Bankruptcy

Do I need an attorney to file bankruptcy?

There are many to things to consider when filing bankruptcy. Therefore, it is important that you have competent legal counsel guide you when filing. Our firm can help you decide which chapter to file under the Bankruptcy Code. Which exemptions should be used to help you maintain protected assets. These are a just a few among many other important financial decisions which must be made when filing for bankruptcy.

WATCH VIDEO ABOUT SEEKING/HIRING AN ATTORNEY TO FILE CHAPTER 7 BANKRUPTCY

Common Bankruptcy Myths Dispelled.

1.  MY BILLS MUST BE DELINQUENT, THE CREDITORS MUST BE CALLING, AND I MUST BE BROKE TO FILE BANKRUPTCY.

This is FALSE. If your bills are beginning to create anxiety and you see that you will not have the ability to pay them in the future, you do not have to wait until it is you are seriously delinquent and the creditors are chomping at your ankles. With a proper consultation with a bankruptcy attorney and good planning, you can avoid the stress of the lawsuits, judgments and wage garnishments that creditors will use to collect. You will also be able to protect your assets and avoid liquidating them trying to pay your bills.

2.  I WILL LOSE MY HOME IF YOU FILE BANKRUPTCY.

This is FALSE. If you have a mortgage in place and can afford to pay that mortgage, there is no reason the bank will try to take your home.  If you have equity in your home in excess of the mortgage, each state has different levels of protection for homes.  New Jersey doesn’t have a state exemption but you can elect the federal exemption which is $20,200 of equity per homeowner ($40,400 of equity for married couples).  

3.  MY CREDIT WILL BE RUINED IF I FILE FOR BANKRUPTCY AND MY CREDIT SCORE WILL PLUMMET.  

This is FALSE. If you are in a late on your bills or have your credit cards maxed out, your credit score probably has already been dragged down significantly.  The exact measure of a credit score is unknown, but just having too much credit outstanding (your debt to credit ratio) even if current can reduce your credit score.

In fact, after a bankruptcy discharge you are a much better credit risk than just about anyone else, creditors will consider the following:

• You have a clean financial slate.
• you most likely have little or no remaining unsecured debt
• you have just completed two course – one on credit counseling and the second on financial management
• you have just put together a household budget and have used the bankruptcy process to strip the unaffordable debt from your budget
• you understand clearly the implications of poor credit management
• you can’t file another Chapter 7 for 8 years

4.  EMPLOYERS WON’T HIRE ME AND I WON’T BE ABLE TO RENT AN APARTMENT IF I FILE BANKRUPTCY.

This is FALSE. Employers do not like to have employees that will be distracted by creditors and their collection tactics at the workplace or at home, because then the employee is unfocused and anxious about their financial situation. Neither does the employer want to deal with the extra accounting caused by wage executions. Furthermore, landlords prefer tenants who can use their salary to pay rent, not those paying creditors instead.

5.  IF I KNOW I AM GOING TO FILE BANKRUPTCY, I MIGHT AS WELL MAX OUT MY CREDIT CARDS.

This is FALSE. Recent large purchases of more than $550 for luxury goods bought within 90 days of filing and cash advances of $825 within 70 days of filing will stick with you and won’t be discharged. This type of activity could result in criminal charges against you.  Maxing out those cards will only create more problems in your bankruptcy filing and may lead to a dismissal of your case. Bankruptcy is not meant as a way to deceive the creditors and instead for the debtor who is trying to get a fresh start.

6. I SHOULD DO EVERYTHING I CAN TO AVOID BANKRUPTCY; INCLUDING LIQUIDATING ASSETS AND CASHING IN MY 401K OR OTHER RETIREMENT FUNDS.

This is FALSE. Retirement funds are one of the untouchables, meaning they are protected in bankruptcy. If you decide to draw upon your retirement funds prematurely to pay creditors you will face taxes and penalties on those retirement withdrawals, by the IRS, if not repaid. You should consult with a bankruptcy attorney for a consultation to see what assets of yours will and can be protected in a bankruptcy filing.

7.  MY IMMIGRATION STATUS WILL BE AFFECTED AND I WILL NOT BE CONSIDERED FOR CITIZENSHIP.

This is FALSE. Filing bankruptcy is NOT a crime and will NOT affect your Green Card or application for citizenship.

