for chapter 7 or 13, you’re able to discharge consumer debt, which includes things like unsecured debts, credit cards, medical bills, personal loans, or other debts that don’t have any collateral attached to them. One can even discharge tax debt, but it must be at least 3 years old.

In addition to those types of debts, there are other types of consumer debts that also qualify for bankruptcy, which are secured debts. Secured debts are debts that have collateral attached to them, such as an auto loan, where the car is the collateral, or a mortgage, where the house is the collateral.

One type of debt that cannot be included in a bankruptcy is student loan debt, which creates a huge problem for a lot of people, since it is one of the most common and largest types of debt. While it was permissible to include it approximately 30 years ago, a law passed back then forbidding the inclusion in bankruptcy. During the COVID 19 pandemic, there has been a lot of discussions about allowing student loan debt to be included in bankruptcies again, but no law has passed yet.

Another type of debt that is not dischargeable is fines, such as parking tickets, speeding tickets, etc. Tolls are not considered a fine, so they can be included in a bankruptcy. However, if you allow an unpaid toll to become delinquent, the delinquency fee is considered a fine, and not included in any bankruptcies. Also, a big type of debt that is not dischargeable is domestic obligations, such as child or spouse support.

How Much Debt Should I Have Before Filing For Bankruptcy?

You can file bankruptcy with as little as $1 in debt. However, most bankruptcy practitioners set a bar of at least $10,000 of debt. If you have less debt than that, you should probably discuss other options to negotiating your debt, which we can help with as well.

Is Credit Counseling Or Debt Settlement As Damaging To My Credit As Bankruptcy?

Credit counseling does not damage your credit at all, and you actually have to do it when you file for bankruptcy. This counseling is typically done online, and it provides tips on how to manage your credit and your debt.

In debt consolidation, if the company is taking a long time to settle your debts, your credit will remain low for that period, which can be several months or years. In a bankruptcy, your credit score may drop upon filing, but usually increases dramatically 12 months later.

Another downfall of debt settlement is that your credit report may mark the settlement as “settled debt” or “settled for incomplete amount”, which causes your credit to lower because you did not pay the entire amount. A bankruptcy will take a few points off your credit, but when it’s over, your debt will be cleared and your credit score will rise again.

What Is The Best Way To Start Rebuilding My Credit After A Bankruptcy?

After a bankruptcy, your credit will automatically rise on its own within 12 months of the bankruptcy because the negative debts are no longer there. Another way to raise your credit score is to take out a line of credit, whether that be a car loan, credit card, or anything else, and to pay on time. I also advise not using more than 30% of a credit line. After your bankruptcy, you may have to wait 2-4 years before getting a mortgage, but you will be doing so with a clean start.

Can I Apply For Bankruptcy If I’ve Returned To Work Or Started A New Job?

Yes, absolutely. A popular misconception about bankruptcy is that you cannot qualify if you have a job, which is completely untrue. Bankruptcies can be filed by people making any amount of money. Bankruptcy works on a ‘means test’, which is a test that examines your income for the past 6 months, and determines whether you qualify for bankruptcy.

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