What Debt Cannot be Discharged in Bankruptcy

Many people believe that when they file for bankruptcy that all of their debt will be forgiven. Unfortunately, not all debt can be discharged in bankruptcy. Although bankruptcy is designed to eliminate debt and help consumers start over some debt is exempt from bankruptcy. Some examples of debt that is non-discharged include:

  • federal taxes
  • state taxes
  • local taxes
  • most federal funded student loans
  • money borrowed on a credit card to pay government taxes
  • debts incurred based on fraudulent acts
  • debts from willful and malicious acts to another person or property
  • debts obtained from larceny
  • debts obtained from embezzlement
  • debts obtained from a breach of fiduciary responsibility
  • debts related to child support
  • debts related to alimony
  • debts not set forth by the debtor on the lists and schedules the debtor must file with the court
  • debts for certain condominium
  • debts for certain cooperative housing fees

Much of the debt that is included in the list above is related to taxes, illegal activities and family obligations. Keep in mind, there are other items that are non-dischargeable debt that was not included in this list. For more detail relating to your specific situation, please contact Julio Portilla Law. We can review your situation and find the best options available to you. Julio Poritlla is a New York bankruptcy lawyer dedicated to helping clients regain their financial lives. For a FREE consultation, please contact us at 212-365-0292. We are looking forward to assisting you.

Bankruptcy Exemptions

For many people struggling with debt, bankruptcy offers the opportunity to escape mounting bills and wipe the slate clean. In fact, bankruptcy laws are intended to grant debtors who are having trouble paying their creditors a financial “fresh start.” These laws also help you keep certain types of property when you file for bankruptcy. If you live in New York, state and federal exemptions protect some of your property and assets throughout the bankruptcy process.

Bankruptcy courts use exemptions to decide which portions of your property should be shielded from bankruptcy. If you choose to file for chapter 7 bankruptcy, these exemptions protect certain assets from liquidation. If you opt for chapter 13 bankruptcy, on the other hand, the court employs exemption rules to determine your repayment plan. Both federal and New York bankruptcy laws outline the types and amounts of property you can protect during bankruptcy.

Since bankruptcy is under the jurisdiction of U.S. bankruptcy courts, the federal government maintains a schedule of exemptions. But individual states are allowed to develop their own sets of exemption standards—and even opt out of the federal schedule. Some states, including New Jersey and Connecticut, allow individuals who file for bankruptcy to use either the state or federal exemption schedule, whereas others (Delaware and Maine, for example) require filers to follow the state system. As of 2010, if you file for bankruptcy in New York, you may decide which exemption system will provide you the most benefits.

Your house, condo, apartment or other residence is probably one of your most significant assets, and one that’s especially important to protect. In most states, bankruptcy courts grant protection to at least a portion of a home’s equity based on federal or state exemptions. At the federal level, up to $22,975 of home equity is shielded by the homestead exemption. State homestead exemption allowances differ widely; some states place no cap on the exempted amount, while others, such as New Jersey, don’t have a specific homestead exemption. In New York, the amount of equity you can safeguard during the bankruptcy process depends on your county of residence: $150,000 of equity is protected in Bronx, Kings, New York, Queens and Richmond counties, while certain other areas of the state allow $75,000 or $150,000.

If you’re considering bankruptcy, you might also wonder whether your income and earnings are protected by exemptions. Federal law safeguards most retirement accounts during bankruptcy, and most states offer further exemptions. Many public benefits, like Social Security and unemployment payments, are protected in New York, New Jersey and Connecticut, for example. Some states also provide exemptions for regular wages, albeit to varying degrees: New York bankruptcy laws protect a portion of the income you make before filing for bankruptcy, while states like Connecticut include provisions that apply to current income levels.

Bankruptcy exemptions shield other types of property and assets as well, including clothing, furniture, food and books. Your vehicle’s equity, for instance, is covered up to $3,675 if you opt for the federal exemption schedule. Under state laws, the exempted equity amounts for vehicles range from no specific coverage (in New Jersey) to amounts several times that of the federal level (Connecticut allows up to $13,500). New York falls in the middle of that range: in most cases, if you elect state exemptions, you can protect up to $4,000 in equity in a single car.