8.  MY FAMILY, NEIGHBORS AND EVERYONE WILL KNOW THAT I FILED FOR BANKRUPTCY, THERE IS NO PRIVACY!

This is FALSE. Although the U.S. Bankruptcy Court records are public aside from someone really looking for your records, people are not concerned enough to uncover your bankruptcy.  Over 2 million people filed for bankruptcy in 2005 and 2009 is looking to be close.  In these tough economic times you probably know someone who has filed for bankruptcy and just don’t know it.

Here are some people that filed bankruptcy in the past and you probably never knew

• Abraham Lincoln (16th President of the United States)
• Walt Disney (Oscar - winning film producer, animation & theme park pioneer (1923))
• Donald Trump (Billionaire entrepreneur)
  

This is FALSE – Remember that these companies are only middlemen and even though you pay the credit counseling agency, your relationship is still with your creditors. These companies rely on employees to get payments in on time; they make mistakes, prompting more fees and penalties by the creditors. Most people are vulnerable to a positive outlook by these debt counselors about their finances.  Unfortunately there are not always truthful and things don’t always get better. Check out this post about Debt Management Plans

10. I WILL HAVE TO PAY ALL MY CREDITORS BACK SOME DAY, SO WHY FILE BANKRUPTCY?

This is FALSE. In A Chapter 7 case, debts are discharged (wiped-out) except certain taxes, child support/alimony and student loans, for example.  In Chapter 13, you pay according to what you can afford over a period of time.  If you are saving house, most of your payments will be going to that arrearage.

11.  I HAVE FAILED IF I FILE FOR BANKRUPTCY.

This is FALSE. There’s more than meets the eye with bankruptcy. Empirical evidence shows that bankruptcies are generally caused BY HEALTH PROBLEMS (excessive medical bills), INCOME LOSS (loss of employment) and FAMILY PROBLEMS.  These are nearly the same things that cause foreclosures,  divorce and many other of the problems we face in life.

12.  I CAN’T AFFORD TO FILE BANKRUPTCY.

This is FALSE. You can’t afford not to file bankruptcy in some cases. As previously mentioned, even Donald Trump has been involved with corporations that have filed bankruptcy. Smart and business savvy people file to save themselves from a TOTAL loss. Spending what may seem like a lot of money today can save you much more in the future.  Most bankruptcy attorneys have payment plans.  A consumer bankruptcy attorney will show you how to free up money in your budget to allow you to pay the fees to file the case.  In Chapter 13 part of the fees can be paid through the budget plan.

There is no magic formula for deciding when bankruptcy is the right choice. It is an option you might consider if you:

Bankruptcy does not get rid of all debts. You are still responsible for:

• Alimony
• Child support
• Most recent back taxes
• Most student loans
• Recent large purchases of more than $550 for luxury goods bought
  within 90 days of filing
• Fines or penalties of government agencies
• Fraudulent debts
• Cash advances of $825 within 70 days of filing

As a consumer, you can file for bankruptcy in New Jersey under either:

• Chapter 7 (Straight Bankruptcy) to wipe out all debts except those listed and get an immediate fresh start or
• Chapter 13 (Wage Earner Bankruptcy) to set up a repayment plan to pay back your debts over several years' time.

Chapter 7 Bankruptcy

Chapter 7, otherwise known as "liquidation," is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships. A trustee (appointed by the court) gathers and sells your non-exempt property and uses the proceeds from the sale to pay your creditors.

Most chapter 7 cases are "no-asset' case, which simply means that you do not have any non-exempt property for the trustee to sell.

Federal bankruptcy laws provide for a "means test" which will determine whether you are eligible to file of Chapter 7 bankruptcy. If your income is below the median income for families in New Jersey, based on Census Bureau statistics, you will be eligible. If you make more than the median income for families in New Jersey, your income over the past six months is considered, along with mortgage and car payments, back taxes and child support due, and school expenses up to $1,500 per year. You won't be eligible for a Chapter 7 bankruptcy if, after deducting these amounts, and the living expenses provided in the Internal Revenue Service's national collection standards, you can still pay at least $6,000 ($100/month) to unsecured creditors over five years. If you don't qualify for a Chapter 7 bankruptcy, your only option would be a Chapter 13 bankruptcy.

