On October 17, 2005 the bankruptcy law was changed, making it more difficult for some debtors to obtain bankruptcy relief. Although the new requirements have made it procedurally more difficult for a substantial number of debtors to obtain relief, the remedies are still available.

1. LOAN WORKOUT OR MODIFICATION: Contact your mortgage lender and explain your circumstances. See if the lender will agree to a re-scheduling of payments that is suitable to you. The same principle applies to credit card, auto and personal debt. At first, you will be put off by the company representative, especially if the latter is in the collections department. But be persistent. Ask to speak to a supervisor. Ask for a fax number where you can send your payment proposal. In the case of a mortgage where the amount due is more than the value of the property, ask for a reduction and a modification of payments to suit your needs. These loan modifications may include a reduction of principal in order to make the payments more affordable to homeowners. Ask and push, but be mindful that the process is arduous and frustrating.

2. SHORT SALE: You inform your lender that you do not have the means to continue making payments on the mortgage and that you want to sell the property, but that the only purchaser you can find is offering less money for the property than what you owe your lender. You ask your lender to accept less money than what you owe on your mortgage. The lender will ask you to complete a financial statement to determine your ability to pay and will conduct an appraisal of the property. If the lender is satisfied with your financial inability and of the insufficiency in the value of the property, the lender may agree to accept a lesser sum in pay-off of your mortgage. In this case, be aware that the IRS treats forgiveness of debt as taxable income to you. Before you decide on a shrot sale, consider possible tax considerations.

3. CREDIT COUNSELING: You can reach a credit counseling agency for help. Since there is a mushrooming of credit counseling agencies, some with fancy names and flashy ads, I would be careful on the choice. I would contact one of the agencies listed on the US Bankruptcy Trustee’s website at www.usdoj.gov/ust, or HUD’s at http://www.hud.gov/, or NYS Department of Financial Services at http://www.dfs.ny.gov/, since I would consider them more reliable because they have been approved by a government agency.

4. CONSULT A BANKRUPTCY ATTORNEY: The changes in the bankruptcy law in 2005 were significant. Whereas a lot of “jack-of-all trades” attorneys could handle most consumer bankruptcies under the prior law, they may not have the expertise to represent you under the new law. Make sure that the attorney is competent.

BANKRUPTCY:

Under the bankruptcy law most consumers will have to file for relief under Chapter 7 or Chapter 13. The former is a total liquidation of your debts, but also your non-exempt assets. However, in some instances you may be able to hold on to your primary residence (so long as you are current on your mortgage payments). Under Chapter 13, you may be able to propose a plan for the repayment of all your arrears on loans secured by your property and pay some or none of so-called unsecured debts (credit cards, personal loans, most store credit cards and the like).

STEPS TO FOLLOW:
1. You must receive credit counseling from an agency approved by the US Trustee’s Office within 180 days before you file. (www.usdoj.gov/ust).
2. You must have filed income tax returns for four years preceding the filing.
3. You must assess if your average income for the preceding six months before filing is more (or less) than the family median income for your state ( This will determine whether you must file under Chapter 13). Check the Trustee’s website (www.usdoj.gov/ust) to confirm these numbers, as these limits may change from time to time.
4. Make sure that you have not borrowed money in the preceding 180 days to pay for luxury items, or borrowed cash the disposition of which you cannot explain, but which could give the appearance of creditor abuse.

CHAPTER 7:
Under Chapter 7 you can eliminate most of your debts. However, you also lose all your property that is not exempt under the law. For most debtors that qualify under this Chapter, you can keep much of your personal possessions, but if you have stocks, bonds, money in the bank, real property or other personal property of any tangible value, you may have to tender it to the Trustee who will then sell it and pay the proceeds over to your creditors.Under Chapter 7 you may also keep your primary dwelling, so long as you are current in your mortgage and you meet the homestead exemptions allowed by law. The amounts are different depending on where the home is located. Assuming other eligibility requirements are met, Chapter 7 is useful for those debtors who have incurred personal debt that they can no longer afford.Qualifications: If your monthly income is less than the family median income for New York (see Step 3 above and divide the number by 12), you can file under Chapter 7. If your monthly income is more, you may still qualify for a Chapter 7 filing if you meet the “means test.”

CHAPTER 13:
Anyone who does not qualify under Chapter 7 because their income is over the family median income for their state or because they do not meet the “means test” must file under Chapter 13 to avail themselves of the remedies under the law. In addition, your secured debts, such as mortgages on your house, and your unsecured debts, such as credit cards and personal loans must not be in excess of certain limits. These limits change periodically. Chapter 13 is a reorganization of your debts. The mechanics are somewhat complex, but in general you must begin by calculating your disposable income. This is income in excess over the state family median income plus your expenses. This disposable income must be sufficient to pay off the arrears on your secured debts in full within five years. Furthermore, you must propose a repayment plan that would repay your unsecured creditors the amount they would have received from a sale of your non-exempt assets under a Chapter 7 liquidation.

If you propose a plan that is viable, not one where you deflate your expenses or inflate your future income, the plan has a good possibility of being confirmed by the Bankruptcy Court. You will be able to protect your home, shed some unsecured debts and move on with your life so long as you remain current with your payments in accordance with the plan.

EXEMPTED PROPERTY:

The following is a list of property that you are allowed to retain in New York State:

1. Equity in your home: depends on where the home is located;
2. Most pension benefits or IRA type savings;
3. Most public assistance benefits, social security, veterans’ benefits, unemployment and workman’s compensation;
4. Cash not exceeding certain limits;
5. Most personal property and furnishings not exceeding certain limits;
6. Car with a value of below a certain limit;
7. College tuition savings in a trust fund;
8. Alimony and child support.

The above are some of the most common exemptions, but they are far from all inclusive.

COMMENTARY: Financial difficulties can be very stressful. The anxiety, worry, apprehension and suffering resulting from them can create emotional and health problems well beyond the importance of these difficulties. But, it doesn’t have to be this way. At some point you must consider your options and bring about an end to the suffering. If a debt reorganization or even a bankruptcy is well handled, you will not be affected by the experience a few short years from now.