If you decide to file for bankruptcy in New York, it may be difficult to determine which system will provide better protection. Comparing long lists of exempted property types and amounts can be overwhelming, and standards change periodically. Furthermore, you may also be eligible for certain added benefits (New York and federal exemptions can be doubled for some married couples, and many veterans and civil employees are covered by additional federal nonbankruptcy exemptions, for instance). To protect as many of your assets as possible, even if you’re not required to appear in bankruptcy court, it’s important to consult an attorney who can help you select the best exemption system and guide you through the bankruptcy process.

The Bankruptcy Means Test Explained

If you are considering filing for bankruptcy, you have probably seen references to the bankruptcy means test as you research your options. But what is the bankruptcy means test? And will you have to take it if you file for bankruptcy?

What is the Bankruptcy Means Test?

Put simply, the bankruptcy means test is the method the government uses to determine whether a debtor has the ability to pay some or all of his or her debts. It is the result of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which aims to prevent people who can afford to make payments on their debts under Chapter 13 bankruptcy from erasing their debts with Chapter 7.

Prior to filing for Chapter 7 bankruptcy, you must take the bankruptcy means test. The test compares your income to the median household income level and calculates disposable income by deducting eligible expenses. If, according to the test, you have enough disposable monthly income, it is presumed you will have the means to make payments to your creditors over the next three to five years, and are thus ineligible for Chapter 7 bankruptcy.

Starting the Bankruptcy Means Test Process

As you might expect, the bankruptcy means testing process is complicated; it involves filling out up to three separate forms and performing calculations based on individual circumstances and government data. The first step is determining whether your income is higher or lower than the median income, using Bankruptcy Form 22A-1 (“Chapter 7 Statement of Your Current Monthly Income”) which, like all other bankruptcy forms, is available on the United States Courts website.

Part 1 of Form 22A-1 requires you to list all sources of income that you received in the last six months as well as your spouse’s income. Income includes all wages, tips, bonuses, commissions, maintenance, child support, business profits, investment returns, retirement payments and income from any other source.

Part 2 compares your annual income with the median income, a figure determined by U.S. Census statistics. The median income level is typically updated twice a year and is based on the state of residence and the number of people living in a household. The median income for a family of four in New York, for example, is $88,156 for cases filed on or after November 1, 2014. The current median income information can be found at the Means Testing Information link on the U.S. Trustee website.

If your income is below the median income level, you qualify for Chapter 7 bankruptcy; if it is higher, you will move onto the next step: Bankruptcy Form 22A-1 Supp. (“Statement of Exemption from Presumption of Abuse”). Filers whose debts are not related primarily to household expenses and certain disabled veterans, reservists and National Guard Members are considered exempt.

Completing the Bankruptcy Means Test

The final step, if you are ineligible for an exemption, is to complete the actual means test, Bankruptcy Form 22A-2 (“Chapter 7 Means Test Calculation”). Part 1 of Form 22A-2 asks for the monthly income calculated on Form 22A-1. If applicable, that amount is then adjusted by subtracting any spousal income that does not go toward household expenses.

On Part 2 of Form 22A-2, you will calculate other eligible income deductions. These include expenses that the government considers necessary, such as housing, health care, childcare, education, food and clothing costs. The allowable expenses for things like food, clothing and health care are based on IRS National Standards, while IRS Local Standards determine acceptable housing and transportation costs. This accounts for regional differences in the cost of living.

Part 3 of Form 22A-2 determines whether there is a presumption of abuse, that is, whether you have enough disposable income to afford debt payments through Chapter 13 bankruptcy over the next three to five years. Finally, in Part 4, you may list other special circumstances that warrant additional deductions from your income. If you do not pass the bankruptcy means test, you do not qualify for Chapter 7 bankruptcy, although you may still be able to file for Chapter 13.

