NJ Bankruptcy Lawyer Answers Common Questions People Have About Filing Bankruptcy

Immediately upon filing, bankruptcy stops:

1. any and all of your creditors’ telephone calls, letters and contact of any kind;
2. any and all creditors’ actions or law suits
3. any and all wage attachments;
4. bank account levy;
5. utility service shutoff;
6. foreclosure actions;
7. auto repossessions;
8. evictions.

Bankruptcy also permits:

1. elimination of debt (circumstances differ);
2. restoration of drivers’ license if suspended solely due to surcharges;
3. pay child support arrears over time;
4. may allow elimination of income tax debt ( circumstances differ)

How will bankruptcy affect my credit?

There is no definitive answer. Generally, bankruptcy has a negative effect on your credit and fico score. However, generally, people considering filing for bankruptcy have poor credit and fico scores. Poor credit results in the inability to obtain any credit or low cost credit. Prospective creditors are concerned that if you maintain substantial debt, the individual will pay the other debt and not them. The immediate effect of a bankruptcy will likely not have a substantial negative effect because the filer likely has poor credit. However, if one is able to eliminate the debt, through bankruptcy, the individual has an opportunity to repair their credit, within a reasonable time period.

Banks understand that an individual cannot file a Chapter 7 for another eight years. Most of our clients receive many offers and solicitations for credit, immediately after the bankruptcy is complete. In any event, this does not mean that bankruptcy is right for you.

Is one spouse responsible for the other spouse’s debt because they are married?

No. Only the spouse that is obligated to pay the debt is responsible to pay the debt and not the other spouse. However, if both spouses are obligated to pay the debt, than both spouses are responsible for the debt and owe 100% of the debt. If both spouses are obligated to pay the debt, the creditor may get 100% of the debt from one or the other.

Is my spouse required to file with me?

No. An individual should file only if the filing benefits that particular individual. A bankruptcy filing of a husband who owes a debt without the wife, will not effect the non filing wife. A bankruptcy filing of a husband who owes a debt with the non filing wife, will not effect the wife, as well. However, in general, the creditor may pursue (with exceptions) the non filing wife with regard to a joint debt.

Can I pick and choose which creditors I will include in the bankruptcy?

No. All creditors must be included. Generally, if you do not include a credit card, the credit card company will deny your use of the card, after filing.

Can I keep my auto?

(detailed answer under headings chapter 7 and chapter 13)

1. 1. Chapter 7
      1. If auto is financed:You may keep your auto if you meet the following: 1. The value of your auto is not substantially more than the payoff on your loan; 2. You are current with your payments or can bring your payments current, immediately. 3. Your ability to make the monthly payments does not present an undue hardship.
      2. If auto is leased:You may keep your auto if you meet the following: 1. You are current with your payments or can bring your payments current, immediately. 1. Your ability to make the monthly payments does not present an undue hardship (may not apply).
      3. If auto is not leased or financed:The value of your auto is not substantially more than the payoff on your loan. (virtually all debtor’s may keep their autos)
   2. Chapter 13
      Whether leased or financed, generally, you may keep your auto if you are able to make payments on the lease and financing. Bankruptcy may effect the terms and conditions of the payments.

 

Can I keep my house?

(detailed answer under headings chapter 7 and chapter 13)

1. 1. 1. Chapter 7
         You may keep your house if the value of your house is not substantially more than the payoff on your mortgage(s) and you are current or virtually current with your mortgage payments. If you keep your house, you must continue to make mortgage payments.
      2. Chapter 13
         1. current with mortgage:
            You can keep your house if you are able to make monthly mortgage payments. If you have substantial equity (difference between value and liens) in your house, you may be required to pay additional monthly funds to the trustee, in addition to making monthly mortgage payments.
         2. behind with mortgage payments:
            You can keep your house if you are able to make monthly mortgage payments, in addition to paying the total mortgage arrears, over the life of your bankruptcy plan. If you have substantial equity (difference between value and liens) in your house, you may be required to more funds to the trustee on a monthly basis.

Should I file for bankruptcy?

