Robert Manchel

NJ Law Changes For Modified Plans in Bankruptcy Explained

The explanation below relates to the handling of certain debt related to a New Jersey chapter 13 modified bankruptcy plan. The specific type of debt effected by the new law is connected to collateral, which includes auto financing, auto lease, house mortgage, and residential lease.  The explanation below refers to all types of the above listed debt as “certain debt”. Also, the explanation below works the same for all types of collateral related to “certain debt”.
A  chapter 13 plan may surrender an auto or house and eliminate the mortgage and/or auto finance and/or lease debt.  Also, a chapter 13 plan can reject a residential lease and eliminate the lease debt. All of the above may be accomplished by way of an original plan that has never been modified.  Until recently, a debtor could file a modified plan and eliminate “certain debt” by filing a modified plan, without issue. However, recently, a New Jersey bankruptcy judge determined that if a prior confirmed plan reflected that a debtor is keeping property associated with “certain debt”, and then files a modified plan to surrender the collateral, the debtor may be required to pay some money to the creditor.
For example, a debtor filed a plan which reflects that he is keeping his auto by paying the regular monthly payments to the auto lease company. The plan is confirmed by a bankruptcy court order. Thereafter, he wishes to surrender the auto through a modified plan. Previously, any auto payment arrears after the confirmed plan would not affect the debtor’s ability to file a modified plan and eliminate all of the debt.
However, recently, a New Jersey bankruptcy judge determined that, under certain circumstances, the subsequent modified plan would require the debtor to pay the total amount of the default to the creditor though the subsequent modified plan. The total amount that must be paid is the amount of the payment default after the confirmation of the first plan, through the date of the vehicle return /repossession,  or confirmation date of the subsequent plan. Also, the above explained amount must be paid through the modified plan only if the creditor files the appropriate documents with the court after the debtor provides the proper notice to the creditor. Although this law, in theory, applies to mortgages, it is very unlikely that the law will apply to mortgages, as the mortgage company will be unable to file the proper documents with the court.
The analysis below explains why a determination of one New Jersey bankruptcy judge may not apply to any other bankruptcy judges. A New Jersey bankruptcy court published or non published decision is not binding on any other bankruptcy court judge. This means that if a bankruptcy court judge makes a determination based on his interpretation of the bankruptcy code, no other bankruptcy judge is required to comply with such a determination. Each bankruptcy judge  is permitted to interpret the bankruptcy code differently, with a different result, unless the same law and legal application had been decided by  a higher court. An example is when the same situation had been decided by an appellate court in the same federal circuit.
Robert Manchel, the bankruptcy attorney in New Jersey, may be contacted at (866) 503-5655.

New Jersey Lawyer Explains Bankruptcy Modifications After Filing

The chapter 7 process in New Jersey lasts about 4 months. After approximately 4 months, the debtor is completely out of the bankruptcy case with an order eliminating certain debt. No payments are required like a chapter 13 case. Typically, there is no need to make any changes in a chapter 7, other than correcting information or the bankruptcy schedules.
A chapter 13 is very flexible and may be modified for numerous reasons. A chapter 13 requires monthly payments to the trustee for 36 to 60 months. The number of months of the plan depends on numerous factors. The amount of the monthly payment depends on: the type of debt; the plan’s goal; the debtor’s disposable income; and the debtor’s assets. A plan may be modified by filing a modified plan with the court. The debtor is required to pay no less than the debtor’s disposable income. In limited circumstances, the monthly payment may be modified, if the debtor’s household income is reduced. At the filing of a modified plan, the trustee requires updated proof of income.
A list of possible chapter 13 plan modifications are listed below. A debtor may wish to modify their plan to surrender a house, or auto, and eliminate the mortgage or auto finance debt. A debtor may wish to purchase a car or house, during the plan. Someone could modify their plan to remove the mortgage payments arrears, after a loan modification is consummated. The plan could be modified to reject any type of lease, including a rental or auto lease. There are numerous reasons for modifying a bankruptcy plan in New Jersey.
Robert Manchel, may be contacted at (866) 503-5655, to discuss your New Jersey bankruptcy options.