Before you make that decision, though, consider discussing your case with an experienced bankruptcy attorney. He or she will advise you on your options, and, given the complexity of the means test process, may even find missed deductions or other errors that might allow you to qualify for Chapter 7 bankruptcy.

When Should I File For Bankruptcy?

Past due bills, mounting credit card debt, a recent job loss: if you are struggling with any of these issues, you might have considered filing for bankruptcy. You know the decision to file for bankruptcy shouldn’t be taken lightly. But how do you know if it’s the right choice for you?

When It Makes Sense to File for Bankruptcy

For some people, filing for bankruptcy can help to manage debt. If your liabilities (the amount you owe) exceed your income and assets (the amount you own), bankruptcy might be a good option. To determine your assets, collect statements for all bank and investment accounts, and decide whether you can sell any belongings to raise funds. Then gather all of your bills and loan documents to calculate your liabilities.

Next, make sure that bankruptcy will help you with your debt. If your mortgage or car loan is past due, Chapter 13 bankruptcy can give you a manageable payment plan or even reduce your loan amounts. And if you are facing foreclosure, bankruptcy can stop the process through an automatic stay, which halts most collection activities. In addition, the automatic stay prevents or delays other actions like utility shutoff and eviction.

Bankruptcy can also be an effective solution for unsecured debt such as credit card or medical bills. If you qualify for Chapter 7 bankruptcy, this type of debt is erased, and Chapter 13 bankruptcy establishes a payment plan and reduces balances. This lowered debt balance might help you make payments on more important debts like mortgages and car loans.

There are several other scenarios in which filing for bankruptcy could be the right choice. Bankruptcy’s automatic stay will end calls from creditors and collection agencies, for example. If you are unemployed, you may be more likely to qualify for bankruptcy to protect your property from debtors. And if your bankruptcy case is relatively straightforward, filing may be the best option. Yours is an uncomplicated case if, for instance, you make less than your state’s median income, you have few assets and you are up to date on tax filing and payments.

When It Makes Sense to Wait

In some situations, though, bankruptcy might not be helpful. Bankruptcy will not reduce your liability for certain types of debt, including newer tax debts, student loans, child support, spousal maintenance and criminal fines. Other factors—like a recently dismissed bankruptcy case or delinquent loan payments or tax bills—may complicate your bankruptcy case, which could impact your decision to file.

In other circumstances, it can be beneficial to wait to file. Waiting might increase your chance of eligibility if your income has recently dropped, since income qualifications for bankruptcy are based on average earnings over the last six months. You might also consider delaying bankruptcy if you believe you will have more debt in the near future. You may only file for bankruptcy once every eight years, so if you incur additional debt after you file, you will be liable for that new debt.

Impacts to Consider

As you weigh your options, be sure to consider how filing for bankruptcy will affect you. Bankruptcy stays on your credit report for up to 10 years and will hurt your credit score, although it can help you improve your score more quickly by providing a fresh start and affordable payment plans. Bankruptcy can also impact your property and assets. Most pensions, retirement accounts and public assistance payments are protected, but you may lose nonexempt property if you file Chapter 7 bankruptcy, for instance. (In New York, examples of exempt property include wedding rings, medical aids, up to $10,000 of personal property, and between $75,000 and $150,000 in home equity, depending on the county.)

Alternatives to Bankruptcy

Because the decision to file for bankruptcy is a serious one, you should also consider your other options. Contact your creditors to see if they can help, either through refinancing or by settling or reducing your debt. You might enlist the help of a nonprofit debt counseling service to help you negotiate. To end harassing collection calls, federal and state laws allow you to request that creditors stop contacting you for collection purposes. Finally, if you have little income and property, you may decide to do nothing; since you have no assets for creditors to take, you are considered “judgment proof.”

Deciding whether to file for bankruptcy can be overwhelming, but an experienced bankruptcy attorney can help you weigh your options and determine whether it is the right choice. If it is, making that first step can help relieve your financial stress.

Refinancing After Chapter 13 Bankruptcy

Refinancing your mortgage when interest rates are low can help you save money and put yourself on better financial footing. However, are you going to be able to refinance your mortgage if you have recently filed for Chapter 13 bankruptcy?

