Tax liens are a tactic utilized by tax agencies to collect on past debts. During a bankruptcy hearing, tax debts may become secure if the taxing authority obtains a tax lien. Tax liens are most often placed on homes and it applies to the equity on the property. A tax lien cannot be removed by a bankruptcy filing, but a debtor’s liability to pay the tax may be released if all other requirements are met. This means that the taxing authority may sell off the debtor’s assets and property that is not exempt. In such cases, only the property and items owned at the time of filing will be considered.

Secured and Unsecured Tax Liens

Tax liens are only secured to the extent that there is value in the property in question. If a tax lien is put on a debtor’s home for $40,000 but there is only $30,000 worth of equity available on the property, then $30,000 will be secured and $10,000 will be unsecured. As long as the tax is not a priority tax, the unsecured portion of the tax lien will be discharged in bankruptcy. Secured tax liens are generally not discharged in Chapter 13 bankruptcy payment plans.

Do Tax Liens Survive Bankruptcy?

Every case is different. Unsecured tax liens will often be discharged. Secured tax liens can survive bankruptcy, but the IRS will only pursue repayment further if there is equity available. If the remaining assets after a bankruptcy include only furniture and clothes, then it is unlikely that the IRS will continue their secured tax lien.

Creditors and Exemptions

In many ways, the IRS is simply considered another creditor during a bankruptcy hearing. Past debts may be settled through bankruptcy and the IRS typically accepts bankruptcy decisions to settle disputes.

You cannot have your debts removed without losing personal items that have value. Creditors will seek payment for debts by obtaining and selling valuables that are not protected under federal exemption laws. Property that is exempt from federal tax seizure include:

• School books
• Clothes
• Up to $6,250 of household furniture, effects, fuel and livestock.
• Up to $3,125 worth of tools of trade and books
• Workers compensation benefits
• Unemployment benefits
• Military disability benefits

Understanding the pros and cons of bankruptcy is the best way to know if it is right for you and your family. Having your debt removed can be a great way to start over and relieve yourself of financial burdens. It can also mean that you lose many of your belongings and whatever credit privileges you may have acquired over the years. The decision to file for bankruptcy should not be taken lightly and it should be done with the assistance of a trained and experienced professional.

Contact a Bankruptcy Lawyer in New Jersey

If you are considering filing for bankruptcy in New Jersey, please contact the law offices of Robert Manchel to examine and evaluate your financial options. Call us at 866-503-5655 for a no-cost consultation today.

There are numerous types of debts owed to a governmental unit that are not dischargeable (eliminated) through any bankruptcy filing. However, there are also various types of debt that appear to be owed to a governmental unit that may be dischargeable, such as an over payment of unemployment benefits, EZ Pass fines and NJ. auto surcharges.

Typically, State and/or municipal traffic fines are not dischargeable (eliminated) in bankruptcy. Therefore, in a Chapter 7, a discharge will not eliminate the debtor’s obligation to pay said fines. In a chapter 13, the fines may be paid, but not discharged.

Chapter 7

No monthly payments are required in a chapter 7 case and the entire bankruptcy proceedings is a about 4 months, after the filing. If the 4 months, certain debt is either discharged or not discharged. Any non-discharged debt is still owed to the creditor after the bankruptcy is completed.

 

Chapter 13

Under all circumstances, the fine must be paid and is not dischargeable.

The New Jersey municipality that levies the fine decides whether the debtor may pay the fine through the bankruptcy plan. If the Municipality consents, the debtor may pay the fine through the monthly chapter 13 bankruptcy plan. If the municipality does not consent, the debtor must pay the fine directly to the municipality pursuant to their terms.

A bankruptcy filing will not eliminate or modify any non-monetary sanctions issued by the State of New Jersey and/or town or municipality, with one exception. In other words, if the State of New Jersey, municipality, county or town orders a license suspended for a certain time period, the bankruptcy court does not have the ability to modify such an order.

NJ Bankruptcy Lawyers

For more information about traffic violations or fines as they relate to your bankrupty case, contact the experienced New Jersey bankruptcy attorneys at the Law Offices of Robert Manchel. We are available via our online contact form or call us at 866.503.5655 for a free consultation.