New Jersey Attorney Details How Chapter 7 Impacts Rental-Investment Properties

Debtor owned rental and investment property is considered an asset and a source of income in a New Jersey bankruptcy case. As a result, I will explain how the courts and the bankruptcy code deal with both issues. I will first explain how the bankruptcy code analyses’ the asset valuation issue.
In a chapter 7, a trustee may sell any unexempt asset with a substantial value. Typically the debtor must provide the trustee with a valuation statement from a licensed New Jersey real estate professional, such as a sales representative, broker, or appraiser. One must determine the equity in the property, which is the retail value minus the mortgage payoff. Thereafter, the trustee will typically permit an additional deduction of 10% of the sale’s value.
Example: One individual who owns 100% of an investment property, files a chapter 7 bankruptcy case.
Property value is $150,000;
Minus the mortgage payoff of 90,000;
Minus $15,000, which is 10% of the cost of the sale of $150,000.
The result after the deductions Is $45,000.00.
Minus the bankruptcy code’s allowable exemptions of approximately $12,725 is $32,275.00. Please note that allowable exemptions vary based on the circumstances of each case.
Based on the above example, the New Jersey chapter 7 trustee will sell the real estate and make an immediate payment of $12,725.00 to the debtor, in the amount of his exemptions. The balance of the $32,275.00 will be distributed to the creditors in the order required under the bankruptcy code. The trustee and his attorney will also be paid from the sales’ proceeds. The debtor will be paid the balance, if any, after the above referenced distributions.
Please note that one should not rely on the figures of the above example, as the figures will change based on numerous facts and each individual’s circumstances. The exemptions that are applied to investment real estate is different than the exemptions that may be applied to your residence. Also, the analysis is different when a debtor owns the house with a spouse or other individual.
As explained in another part of this website, two criteria of a chapter 7 case relate to the household disposable income. Investment and rental property is a source of income that must be considered as additional household income. As a result, one must determine the monthly income that is derived from the property, which is the rent received minus all property expenses, including: mortgage; property taxes; insurance; maintenance; estimated income tax, etc. The income must be added to the other household income in connection with, both, the current monthly income (means test) analysis and the future income and expense analysis. In general, if either analysis results in disposable income, the debtor does not meet the chapter 7 criteria.
Robert Manchel, the New Jersey bankruptcy lawyer, may be contacted at (866) 503-5655, to discuss your options.

All of the debtor’s assets owned at the time of the chapter 7 bankruptcy filing in NJ are part of bankruptcy estate. However, the debtor is permitted to keep all of his bankruptcy estate assets that are exempt under the bankruptcy code. The details of exemptions and how they work are explained in a separate portion of my website.
There is a very limited list as to when a debtor’s right to an asset after the filing, is included in the bankruptcy estate. An inheritance is an asset of the bankruptcy estate, if the decedent passed away prior to the bankruptcy filing or within 180 days after the bankruptcy filing. The time in which the debtor receives the inheritance is irrelevant.
The following is an example as to how this works. Please note that this fact scenario is extremely unlikely. Five months after the bankruptcy filing, the debtor’s relative passes away and leaves him $100,000. The debtor does not receive the funds until 9 months after the decedent’s demise. After the trustee receives notice of the asset, he will likely file a Motion to Reopen the case. Thereafter, when the debtor receives the funds, the trustee will obtain control of the asset and make a distribution to the creditors.
If the person passes away, prior to the bankruptcy filing and the debtor has not yet received the inheritance, the entire inheritance is still part of the bankruptcy estate. If the debtor has a right to a substantial inheritance, prior to the filing, the debtor may not wish to file the chapter 7. Prior to the bankruptcy filing, in New Jersey, the debtor should consider the health of an individual who may leave them an inheritance.
Robert Manchel, who handles chapter 7 and chapter 13 cases in New Jersey, may be reached at 866 535 5655.