(detailed answer under headings chapter 7 and chapter 13)

How soon should I file?

The time to file depends on each individual’s circumstance.

Chapter 13:

Generally, if you have decided to file, you should file as soon as possible. However, prior to the filing, you should feel comfortable that you will have sufficient funds to make your first mortgage and trustee payments, the month after the filing. It may be beneficial to wait to acquire additional funds to make the first payments and start out on the right foot.

Chapter 7:

Each client’s financial situation is different. This means that it may more be advantages to file immediately or wait, based on your total circumstances.

If my house is in foreclosure, when will I be removed from my house if I do not protect myself?

In New Jersey, an individual may live in the house until after the sheriff’s sale, which may last approximately 6 months after you are served with the law suit papers.

How much does it cost?

All face to face consultations are free.

Prior to filing, the court requires that all individuals complete credit counseling from a court approved credit counselor. Credit counseling, generally costs $50.00 per person.

The court requires that I obtain a credit report. If the client is unable to provide a credit report, I will obtain the report from my vendor who charges $20.00 per report.

Chapter 7:

The court costs to file a chapter 7 is $299.00.

Prior to filing, I request reimbursement for fees and costs. The office’s charge is based on the complexity of each case.

Chapter 13:

Prior to filing, I request reimbursement for fees and costs. There are no up front fees prior to the filing. My entire fee is paid through the monthly trustee payment. The amount of the fee is based on the complexity of each case.

Chapter 13 requires a monthly trustee payment. What happens if I miss a trustee payment?

The trustee is responsible to ensure that the debtor is making timely trustee payments. Generally, if you fall behind with your payments, the trustee will file papers with the court, requesting to dismiss (through out) your case. Different trustee’s may permit a larger default before the filing of the petition to dismiss. In other words, one trustee may wait 2 months to file the petition, while another trustee may wait until an individual is 4 months in arrears. Generally, the trustee will permit the individual to avoid the dismissal by paying off the arrears with a lump sum and the balance paid over a reasonable time period.

A chapter 13 may require the debtor make a monthly mortgage payment directly to the mortgage company. What happens if I miss a mortgage payment?

The mortgage company is responsible to ensure the debtor is making timely mortgage payments. Generally, if one falls behind with the mortgage payment, the mortgage company will file papers with the court, requesting permission to proceed with the mortgage foreclosure action and sheriff’s sale. Different mortgage companies may permit a larger default before they file the petition with the court. In other words, one mortgage company may wait 2 months to file the petition, while another mortgage company may wait until the debtor is 3 months in arrears. Generally, the mortgage company will permit the individual to resolve the matter by paying off the arrears with a lump sum payment and the balance paid over a reasonable time period.

Can the mortgage company contest the bankruptcy case?

Filing for bankruptcy protection is your right. Therefore, you do not need the mortgage company’s consent to file and save your house. However, as I stated previously, you must have sufficient income / monetary contributions to make the monthly trustee and mortgage payments.

How long does it take?

The detailed answer is provided under the heading chapter 7 and chapter 13 Process.

You may file immediately after providing the office with the required information and documentation which is explained under a different heading of this website. If it is an emergency, you may file immediately.

What is the new bankruptcy law about?

Generally, the new law does not negatively effect most individuals. The new law requires a debtor to provide substantial financial information to the court, such as: six months of pay stubs, four years of tax returns and other financial documents.

There are numerous aspects of the new law. The most significant aspect of the new law is the “Means Test”, which is an analysis that determines whether a bankruptcy case is filed in good faith. The test may also mandate the amount that must be paid to certain creditors. Furthermore, the new law requires that an individual completes credit counseling prior to the filing and a financial management course prior to discharge.

Can I file a second bankruptcy case?

The new law limits a chapter 7 filing to 8 years after the filing of a prior chapter 7 and 6 years after the filing of a prior chapter 13 case. An individual may file a chapter 13 after a chapter 7 and chapter 13 dismissal and/or discharge, with some possible limitations.

What happens at the hearing?

The explanation is under the heading chapter 7 and chapter 13 process.