The U.S. Trustee Program will apply the median family income data to all cases filed on or after February 1, 2008. This median family income data will be adjusted again after the Census Bureau updates the data.

For New Jersey, for cases filed after February 1, 2008, the median income for a single wage earner is $56,151; for a family of two, it is $64,821; for three, $83,306; and for four, $97,131. Add $6,900 for each individual in excess of 4.

You must obtain approved credit counseling before you can file bankruptcy and file any overdue tax returns within weeks of filing a Chapter 7 bankruptcy.

Filing Chapter 7

A bankruptcy starts with the filing of the official petition, schedules and a "statement of financial affairs" with the bankruptcy court. In order to complete the Bankruptcy Forms, you must provide a list of all of your creditors and the amount and type of their claim; the source, amount, and the frequency of your income; a list of all of your property; and a detailed list of your monthly living expenses. The filing fee for chapter 7 is $299.

As soon as you file for bankruptcy, your creditors are prevented from trying to collect on your debts through what's called an "automatic stay." The stay is designed to preserve your property and to give you a break from litigation.

Anyone you owe - or anyone who wants to continue collection proceedings during the bankruptcy process - must show the bankruptcy judge, after a hearing, that there is "cause" to be allowed to continue with collection action (for instance, by showing that the property might deteriorate in value during the bankruptcy process).

The trustee takes control of any property you do not get to keep. From the sale of your property, the trustee pays the expenses of the administration of the case, and then gives any remaining money to creditors with allowed claims, according to the priority of the claims (with claims that are "secured" by property being paid first). Any wages you earn after you file the case are yours, beyond the reach of creditors who had claims on the date you filed for bankruptcy.

341 Hearing - Meeting of the Creditors

Usually between 20 and 40 days after you file your petition, the trustee will hold the "first meeting of creditors" (also called a "341" meeting ).You must be present for that meeting. The trustee can ask you questions under oath about your property and debts. Creditors can also question you on those subjects, but seldom do.

Generally, the only responsibilities you have with respect to the bankruptcy after the 341 meeting is to cooperate with the trustee in providing any requested information.

Creditors have 60 days after the 341 meeting to convince the bankruptcy court you shouldn't be allowed to jettison your debts.

WATCH VIDEO OF BANKRUPTCY "341" MEETING OF THE CREDITORS

What Can I Keep?

You can choose one of two "exemption schemes" in New Jersey, whichever best suits your circumstances.

Under the first exemption scheme, from federal bankruptcy laws, you can keep:

• Your home, including co-op or mobile home, to $20,200
• Life insurance payments for person you depended on, needed for support
• Life insurance policy with loan value, in accrued dividends or interest to $10,775
• Unmatured life insurance contract, except credit insurance policy
• Alimony, child support needed for support
• Pensions and Retirement Benefits, ERISA - qualified benefits needed for support
• $525 per item in any household goods up to a total of $10,775
• Health Aids
• Jewelry to $1,350
• Lost earnings payments
• Your motor vehicle to $3,225
• Personal injury compensation payments to $20,200, wrongful death payments, crime victims' compensation, public assistance, social security, unemployment compensation, and veterans' benefits
• Tools of trade up to $1,850
• Wild Card - $1,075 of any property plus up to $10,125 of any amount of unused homestead exemption

Married couples may double the amount of the federal exemptions.

If you choose the second exemption scheme, under New Jersey bankruptcy laws, you can generaly keep:

• Goods and chattels, shares of stock or interest in any corporation, up to $1,000 in value
• Clothing
• Household goods and furniture, up to $1,000 in value
• Burial plots
• ERISA-qualified pension benefits
• Public employees' pensions
• Crime victims' compensation, aid to the aged and/or disabled, workers' compensation and unemployment compensation
• Property of a business partnership
• Annuity contract proceeds, up to $500 per month
• Fraternal benefit society and health or disability benefits
• Disability or death benefits for military personnel
• Disability, death, medical or hospital benefits for civil defense workers
• Groups life or health policy proceeds
• Life insurance proceeds if a clause in the policy prohibits the proceeds from being used to pay the beneficiary's creditors
• Life insurance proceeds or avails if you are not the insured
• 90% of earned but unpaid wages if your income is less than $7,500 per year; if your income is over $7,500 per year, the judge will decide how much of your wages to exempt
• Wages or allowances received by military personnel

A bankruptcy does not wipe out voluntary liens, like mortgages and deeds of trust, or tax liens. So the lender still has the right to foreclose if you do not pay. If you pay, everyone is happy. Remember, the lender does not want the property; it wants you to pay regularly on the loan. Foreclosure is a last resort for the lender if it concludes it can't get the owed money any other way.

