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Hudson Valley Area Bankruptcy LawyerThere are many situations where debts can affect a person or family, making it difficult or impossible to maintain financial stability. When debts become overwhelming, bankruptcy can provide relief by eliminating certain types of debts and giving a person a fresh start. When filing for bankruptcy, a person’s disposable income will be one of the primary factors that will be considered. Understanding how disposable income is calculated and how it will affect a bankruptcy case can help a person determine the best ways to proceed as they work to pursue relief from their debts.

How Disposable Income Affects the Means Test in a Chapter 7 Bankruptcy

For many debtors, Chapter 7 is the preferred type of bankruptcy, since it can be completed fairly quickly, and it will usually allow unsecured debts (such as credit cards or medical bills) to be discharged completely. However, before they can file for Chapter 7, a person will need to pass a “means test.” The first part of the means test compares a person’s income to the median income in their state. If their income is less than the median income for their family size, they can file for Chapter 7.

If a person’s income is higher than the median income, the means test will look at their disposable income to determine whether they will be able to file for Chapter 7 bankruptcy. Disposable income is calculated by taking the average income a person earned from all sources over the previous six months and deducting certain types of expenses, including taxes, living expenses, healthcare costs, transportation costs, life insurance premiums, and domestic support obligations such as child support. If a person’s disposable income over the next five years (their monthly disposable income times 60 months) is lower than 25 percent of their total unsecured debts, they will be able to file for Chapter 7 bankruptcy.


Hudson Valley Area Bankruptcy LawyerIf you have large debts, and you have experienced financial difficulties that have affected your ability to repay what you owe, you are likely to be concerned about how to handle these issues. If you default on your mortgage or fail to make payments toward an auto loan, you may be facing foreclosure or the repossession of your vehicle. Fortunately, you have options for debt relief, including filing for bankruptcy. However, you may be uncertain about how bankruptcy will affect loans for your home and vehicles, and you will most likely want to determine how you will be able to avoid the loss of your property. In these cases, Chapter 13 bankruptcy may be your best option. By understanding how different types of debts will be handled in this type of bankruptcy, you can ensure that you will be able to achieve an outcome to your case that will protect your financial security.

Chapter 13 Repayment Plans, Lien Stripping, and Cramdowns

In a Chapter 13 bankruptcy, you usually will not be required to turn over any property you own, so this may be the best option to ensure that you can avoid the loss of your home, vehicles, or other items. During the bankruptcy process, a repayment plan will be created that will last between three and five years. The amount you pay will be based on your disposable income, or the amount that is left over after you pay your regular living expenses and make payments toward secured debts such as your mortgage or auto loans. After completing the repayment plan, your unsecured debts (such as credit cards or medical bills) will be discharged. If you make all required payments toward secured debts while also making all payments in the repayment plan, you will be able to retain ownership of your property.

If you have gotten behind on payments on secured debts, the missed payments and any related fees may be included in your Chapter 13 repayment plan. This will ensure that you will be able to become current on payments toward these loans. Some other options may also be available to reduce or eliminate certain debts. These include:


Hudson Area Valley Bankruptcy LawyerBusinesses sometimes run into financial trouble because they are not bringing in enough income to support the expenditures. When a business has insurmountable debt and cannot find another way to raise capital or increase income, it may be best to file for bankruptcy. There are several different types of bankruptcies, and depending on how the business is organized, the business may have more than one option to choose from.

Chapter 11

Businesses can file for Chapter 11 bankruptcy if they wish to reorganize their debt and set a payment plan to repay all their creditors. This can be a good plan if the business expects to raise its revenue in the future and selling its current assets in another form of bankruptcy will result in bigger losses. After the initial filing, the business remains under the control of the owners. However, a trustee may be appointed if there is an allegation of management or fraud.

Chapter 11 bankruptcy presents some advantages to the business in that it can void existing contracts, including contracts with employees and suppliers. However, the business is also closely monitored during the bankruptcy process, and cannot make any moves, like selling off major assets, without court approval.


How Will Bankruptcy Affect My Credit?

Posted on in Bankruptcy

Hudson Valley Area Bankruptcy AttorneyIf you are struggling with an excessive amount of debt and considering filing personal bankruptcy, one of your biggest concerns is likely to be the potential impact the bankruptcy will have on your credit rating. While you may have heard stories about how bankruptcy ruins your credit score and remains as a bad mark on your credit report for years to come, the truth about the actual impact of bankruptcy on your credit may surprise you.

Bankruptcy and Your Credit

Since filing bankruptcy involves discharging debts and offering creditors less than the actual amount owed, the bankruptcy obviously does have a negative impact on your credit score. However, many people in this position who worry about what a bankruptcy will look like on their credit report sometimes forget to also consider what consistently late or missing payments also do to their report.

Dealing with the issue head-on with a bankruptcy filing is less painful than struggling with the stress of making payments late or missing them completely and dealing with creditors harassing phone calls for the next few years.


Hudson Valley Area Bankruptcy AttorneyThere are common types of debt that lead people to file for bankruptcy. Two of the most common are medical debt and credit card debt. One type of debt that has overwhelmed millions of Americans but is rarely allowed to be included in a bankruptcy petition is student debt. However, a new bill introduced in Congress may change all that. 

Student Loan Debt

It is estimated that the total amount of student debt owed in the United States right now is $1.7 trillion. Many borrowers were granted a reprieve in payments during the COVID-19 pandemic, however, that reprieve is set to be lifted at the end of September. There has been great debate on the topic of student loan cancellation, with some lawmakers calling for Congress to pass a law that would cancel $50,000 of student loan debt, while the White House is calling for a $10,000 student loan cancellation law.

In the meantime, while lawmakers battle it out, many of the 45 million student loan borrowers struggle with paying off their loans because getting those loans discharged as bankruptcy is almost always impossible. Unlike most other debts, which can be included in a simple bankruptcy petition, a person must file an additional request – called an adversary proceeding – to ask the court to include the student loans. In order to be successful, the filer must prove to the court that:

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