How Long Ago Was the Bankruptcy?

According to the FHA, filing for bankruptcy doesn’t necessarily mean that you cannot get a new mortgage. However, you must have filed for bankruptcy at least 12 months prior to any attempt to refinance your mortgage. In addition, you must show that your current debt obligations have been paid in a timely manner since you have filed for bankruptcy. For those who are seeking a conventional loan, it could take as many as four years until someone who has filed for Chapter 13 bankruptcy would be eligible to refinance their home loan.

Will You Get a Lower Interest Rate?

Having the ability to refinance your mortgage doesn’t necessarily mean that you are going to be eligible for a lower rate. When you file for Chapter 13 bankruptcy, the filing stays on your credit report for seven years. This means that lenders will be able to see that you have had trouble managing your money in the past. Therefore, they will want you to pay a higher interest rate to compensate them for the extra risk that they are taking.

What Are Your Other Options?

One option to lower your mortgage payments is to extend the life of your loan. Since you are making a larger number of installment payments, you will pay less per installment. However, the drawback is that you will pay more interest over the life of the loan. Therefore, you must ask yourself if a lower monthly payment takes precedence over paying less overall for the loan. Another option that you may wish to consider is the Home Affordable Refinancing Program, which may allow you to refinance your mortgage before your bankruptcy case has been resolved.

If you are thinking of ways to lower your mortgage payment, refinancing can be the best way to do it. For those who are in the midst of or have recently gone through a Chapter 13 bankruptcy, it is important that they understand the challenges that they face to ensure that they are able to better manage their finances.

Applying For New Credit is Difficult When Recovering From Chapter 13

Unlike Chapter 7 bankruptcy where your debts are dissolved by court order, a Chapter 13 bankruptcy gives you the opportunity to pay back some of those debts through a specific payment plan. However, your credit is still marred by the bankruptcy reporting, making credit difficult to come by.

Why Am I Being Declined For A Credit Card? 

Although you’re currently repairing your credit through on-time payments to your creditors, brand new credit applications are almost always declined. Especially applicable in the early stages of Chapter 13, new credit applications cannot be processed because of your income to debt ratio. Most of your income is promised for the next five years, on average, to past creditors. There’s simply no room to acquire more debt through a new credit card. Creditors look over your history and income levels, effectively determining that it’s not possible for you to pay any more debt each month.

If I’m Showing Responsibility Through My Bankruptcy Payments, Why Is Credit Still Hard To Come By?

It’s not just your history that creditors analyze, but also your FICO, or credit score. Chapter 13 drops this value down substantially. In today’s lending world, banks are wary about providing credit to anyone that doesn’t have a stellar credit record. Although you’re showing responsibility with payments, the credit score needs several years of on-time payments to slowly rise to a better value. Once your debts are paid off through Chapter 13, you should see a relatively sharp increase in your score. Credit will be easier to secure after the payments are complete.

What About Secured Cards?

One of the best ways to secure your credit future is using secured cards. Unlike traditional credit, secured cards require collateral. For example, you place $500 on a secured card. You’re able to charge items to the card until you hit the $500 “limit.” To use the card again, you need to place more money back on it. This credit-building strategy shows that you have the funds and responsibility to hold credit again. Once you use the secure card for a time, you can try applying for a traditional card. Your responsible history can help you rebuild your credit.

For any questions about your credit repair or Chapter 13 bankruptcy, contact the Law Office of Julio E. Portilla P.C. at  212-300-6832 to discuss your matters privately with effective results.

Steps To Take After A Bankruptcy

When a person declares bankruptcy, they are doing something that affects their finances and credit score. If you have a low credit score, you will have problems getting loans, credit cards and rental agreements; financial agencies look at your credit history before determining your credit worthiness. A bankruptcy can stay on your credit report for up to 10 years; during this time, your credit score suffers. Fortunately, there are practical steps that you can take to improve your credit score after a bankruptcy. Follow these steps to get yourself back on a better financial path:

Adopt A New Attitude Experts believe that your attitude plays a major role in how fast you recover after a bankruptcy. If you wallow and loaf around, you are less likely to attempt to fix your problems. Everyone makes mistakes; it is up to you to design a new game plan that will keep you out of debt in the future. When you change your attitude about credit, you prevent yourself from making the same mistakes in the future.

