Filing For Bankruptcy In New York – Why It Isn’t Always Your Best Option

Filing for bankruptcy isn’t an easy emotional decision, but lots of New York consumers may look at it as a quick way to end the financial suffering and get a fresh start.  For some, it’s true – filing for bankruptcy is a good move.  For others, it’s simply not the right thing to do.

People in New York are the, “I want it, and I want it NOW,” sort of folks.  It forces us to move quickly, and to sometimes make decisions that may sound good on paper but in reality not be a good long-term solution.

Take this short quiz.  If you answer YES to any of these six basic questions then bankruptcy isn’t your best option:

1. Is your sole income derived from Social Security? Social Security is largely exempt from the reach of your creditors; the only exception is that student lenders can take part of your Social Security benefits if you owe them money.  If you file a case you get protection that you’re already getting, so what’s the use?
2. Do you owe less than $5,000 in total? Factoring in the costs of an experienced attorney, court filing fees and fees for things like credit counsel and post-filing financial management certifications it just doesn’t make sense to file for bankruptcy if you owe less than $5,000.  Sure, the costs of getting your case handled appropriately are less than $5,000 – but at some level it just isn’t worth it to go through the process at all.
3. Are you planning on leaving the United States and never coming back? Most countries do not have debt extradition.  In other words, debts in the U.S. stay in the U.S.  Lots of people in New York leave the country for a job or family obligations, never to return.  For those people, it’s best to leave your debts at the border.
4. Are your debts primarily from payroll taxes, student loans or marital obligations? These debts can’t be wiped out in Chapter 7 bankruptcy, so filing won’t help you much.  Chapter 13 may make sense for you as a way to repay those debts over time, but it’s by no means a sure thing.
5. Do you own property that you can’t protect in bankruptcy? You may want to think twice about filing for bankruptcy if you will be forced to surrender ownership of enough property that your creditors would be paid in full anyway.  Remember that in New York the homestead exemption is $50,000 per debtor, so if you’ve got a home with $200,000 in equity and only $50,000 in non-mortgage debt then a Chapter 7 trustee is going to sell the house and pay your creditors in full.  If that’s the case, sell it yourself and get the best possible price – then use the proceeds to pay creditors.  Your other option would be to look into Chapter 13, but once again it’s not a sure thing.
6. Is your financial situation a temporary one? Sometimes you go through financial hiccups.  You or your spouse loses a job or suffers a pay cut, your kid’s pre-school bill is due, or something like that.  In New York there are a ton of things that have gone wrong over the past few years, and everyone’s impacted to some extent.  If your financial problem is going to clear up in a short period of time and you’ll be able to catch up on your bills, you should consider doing that instead of filing for bankruptcy.

As you can see, not everyone should file for bankruptcy in New York (or elsewhere, for that matter).  It’s important to get the facts, have your situation reviewed by an experienced attorney, and act accordingly.

Photo courtesy of szlea.