A “Reaffirmation Agreement” relates only to a Chapter 7 bankruptcy case. For more information about keeping property through bankruptcy, browse our sections about keeping real estate and personal property in Chapter 7 and keeping property in a Chapter 13 bankruptcy

Although a “Reaffirmation Agreement” relates to any and all collateral personal property, typically, in practice, the agreement relates to retaining only vehicles.

In short, The “Reaffirmation Agreement” is a contract with a finance company that reaffirms the debt with the finance company. The effect of the agreement is that the debt owed to the finance company is still owed to the creditor after the bankruptcy case is complete. If the finance company and the debtor enter into a Reaffirmation Agreement, that is approved by a judge, the debt to the financing company is not discharged (eliminated).

This means that after the debtor receives a discharge in connection with all other debt, the vehicle financing debt is still owed. This also means that in the event of any default in the future, the finance company may sue the debtor for the funds due on the loan, in addition to repossessing the automobile.

The bankruptcy code requires that specific terms and conditions are included in the “Reaffirmation Agreement”. Also, in most circumstances, the agreement must be approved the judge. A judge will approve the “Reaffirmation Agreement” if he believes that monthly finance payment is not an undue hardship. If the judge believes that the agreement’s monthly finance payment presents an undue hardship, the judge will not approve the agreement.

Generally, a judge’s determination of undue hardship is based on the debtor’s monthly available income to pay the monthly financing, after net income and expenses. Additionally, the judge will look to the necessity of the vehicle and whether the monthly payment is reasonable.

If the judge does not approve the “Reaffirmation Agreement”, she will typically include in the denial order that the debtor may continue to keep the car as long as the monthly payments are current.

Most finance companies will allow a debtor to keep the vehicle without signing the agreement and/or filing it with the court.  Typically, under this scenario, the debtor may keep the car if the payments are current. If the payments are not current, at any future time, the finance company will repossess the auto. However, in this scenario, the finance company is not permitted to sue the debtor for the debt, as the debt was technically discharged and eliminated through bankruptcy.

At the time of writing this page, Ford Motor Credit Company will not allow a debtor to keep a vehicle, if he does not file a timely “Reaffirmation Agreement” with the court. However, Ford will allow a debtor to keep the car and make payments, even though the judge denies the agreement, if the agreement was timely filed with the court.

If the debtor does not file the agreement and the finance company allows him to keep the car by making timely payments,  the finance company will not report the timely payments to the credit bureaus.

Due to creditor’s fraud and undue pressure with regard to enticing debtors to sign the agreement, the Bankruptcy Code includes specific terms and clauses that are required to be included in the “Reaffirmation Agreement”. In practice, all creditors use the same “Reaffirmation Agreement” form, which includes all the required information.

The following terms are required to be included in the “Reaffirmation Agreement”:

1. the agreement represents a fully informed and voluntary agreement by the debtor;
2. the agreement does not impose an undue hardship on the debtor;
3. debtor’s attorney fully advised the debtor of the legal effect and consequences;
4. debtor’s attorney may sign a certification indicating that the payment to the finance company is not an undue hardship.

For obvious reasons, debtor’s attorneys will most likely not swear that a debtor’s finance payment is not an undue hardship.  Typically, in New Jersey, after the “Reaffirmation Agreement” certification is signed, it is filed with the Court and scheduled for a hearing. At the hearing, the debtor must appear before the judge and explain the need for the property and why the payment to the finance company is not an undue hardship. Presently, the judges are allowing debtors to participate at a hearing by telephone.

Contacting a Chapter 7 Bankruptcy Attorney

If you are considering filing for bankruptcy, you may need to take steps to prevent your vehicle from being repossessed. Contact experienced New Jersey bankruptcy attorney Robert Manchel, if you have any questions about your chapter 7 bankruptcy or Reaffirmation Agreement. Free consultations.