If you still owe money on the car, you can choose to reaffirm the debt to the secured lender. Under the new law, you have to reaffirm your car loan within 45 days after the "341 meeting." You no longer have the option of continuing your car payments without reaffirming the loan. Once the loan is reaffirmed, if you default on your payments and the car is repossessed, you are liable for the repossession deficiency.

You also have the option to redeem the car within 45 days of the "341 meeting" by buying it from the secured creditor in a single payment for its present value.

Chapter 13 Bankruptcy

If you are an individual or a sole proprietor, you can file a Chapter 13 bankruptcy to pay off all or part of your debts over three to five years. Rather than wiping out debts immediately, this option allows you to reorganize them so you have time to pay.

Many people who file Chapter 13 bankruptcies have:

• Mortgages or other loans they would like to bring current, so they do not lose their homes or other property
• Taxes, child support or student loans that can't be wiped out by Chapter 7 bankruptcy
• Moral convictions that debts should be paid no matter how long it takes

Some of the ADVANTAGES of filing a Chapter 13 are:

• Flexibility; a Chapter 13 can be dismissed or converted to a Chapter 7 at any time by the debtor.You can modify a plan if income changes or you decide to give up a house or a car.  You can refinance or sell a house during the plan.
•  You can strip a wholly unsecured second mortgage; or the value a car if you’ve had it more than 910 days
• You can challenge the costs and additional charges added to the balance of your mortgage by the lender.
• Trustees want the plan to succeed and will work with you to get it confirmed.
• There are more debts that can be discharged including some divorce payments and damages for malicious and willful acts
• Your attorney’s fees can be spread out rather than all due before filing.
• When married a Chapter 13 can be filed for one spouse. This is also true of a Chapter 7 but there are advantages to the 13.
• You can avoid having to reaffirm a car in order to keep it.
• You can solve a tax problem or DSO (domestic support obligation) over the course of the plan, up to 60 months.
• You can stretch out your payments for a car or other secured debt over the course of the plan.
• You will not lose non-exempt property.
• Depending on your income (means test) a trustee can challenge a Chapter 7 filing; the trustee cant challenge a 13.

For a Chapter 13 bankruptcy, you will need a stable income with disposable income (income left over after you pay the bare necessities of life such as shelter, food and utilities). This is why it is often referred to as "wage earners" bankruptcy; you must have wages (income) to keep the plan viable. You must have no more than $1,081,400 in secured debt (debt involving property that your creditor might take if you do not make your payments) and $360,475 in unsecured debt.

The filing of the Chapter 13 petition must be accompanied by a proposed payment plan extending over three to five years. The proposed payment plan must provide for the payment of all "priority claims," such as taxes, in full.

The bankruptcy trustee appointed by the Bankruptcy Court must review the proposed plan for accuracy and flexibility. The proposed plan is distributed to creditors, who have the right to object to the plan if it is unreasonable. If the plan is approved, you can keep all your assets during the period of the plan. You make monthly payments to the bankruptcy trustee, who distributes the funds to the creditors according to the plan. If the plan is completed as approved, your unpaid debts are "discharged." If you do not complete the repayment plan as approved, you will have several other alternatives which I can explain to you.

The discharge in a chapter 13 case is somewhat broader than in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property (as opposed to a person), debts incurred to pay nondischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings. 11 U.S.C. § 1328(a).

WHAT IF I CANT STICK TO THE PLAN?

If you can't keep the plan that was formulated, there are still options open.