What is the difference between Chapter 7 and Chapter 13?

A detailed explanation is provided under separate headings of this web site.

What debt is discharged (eliminated), what debt is not?

Discharged:

1. 1. • Credit Card Bills
      • Medical Debt
      • Repossessions
      • Collections
      • Utilities
      • Miscellaneous Consumer Debt
      • Personal loans
      • Possibly some tax liability
      • Possibly auto surcharges

Not Discharged:

1. 1. • Student Loans
      • Child Support
      • Possibly some tax liability
      • Criminal fines, penalties and restitution
      • Fraud

Will my name be published in the newspaper?

No. Bankruptcy filings are not published in any newspapers.

How does bankruptcy impact my Taxes?

All state and federal tax returns must be filed, as usual, whether one is a chapter 7 or a chapter 13 debtor. If a chapter 13 debtor owes taxes, the taxing entity may intercept the tax refund to the extent of the tax liability.

In addition to the questions on this page, you can also find additional information on these pages:

1. • Advantages and Disadvantages of Bankruptcy
   • Bankruptcy Budget and Credit Counseling Briefing
   • Bankruptcy Court Forms for New Jersey Debtors
   • Bankruptcy Discharge Effects and Debt Elimination
   • Glossary of Bankruptcy Terms
   • Avoiding Eviction in a NJ Chapter 13 Bankruptcy
   • Priority Debt in Bankruptcy

The individual filing any bankruptcy case is called a “debtor”. A trustee is an individual that is assigned to review, administer and evaluate your case to determine whether you meet the chapter 7 bankruptcy law requirements entitling you to a discharge. The goal of a chapter 7 debtor is to obtain an order of discharge. This is a court order that reflects the elimination of debt. If the trustee believes that a debtor has met the requirements, the trustee recommends to the court and judge, that he/she receive an order of discharge. In general, a debtor’s lawyer should not file under this chapter unless the debtor meets the requirements. In general, an individual would file a chapter 7 for the purpose of discharging unsecured (i.e., credit card, health care, personal loan debt, etc.) debt.

You are required to disclose on the bankruptcy petition, all assets and liabilities, including all debt and creditors. You may not pick and chose which creditors to include. You must list all creditors and the law determines how you treat each type of creditor.

The chapter 7 laws specifies which debt is dischargeable (eliminated) and which debt is not dischargeable. Therefore, If you meet all of the requirements under a chapter 7, which is the best case scenario, there still may be certain debt that is not discharged (eliminated).The following is a partial list of dischargeable and non-dischargeable debt.

Dischargeable Debt ( debt that can be eliminated) :credit card, personal loan; doctor bills; health care bills; depending on the situation none, some or all income tax liability; mortgage, auto loan, if surrendering auto, etc.

Non Dischargeable Debt: (debt that cannot be eliminated)student loans insured by the government; depending on the situation none, some or all income tax liability, auto financing if keeping auto and sign a reaffirmation agreement; debt incurred by fraud, fines, etc.

Generally a person would file for chapter 7 bankruptcy protection because he/she is unable to pay their unsecured debt (credit card, personal loans, doctors’ bills, etc.). If an individual meets the chapter 7 requirements (explained below) at the time of the filing, you will be entitled to a discharge.

Generally, debtors’ are permitted to keep their house, if desired. However, if the fair market value of a house is substantially more than the liens, including the mortgage, the trustee may have a right to sell the house. Under this scenario, a debtor would not file a chapter 7, or in the alternative may wish to file a chapter 13.

If a debtor is not current with their mortgage payment, the chapter 7 will not protect them from the loss of their house, through foreclosure. If one files a chapter 7 and is behind with the mortgage, the court will permit the mortgage company to proceed with their mortgage foreclosure action and sheriff’s sale.

A chapter 7 will allow a debtor to surrender (give up) their house whether or not the individual is behind with the mortgage payments. If you surrender the house, and the house does not have substantial value (equity), the trustee will not sell the house, but rather allow the mortgage company to complete the foreclosure process.