New Jersey Bankruptcy Lawyer Discusses the Effects Of a Bankruptcy Discharge and Debt Elimination

In the event that the Chapter 7 debtor meets all the criteria of filing a Chapter 7 bankruptcy, the debtor is entitled to a discharge. A discharge is the elimination of debt. A discharge means that no pre-petition (prior to the bankruptcy filing) creditor may commence or proceed with an action against the debtor with regard to any pre-petition debt. A general discharge discharges the debtors’ personal liability. This means that a creditor may never proceed against a debtor for collection of the money that is due on a debt. In other words, a creditor may never sue a debtor for money, or attempt to obtain payment for the debt, such as levying on their bank accounts and garnishing their wages.
A discharge does not prevent a creditor from proceeding against the debtor for possession of property that was provided as collateral, such as a house, furniture or other property. In the event that a creditor has a legitimate secured interest in the property of the debtor, the creditor is permitted to commence or proceed with an action to obtain possession of the property, in the event that the debtor is in default with the contract to make payments. In other words, if a Chapter 7 debtor receives a discharge from the court and the debtor is in arrears with their mortgage payments, the mortgage company may proceed with a foreclosure action but may not proceed with an action against the debtor for the money that is due on the mortgage.
Pursuant to the 2005 bankruptcy amendments, a debtor may keep possession of their car, only, if they enter a reaffirmation agreement with the auto finance company and the court approves the agreement. Typically, the debtor must also be current with the auto finance payments at the time of the Reaffirmation Agreement. Reaffirmation Agreements are explained in a separate portion of this website.
The discharge only eliminates debt that was incurred prior to the bankruptcy filing. The bankruptcy code specifically lists types of debt that are not discharged in a Chapter 7, even though the debtor meets all the criteria.

The following debts are not discharged in a Chapter 7 and the debtor is still liable for these debts:

• certain types of tax liability;
• debt incurred by fraud;
• lack of certain notice to a creditor;
• debt incurred by debtor’s willful and malicious injury;
• a fine that is due to a governmental unit;
• student loans;
• death or personal injury caused by debtor by way of drunk driving;
• child support or alimony;
• a debt due to a spouse or former spouse in connection with a divorce or separation agreement;
• post-petition condominium fees;
• if the debtor committed fraud with regard to any aspect of the bankruptcy process;
• debtor’s failure to cooperate with the court and/or the trustee;
• etc.

The following debt is presumed to be non-dischargeable:

• consumer debt incurred to a single creditor for luxury goods and services in the total amount of more than $500 within 90 days before the bankruptcy filing;
• cash advances incurred within 70 days of the bankruptcy filing in an amount in excess of $750.

Please note that even though the trustee and the court may agree to enter an order of discharge, a particular creditor may contest the discharge of your particular debt to that creditor, based on fraud. Under this scenario, the creditor may bring what is called an “Adversary Complaint”, to contest the dischargeability of that particular debt.

DISCHARGE IN CHAPTER 13

As explained in our section about differences between Chapter 7 and Chapter 13, any debtor in Chapter 13 is required to make the monthly payments to a trustee for 36 to 60 months. Each month the trustee makes a disbursement to the appropriate creditors. Typically, in a Chapter 13, the order of discharge or court order eliminating debt is entered after the completion of the plan. Therefore, it may take 36 to 60 months to obtain a discharge of your debt, unlike the Chapter 7 where a discharge is typically entered approximately five months after the filing of a Chapter 7. Typically, the following debt is excepted from a discharge in a Chapter 13:

1. in the event that the debtor received a discharge in a Chapter 7 or Chapter 11 within four years prior to the filing of the present Chapter 13 case;
2. in the event that the debtor received a prior Chapter 13 discharge within two years of the filing of the present case;
3. the debtor has failed to pay all required court ordered domestic support obligations throughout the entire chapter 13 plan;
4. certain taxes;
5. debt that is incurred by fraud;
6. failure to provide notice to the creditor under certain circumstances;
7. debt that is due for a domestic support obligation;
8. student loans;
9. if the debtor caused death or personal injury from a DUI;
10. debt that is based on restitution in connection with a criminal action.

A discharge in connection with a chapter 13 bankruptcy case is referred to as a “super discharge” because it discharges debt that is not discharged in a chapter 7. However, the 2005 bankruptcy amendments limited the differences of the debt that is discharged between each chapter. Please note the exceptions to discharge listed above, reflects only a portion of the debt that is not included in the discharge of chapters 7 and 13.
Please call the Law Offices of Robert Manchel today at (866) 503-5655 to discuss your options for seeking bankruptcy protection.