1. Convert it to a 7 A debtor in a chapter 13 case has the right to automatically convert the case to chapter 7 at any time. This is done by filing a Request for Conversion form with the Clerk’s Office. Once the case has been converted to chapter 7 the debtor no longer has to continue making chapter 13 plan payments. The debtor can obtain a discharge of his/her dischargeable debt in the chapter 7. An example of a situation in which someone might do this is if they had filed chapter 13 for a very specific reason, such as to try to catch up on car loan payments or home mortgage payments to prevent loss of the car or foreclosure, but they weren’t able to successfully make the required catch up payments and lost the car or house. In that situation it may not make sense to continue to be in chapter 13 and conversion to chapter 7 may make more sense.

2. Voluntary Dismissal. A debtor in a chapter 13 case has the right to voluntarily dismiss his or her case at any time. Individuals who file chapter 13 to try to catch up with payments on a car loan, home mortgage or apartment lease often will seek to dismiss their cases once they have caught up with payments. Some individuals decide they no longer want to be in chapter 13 repayment plan. By voluntarily dismissing a chapter 13 case the debtor is no longer bound by the chapter 13 plan and no longer required to make monthly plan payments Of course, a debtor who dismisses a chapter 13 before making all payments required under the plan will not receive a discharge.

3. Amend Chapter 13 Plan. Another option for a debtor who is unable to make chapter 13 plan payments is to amend the chapter 13 plan to adjust the payment schedule to either reduce the monthly plan payments or extend the length of a plan (not longer than 5 years total from time of 1st payment). In some situations a debtor may need to adjust the monthly play payments to reflect changes in income, such as reduced wages resulting from reduced working hours. In those situations the debtor can apply to the bankruptcy court to amend the chapter 13 plan to reflect his/her decreased income by reducing the monthly plan payments. Amendment of a chapter 13 plan requires a motion to amend the plan brought on notice to the chapter 13 trustee and all creditors.

HOW LONG WILL THIS ALL TAKE?

• The payment plan (Chapter 13 plan) is typically to be submitted within 15 days of filing the petition.

• Typically the first payment made in the plan, is made 30 days after the plan is submitted (regardless of whether the plan is approved).

• Usually between 20 and 40 days after you file your petition, the trustee will hold the "first meeting of creditors" (also called a "341" meeting ).You must be present for that meeting.

• A confirmation hearing will typically be held 20-45 days after the meeting of the creditors. 

• Then, as previously mentioned, the Chapter 13 plan will have a life span of between 3 to 5 years.

I’ve filed Bankruptcy in the past; can I file now?

There is no limit on the number of bankruptcy cases that a petitioner may file. In fact, there is no limit in between time frames to file bankruptcy. You must however have sufficient time between filings in order to be eligible for a “discharge.”

So if a bankruptcy case is filed prematurely, although it will not be dismissed, a discharge will most likely not be an option. So why file with no discharge avialable? Here are a few situations where the creditor can still use bankruptcy as a shield:

• Where a debtor wants to eliminate their debt in a subsequent chapter 7 and has sufficient assets to do so, filing again could provide this result.

• Where a debtor has a unliquidated asset(s) (lawsuit, insurance claim, etc) and wants to use that to pay creditors, filing another chapter 7, the debtor can then let the trustee liquidate the asset(s) into dollars, who will then pay the debtors with the converted cash.

• Where a debtor recently filed a chapter 7 and has remaining non-dischargeable debts. The debtor could then file a subsequent chapter 13 and be protected for the next 5 years against wage garnishmente, lawsuits, foreclosure, etc. Although, after 5 years there will be no discharge,  at this time the debtor might be eligible to eliminate the debt in another chapter 7 or 13.

The time frames between discharge eligibility are as follows:

• 8 years between chapter 7's. US BANKRUPTCY CODE 727(a)(8)
• 2 years between chapter 13's. US BANKRUPTCY CODE 1328(f)(2)
• 4 years between a chapter 7 and chapter 13 US BANKRUPTCY CODE 1328(f)(1)
• 6 years between a chapter 13 and chapter 7(if under 70% plan). US BANKRUPTCY CODE 727(a)(9)

The time is counted from filing to filing — not from first discharge to second filing.

As you can see a discharge is not always an option due to time provisions but bankruptcy may still be good debt relief and management. Creative filing techniques and good knowledge of the bankruptcy code will allow an attorney to get the debt relief you need.

Navigate to the website below for more information about Bankruptcy in New Jersey:

http://www.njb.uscourts.gov/