Bankruptcy is a federal legal process that allows individuals overwhelmed by debt to either eliminate most of what they owe or restructure payments into a manageable plan — with court protection from creditors while the process unfolds. For many New Yorkers facing crushing debt from medical bills, credit cards, job loss, or business failure, bankruptcy is a legitimate legal tool — not a last resort of shame. This guide explains the basics of personal bankruptcy in NYC, who it helps, and where to get free legal advice.
The Two Main Types of Personal Bankruptcy
Chapter 7: Liquidation Bankruptcy
Chapter 7 is the most common form of personal bankruptcy. It eliminates (“discharges”) most unsecured debt — credit cards, medical bills, personal loans, utility arrears — quickly, typically within 3–6 months of filing.
Key features:
- Most unsecured debts are discharged permanently
- Process typically takes 3–6 months from filing to discharge
- You must pass a means test — your income must be at or below the median income for your household size in New York, or you must demonstrate insufficient disposable income after expenses
- Non-exempt assets can theoretically be liquidated by a trustee to pay creditors — but New York’s generous exemptions protect most people’s essential property
Chapter 13: Reorganization Bankruptcy
Chapter 13 allows you to keep assets (including a home you’re behind on) while repaying some or all debts over a 3–5 year payment plan, under court supervision.
Key features:
- Can stop a foreclosure and allow you to catch up on mortgage arrears
- Structured payment plan — typically 3 years for below-median income filers, 5 years for above
- You must have regular income to fund the plan
- Useful when you have assets to protect or debts that can’t be discharged in Chapter 7
What Debts Can and Cannot Be Discharged?
Debts that CAN typically be discharged in bankruptcy:
- Credit card debt
- Medical bills
- Personal loans
- Utility arrears
- Lease obligations (with some exceptions)
- Some older income tax debts (complex rules apply)
Debts that CANNOT be discharged:
- Child support and alimony
- Most student loans (very narrow exceptions)
- Recent income tax debts
- Fines and penalties owed to government agencies
- Debts from fraud or intentional wrongdoing
- Criminal restitution
New York State Exemptions: What You Get to Keep
New York has generous bankruptcy exemptions — property that creditors cannot take even in a Chapter 7 case. Key NYC exemptions include:
- Homestead exemption: Up to $179,975 in equity in your primary residence (in the NYC metropolitan area — this figure adjusts periodically, verify current amount)
- Personal property: Household furniture, clothing, and appliances up to certain values
- Vehicle: Up to $4,825 in equity in one motor vehicle
- Retirement accounts: Most retirement accounts (401k, IRA, pension) are fully protected
- Wages: 90% of earned but unpaid wages are exempt
- Public benefits: Social Security, unemployment, disability, and most government benefits are fully exempt
- Tools of the trade: Equipment and tools necessary for your profession up to a certain value
The Automatic Stay: Immediate Protection
The moment you file for bankruptcy, a powerful protection called the automatic stay immediately halts virtually all collection actions against you:
- Creditor phone calls and letters must stop
- Wage garnishments must stop
- Bank account restraints must be lifted
- Lawsuits against you are paused
- Utility shutoffs are temporarily prevented
- Foreclosure proceedings are paused
The automatic stay gives you breathing room while the bankruptcy case proceeds.
Bankruptcy and Your Credit
A Chapter 7 bankruptcy remains on your credit report for 10 years; Chapter 13 for 7 years. This affects your ability to get credit, housing, and sometimes employment in the short term. However, for people already in severe financial distress — with judgments, garnishments, and collection actions — bankruptcy often improves their financial situation faster than the alternatives. Many people rebuild their credit within 2–3 years after discharge.
Bankruptcy and NYC Rent-Stabilized Apartments
Filing bankruptcy does not automatically terminate a rent-stabilized lease. A rent-stabilized lease is a valuable asset — it can be assumed (kept) by the bankruptcy trustee or by you. If you are behind on rent, bankruptcy may give you time to catch up, but it does not eliminate a landlord’s right to pursue nonpayment in housing court after the automatic stay is lifted. Consult a bankruptcy attorney about how to protect your apartment in bankruptcy.
Where to Get Free Bankruptcy Advice in NYC
- NYC Bar Association Lawyer Referral Service: (212) 626-7373 — $35 for a 30-minute consultation
- Legal Aid Society: (212) 577-3300 — free help for income-qualifying individuals
- NYLAG: (212) 613-5000 — bankruptcy counseling and representation
- Eastern District of New York Bankruptcy Court Pro Se Help: 271 Cadman Plaza East, Brooklyn — free assistance for self-represented filers
- Southern District of New York Bankruptcy Court Pro Se Assistance: One Bowling Green, Manhattan
- National Foundation for Credit Counseling: 1-800-388-2227 — required credit counseling before filing
Frequently Asked Questions
Will I lose my apartment if I file for bankruptcy?
Not automatically. If you are a renter, your lease continues unless the trustee rejects it. If you are current on rent, filing bankruptcy generally does not affect your tenancy. If you own a home, New York’s homestead exemption protects significant equity. Consult a bankruptcy attorney before filing to understand the specific impact on your housing situation.
Does filing bankruptcy stop an eviction?
The automatic stay temporarily pauses eviction proceedings. However, landlords can petition the bankruptcy court to lift the stay to proceed with eviction, and courts often grant this for residential eviction cases. Bankruptcy is generally not a reliable long-term strategy for stopping eviction — it buys time but does not resolve the underlying nonpayment issue.
Can I file bankruptcy myself without a lawyer?
Technically yes — “pro se” bankruptcy filing is permitted. However, bankruptcy law is complex and mistakes can result in your case being dismissed or debts not being discharged. The bankruptcy court pro se assistance programs at Eastern and Southern District courthouses can help. For most filers, at least an initial consultation with a bankruptcy attorney is strongly recommended.
What is credit counseling and is it required?
Federal law requires everyone who files bankruptcy to complete a credit counseling course from an approved provider within 180 days before filing, and a debtor education course before discharge. Both are available online and typically cost $15–$50, with fee waivers available for very low income filers. Find approved providers at the U.S. Trustee Program website: justice.gov/ust.
