Wipe the Slate Clean and Keep What New York Protects

Chapter 7 wipes out unsecured debt: credit card balances, medical bills, personal and payday loans, old deficiency balances, and most judgments a Suffolk collector has already won. It does not erase child support, most recent taxes, or student loans outside of a hardship showing, and we tell you which of your balances actually clear before you file, not after.

The moment the petition hits the Central Islip docket the automatic stay takes effect, which freezes wage garnishment, empties the threat out of a bank levy, stops a repossession, and makes it illegal for collectors to keep calling. For a Suffolk household drowning in revolving debt, that is the difference between treading water and standing on solid ground within a season.

Your case is heard at the U.S. Bankruptcy Court for the Eastern District of New York, Central Islip division, at 290 Federal Plaza, which sits inside Suffolk. The filing, the assigned Chapter 7 trustee, and the 341 meeting of creditors are all inside the county you live in, so the one appearance the process requires is a short, local one. A Chapter 7 341 meeting is brief when the paperwork is right, and we prepare you for the exact questions the Central Islip trustees ask about income, assets, and recent transfers.

Upon the filing of the Chapter 7 case, you are immediately protected from your creditors with an “automatic stay.” A secured creditor not getting regular post-petition payments, such as mortgage or car loan payments, can move for relief from the automatic stay, which in a Chapter 7 case would usually be granted unless you can quickly cure the amount in arrears. Your debt collection lawsuits run through Suffolk County District Court, and any foreclosure runs through the Suffolk County Supreme Court, whose foreclosure part sits at the Cohalan Court Complex in Central Islip, so we coordinate the bankruptcy with whatever is already moving against you in those Suffolk courtrooms.

Closely related to the issue of potential equity in assets is the issue of “avoidable transfers.” These can be “preferences,” or payments to creditors made 90 days prior to the bankruptcy case for third-party creditors, or one year prior to the filing for “insiders” (relatives or close associates of the debtor). These can also be “fraudulent transfers,” or transfers for less than reasonable value six years prior to a bankruptcy case, usually made to relatives or close associates. Avoidable transfers are not always obvious, and what can appear to be an innocent transaction can, under bankruptcy law, potentially be alleged to be an avoidable transfer, which is one more reason we plan your Suffolk filing deliberately rather than filing on the first date available.

Chapter 7 is built to wipe out unsecured debt, but some categories are not dischargeable. Most student loans, recent taxes, and child and spousal support survive. There are exceptions: “undue hardship,” which is extremely difficult to prove, can potentially allow the discharge of student loans. Income tax debt older than three years, where the debtor filed a return two years before the bankruptcy filing, is also potentially dischargeable, though sales and withholding taxes, as fiduciary taxes, are never dischargeable. Child and spousal support are generally not dischargeable. Some acts make debt non-dischargeable, such as fraud, a crime, a malicious injury, and the concealment of assets. In some cases the creditor or trustee must file an adversary proceeding within 60 days after the first Central Islip creditors’ meeting to object to the discharge, a contested proceeding within the bankruptcy case.

The goal in each Chapter 7 case is to obtain a “discharge” order, or legal forgiveness for the debt, so that you obtain a “fresh start” and can rebuild your credit. The discharge makes permanent what the automatic stay protected against temporarily, so that most of your unsecured debts are now legally forgiven. There are some exceptions: most student loans, most taxes, and most child or matrimonial support obligations. Most Suffolk clients discharge all of their unsecured debt, although you are able to voluntarily keep or “reaffirm” certain debts.