Robert Manchel

What Happens When You File for Bankruptcy in New Jersey

What is Bankruptcy?

Bankruptcy laws are federal laws. The bankruptcy laws are located in a federal law book that is called the bankruptcy code. Bankruptcy courts are part of the federal court system, which is separate from the state courts. In New Jersey, there is one bankruptcy court in Trenton, Camden and Newark. The bankruptcy courts are located in the federal court buildings, where all federal cases are handled.

Federal bankruptcy laws are granted power over all state courts. Therefore, if a debtor who files for bankruptcy protection in New Jersey owns real estate in three separate states, the bankruptcy court has control of the property in all states. Sometimes a bankruptcy court will temporarily send a dispute back to the state court for the resolution of an issue, such as child support payments.

In general, bankruptcy deals with personal and business debt, in addition to controlling the actions of creditors regarding the debt. For example, bankruptcy may allow a debtor to avoid eviction because of the nonpayment of debt, but not as a result of playing load music.

How Can Bankruptcy Help Me? (Why File)

Bankruptcy can help a person with the following: permanently eliminate debt; avoid utility shut off; save house from foreclosure; save an auto from repossession; stop residential eviction actions; eliminate all or partial tax debt; ease support or alimony payments; stop debt collection; possibly stop any action that is a result of having not paid a debt; stop a creditor from taking property; immediately stop a creditor from suing someone.

Someone that files for bankruptcy protection is called a debtor. Typically, a debtor will file a chapter 7 case for the purpose of eliminating all unsecured debt, such as credit card debt or personal loans.

Chapter 13 cases are typically filed for the following reasons: save a house from foreclosure; save a car from repossession; eliminate most unsecured debt because the debtor did not meet the chapter 7 criteria. The portion of the unsecured debt that is not paid, is eliminated in a chapter 13.

Typically, a person will file for chapter 11 bankruptcy protection for the same reasons as a chapter 13. However, the person does not meet the chapter 13 criteria because the amount of debt is substantial. Also, a corporation or limited liability company must file a chapter 11 case to reorganize, as they are unable to file a chapter 13. Chapter 11 cases also help businesses with financial issues, continue to operate.

All bankruptcy chapters deal with all of the debtor’s debts and creditors and not just the one debt or creditor that is their major concern. For example, someone may want to file for the sole purpose of avoiding auto repossession, due to payment arrears. However, the bankruptcy laws apply to all of the person’s debt and creditors and not only the auto finance issues.

A person named a trustee is appointed to administer each case. The responsibilities of a chapter 7 trustee are different than chapter 13 and chapter 11 trustee.

COVID-19 caused millions of Americans to lose their jobs, reducing their working hours, skipping on needed insurance policies, and eventually filing for bankruptcy. People are worried about more than just their financial security. If you’re thinking about bankruptcy, you might want to think about alternatives or find other sources of assistance.

With incomes getting slashed, households are feeling the burn. Families in financial turmoil continue to have a lot of concern. Having to file bankruptcy might seem like a last resort in such a scenario, but those who are struggling financially from such situations still have the option to do so.

Many people today are experiencing financial pressure due to the reduced income. This translates to a decreased amount of money to be spent on things essential to living, such as food, medicine, or housing. 

In addition to economic stress, some people may be bothered by paying off debt. Personal loans and credit cards are examples of debts a number of people are reluctant to settle.

What is bankruptcy?

Although bankruptcy doesn’t clear all debt, it gets rid of most things that happen during the COVID-19 pandemic, like missed rent, credit card debt, and medical debt. The most common types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 is a liquidation bankruptcy, meaning all the non-exempt assets get sold and all the proceeds go to creditors. 

A means test is typically required for debtors filing under Chapter 7 unless they owe more on their business debt than their personal debt. When a person loses their job, they may not be able to file right away because their income is assessed after six months.

A Chapter 13 bankruptcy, on the other hand, is for people who can pay off their debts over three to five years. No assets are given up, but instead, discretionary income is channeled into a repayment plan. 

Usually, people who are in a Chapter 13 bankruptcy will have more financial resources than those who are in a Chapter 7 bankruptcy. 

While the entire process is a lot more time-consuming than a Chapter 7 bankruptcy, it can prevent the loss of critical assets such as one’s home and car. However, people who have lost their jobs may struggle with finding a viable means to repay the loans.

Debt accumulated after filing for bankruptcy is not dischargeable, and you can only file for bankruptcy under Chapter 7 once after eight years have passed. The time gap between filings under Chapter 13 and filing under another chapter is two years. This is why consumers may want to wait until they’ve accumulated all the debt they’re going to get before filing bankruptcy.

How to Avoid Bankruptcy During COVID-19

Access Your Finances

An important first step people need to take to safeguard against bankruptcy is to make sure they have their accounts in good standing both now and in the future. It is important to maintain those accounts in good standing by letting everyone know about their monthly net income.

You need to figure in money from unemployment insurance, current salaries, and anything else. Reported income should also include net income, which is your income after taxes and deductions.

Keep your financial situation in check by staying on top of all your bills, staying in the black as long as possible so that your income picks up, and making ways to settle with your lenders.

In addition to credit cards and other forms of loans, borrowers may also acquire debt via subordinate loans such as medical and auto loans. When you add up your debts, make sure to include the minimum payments due to each of these obligations. 

You can only get ahead if you cut unnecessary expenses out of your budget. At least for a temporary period, you need to live a little closer to home and try to eat out less frequently. Consider cutting expenses in other areas of your budget when further reducing your grocery expenditures isn’t practical.

Earning an additional income is another way to improve your finances. A part-time job can add a lot to an individual’s income. A different possibility would be to contribute to the gig economy to make more money. Working more may not be possible, so one can sell possessions on online marketplaces.

COVID-19 Aid, Relief and Economic Security (CARES) Act

Under the CARES Act, credit card companies and lenders are required to make accommodations that allow you to pay less than the minimum amount due within a specified period of time without negatively impacting your credit score.

The CARES Act sparked the Paycheck Protection Program. Your small business could qualify for a loan backed by the Small Business Administration. Getting help with payroll and debt repayment is just two perks of these special loans.

The provisions of the new CARES law provide heightened protections for homeowners who have federally-insured mortgages.  The CARES Act provides small business owners the opportunity to secure a special loan to assist with their cash flow. The loan will be forgiven provided that the proceeds are used to pay for payroll costs.

Create a Debt Management Plan

A debt management plan can help you to avoid bankruptcy as well. Credit counselors help debtors lower their interest rates or reduce the payoff amount. If you wish to refrain from submitting for bankruptcy during these hectic times caused by the COVID-19 outbreak, developing a sound financial strategy is necessary.

A federally-backed mortgage may allow you to reduce or suspend your monthly payments for up to 12 months if you are receiving a federal grant. To find out whether you qualify, contact your mortgage lender. 

Make sure you ask all your professional service providers about discounts if you are eligible for anything. They may be able to help you by replacing your electricity, gas, water, sewage, removal, and Internet bills with COVID-19 alternatives that may reduce your monthly bill substantially.

Your friends and relatives might be able to lend you some money during this trying time. Make sure you keep a record of the amount owed to you and keep up with the repayment schedule to keep your relationship intact.

Consider enlisting the assistance of debt management companies if you need more money to pay back creditors. As an alternative to bankruptcy, the program of credit counseling involves you paying your creditors through a credit council organization. 

It is also possible for you to qualify for a reduced interest rate and for any late fees to be waived, thereby making this option a worthwhile financial option. You may wish to check with your credit card provider for assistance.

Vhanessa Hair is a finance expert who writes and researches for the insurance comparison site, QuickQuote.com.