Chapter 7 "Liquidation"

By far the most common type of bankruptcy is under Chapter 7 of the Bankruptcy Code.  This type of bankruptcy is available both to individuals and businesses, including corporations.  A debtor (the term used to describe the party wanting to reduce or eliminate his debt) may not file a Chapter 7 bankruptcy petition if the he or she has filed one within the previous 8 years.

   Chapter 7 Bankruptcy eliminates most debts with a couple of exceptions.  The most common exceptions are student loans, taxes, child support, civil fines and criminal fines.  Although student loans are generally not dischargeable, due to extreme hardship the court can find student loans dischargeable.  The court applies a very restrictive definition in determining what constitutes an extreme hardship.   On the other hand, although the general rule is that taxes are not dischargeable, income taxes may be discharged under certain circumstances. Child Support payments, civil and criminal penalties are never discharged in bankruptcy.

   A debtor that files a Chapter 7 Bankruptcy is allowed to keep certain property, which is termed “exempt” property. New York has elected to use its own laws to determine which property is exempt.  Among the most commonly exempt assets are as follows:  

• $2,500 in cash and $2,500 in wearing apparel and household furniture, or $50,000 in equity in a home that is located in New York and the principal residence of the debtor;
• a car with up to $2,400 in equity,
• qualified retirement plans, such as 401k and 403b plans,
•  IRA plans,
• up to $600 in work tools,
• personal injury compensatory recoveries to up to$7,500 (not to include pain and suffering), and
• security deposits.  

      * A married couple can file together and double these amounts.

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