Pay Your Bills Some people make the mistake of ignoring their obligations after a bankruptcy; what they don’t realize is that their payment history accounts for about 35 percent of their credit score. If you consistently pay your bills, your credit score will slowly start to improve. If you ignore them, you will just get more negative marks on your credit report. When you are in a financial bind, paying your bills is the easiest way to start making improvements; these bills are the foundation of what your new credit report is built on.

Cut Down On Expenses It is important to take a hard look at your lifestyle; go through your expenses so you can figure out where you are spending money frivolously. After bankruptcy, you have to learn to live on cash; without credit, you don’t have as much of a cushion. Make a budget and always stick to it. You may have to go without some luxuries, but it is all worth it in the end. Once you learn how to live within your means, you will be less likely to depend on credit in the future. Learn to save and budget your money; after a while, you will find that saving money becomes easier.

Get Your Credit Report Once your bankruptcy is discharged, you need to get a copy of your credit report. Most people request these reports online; you can also send a request to all three credit bureaus in writing. Take a look at your FICO score; this is a condensed version of your credit history. Look through your report for any errors or omissions. If you find errors, fill out the special form that comes with your credit report; there is a section where you can explain why the items are incorrect. By law, the credit bureau has to review this information and respond to you within 30 days.

Cautiously Apply For Credit If you don’t have a major credit card, you need to apply for one after bankruptcy. Most people start with a secured card; these cards require a deposit with the issuer. Once you get the card, make sure to pay the bill off every month. You don’t have to carry a balance on your cards to build your credit. Always be aware of your card’s limits; make sure to keep your balances well below them. Due to your credit history, your limits are probably going to be lower than you are used to. Use your cards sparingly, and always make sure to pay them off on time. Don’t close your accounts; after a bankruptcy, many people swear off credit altogether. This can damage your credit in the long-run. If you follow the guidelines above, you can slowly move towards a brighter future. Be patient, improving your credit takes time and perseverance.

Bankruptcy Considerations for Married Couples

Married couples have additional considerations to think about before filing Chapter 7 or Chapter 13 bankruptcy. A major decision for married couples is whether to file jointly or separately.

Filing Bankruptcy Jointly

When filing bankruptcy jointly, both parties in the marriage file a single set of bankruptcy papers with the court. A joint bankruptcy requires that all property, debts, expenses and income for both parties must be revealed. With regard to debts, in a joint filing, all joint and individual debts are included. Like debts, all joint and individual property is also included in this type of filing.

The benefits of joint bankruptcy are that the costs are lower and the process is efficient.

It is important to remember that the non-filing spouse if filing independently, still has to be disclosed but it is not included in the bankruptcy paperwork and the non-filing spouse is not required to attend hearings regarding the bankruptcy.

Filing Bankruptcy Separately

Filing individually does not mean that the spouse is not impacted. The impact to the spouse depends on whether the couple resides in a community property or a common law property state.

In community property states, property that is acquired during the marriage is seen as owned equally by both parties, regardless of whose name is on the title. But in common law property states, if your name is on the title or if you purchased it then it’s yours. In common law property states, the individual’s separate property becomes part of the bankruptcy filing. In community property states, all community property becomes a part of the bankruptcy.

New York is considered an equitable distribution state meaning that marital property is divided in a way that is fair, but not necessarily equal.

Bankruptcy for Same-Sex Couples

As of June 26, 2013, legally married same-sex couples are able to file a joint bankruptcy petition. However, same-sex couples who are not legally married still can not file a joint bankruptcy petition. Therefore, where a same-sex couple resides dictates both their legal marital status and their ability to file a joint bankruptcy petition.

The attorneys at the Law Offices of Julio Portilla PC will make sure that you get what is fair and what you deserve, and are able to serve a diverse population, including Spanish-speaking clients.

Impact of Pre-Marriage Bankruptcy on Future Spouse’s Credit

When contemplating marriage, it is advisable to have open and honest discussions with a prospective spouse about credit histories, money management and overall philosophies about how to handle household finances. In the course of these conversations, it may emerge that one half of the couple intending to wed has previously filed for bankruptcy protection and received a discharge of debts. The partner who has no such bankruptcy history will likely want to know how their beloved’s filing may impact their credit record, if at all. Luckily, the answers to this question are rather straightforward.

The bottom line is that adverse credit events such as a bankruptcy in a potential spouse’s past will not have any direct impact on their intended spouse’s credit record or standing once they have wed. The act of getting married does not result in the linking of credit histories and does not create liability on the part of one party for the prior debts of the other. Only the person who originally incurred a debt will be held responsible for it, and many such debts were likely already eliminated by the bankruptcy discharge. Even undischargeable debts such as child support or federal student loans will remain the sole responsibility of the spouse in whose name they were incurred.

However, it is worth noting that the low credit score one partner has as a direct result of their bankruptcy filing may impact the amount of interest a couple will have to pay if they decided to incur future debt jointly. For that reason, it may be wise for the spouse with good credit to apply for things such as mortgages or car loans in their name alone in order to mitigate the harm the other spouse’s poor credit may cause. This can be a smart strategy for the near term, while the previously bankrupt half of the couple works on building a better credit profile.

With responsible management of credit going forward, it need not be long before both spouses enjoy good credit and all of the freedom that can entail. To hasten the process of raising the credit score of one spouse, it is often recommended that a secured credit card be acquired as a way to demonstrate financial responsibility and eventually receive larger extensions of credit. In addition, the spouse with good credit may wish to add their husband or wife as an authorized user on an existing credit card account that is in good standing. This helps give the credit-challenged spouse a leg up when it comes to re-establishing their borrowing power.

Will I lose my NYC home or any personal property if I file for bankruptcy?

The short answer on whether or not you can lose your property when filing for bankruptcy in New York City is: Maybe. The determining factors are what type of bankruptcy protection you are filing for and whether or not you have equity or loans on the property.

Chapter 7 Property Exemptions in New York

A Chapter 7 filing allows you to discharge debts in part by selling off property that is not exempt.


The primary residence is eligible for a “homestead exemption” that protects the equity in a home provided it does not exceed $150,000 per person. Spouses doing a joint filing can claim $300,000 in exemptions for a single home.


A single automobile that has $4,000 in equity can also be protected; this increases for those driving handicapped-equipped vehicles and are disabled to $10,000. Spouses filing jointly can raise this limit on one car to $8,000.

Equity is the difference between what is owed on the property and what it could sell for on the open market. In other words, equity is the money that a person could reasonably expect to receive after they sold the house or car and paid off the loan. Chapter 7 does not protect filers from creditors if they still owe money on a house or car. These are “secured loans”  and creditors use these properties as collateral. The lender can still repossess the property if one is either behind on their payments or falls behind later.

Keeping Property with Chapter 13

A Chapter 13 filing allows people to work out a repayment plan with their creditors and, as long as they keep up on their payments, they should be able to keep all their property. This type of filing is useful for those who are on the verge of losing their home, car, etc., but have the ability and income to catch up on their payments over a certain period of time (usually 36 months or 60 months). Creditors have to agree to the arrangement and allow you to pay back the money you owe. As long as the arrangements are honored, you should not have any further problems.

There are many aspects to filing for bankruptcy that you may want to seek legal help to understand. A New York bankruptcy lawyer can help guide you through the process and take advantage of all the options available to you. They can also help you determine whether the Chapter 7 or Chapter 13 filing is better for you to protect assets. The Law Office of Julio E. Portilla, P.C., is committed to handling your case personally, compassionately, and aggressively, and it will always maintain an open line of communication with you throughout the duration of your legal matter. Call for a free consultation to determine if you will lose your property if you file for bankruptcy.