Although unusual, in some situations, one may wish to allow the trustee to sell their house or other asset for the purpose of receiving a payment from the excess proceeds of the sale.

The above explanation with regard to saving your house, generally applies for an automobile, as well. You may wish to keep or surrender a financed or leased auto. If you are not current, a chapter 7 will not stop a repossession. You may keep your auto, if you are current with your auto finance / lease payments, and the auto does not have substantial value. However, with regard to keeping a financed auto, there is an additional chapter 7condition, that requires one to be able to make future monthly finance payments without undue hardship.

In general, the requirements that determine whether an individual is entitled to a chapter 7 discharge are as follows.

Assets : (first requirement)

The debtor is required to provide to the trustee and the court a list and value of all personal and real estate assets. This includes, but is not limited to the following: bank accounts; furniture; houses; autos; jewelry; investments; stocks; bonds; claims or law suits against others, etc. In general, retirement accounts are excluded and not considered.

Although unlikely, in general, if the debtor has an asset with a substantial value, in excess of liens, the trustee is permitted to sell the asset. What does this mean? The bankruptcy laws allow an individual to deduct specific amounts from the value of each asset. The specific amounts are called exemptions. The law provides specific exemption amounts for each type of asset. In general, if the exemption amount is more than the value of the asset minus the amount of the lien(s), if any, you may keep the asset.

In general, the court reviews the following analysis to determine whether you may keep your auto in a chapter 7. The court deducts from the replacement value of an auto, the financing payoff amount and any other liens. Thereafter, the court deducts the total amount of the allowable exemptions. If the balance after deducting these items is $0.00, you may keep the auto.

In general, the court reviews the following analysis to determine whether you may keep your house in a chapter 7. One must first obtain the fair market value of the house. The court deducts from this value: the mortgage(s) payoff, any other secured liens and an amount equal to10% of the estimated fair market value, representing costs. Thereafter, the court deducts the exemption amount for the residence. If the balance after deducting these items is $0.00, you may keep your house.

A few of the exemptions are as follows:

• Furnishings and household goods, collectables and clothing
• Furs and Jewelry
• Auto
• Residence
• Any property
• Any property (unused exemption from your residence)

• $10,775.00
• $1,350.00
• $3,225.00
• $20,200.00
• $1,075.00
• $10,125.00

An example of a residence analysis is as follows:

• house value
• mortgage balance
• no liens
• cost of sale 10% of $100,000.00
• exemption for one person
• value minus mortgage, minus
• exemption, minus cost of sale

• $100,000.00
• $70,000.00
• $0.00
• $10,000.00
• $20,200.00
• $200.00

In this example, the debtor may keep the house because the exemptions reduce the value to less than $0.00.

From my experience, approximately 90% percent of the individuals considering chapter 7 are able to keep all of their property. If a particular asset is not fully exempt and protected, the trustee may sell that particular asset. However, if there is a nominal amount available after subtracting the exemptions, the trustee may decide to not sell the asset. Prior to filing, the debtor should be advised of this matter, so as to make an informed decision as to whether to file. If property is not fully exempt, one may possibly keep the property by filing a chapter 13.

Means Test (second requirement)

The Means Test is the most significant new requirement under the recent bankruptcy reform.

The debtor(s) gross (before tax) household income for the six months prior to the bankruptcy filing is compared to the average gross income of a household of the same size in the same state where the debtor resides. If the debtor(s) household’s gross income is lower than the average gross income of a household of the same size, the debtor meets this requirement. If the debtor meets this requirement, the law presumes that the bankruptcy filing, is filed in good faith.

In the event that the debtor(s) household’s gross (before tax) income for the six months prior to the bankruptcy filing is in excess of said average gross income, the filing may or may not meet this requirement. If the gross household income is in excess of said average, the bankruptcy is filed in good faith, only if the debtor’s monthly household income results in “0” or less than “0” after deducting the following items from the gross household income: 1. income taxes; 2. allowable pay stub deductions; 3. allowable living expenses, based on the Internal Revenue Service’s laws, such as: allowable household expenses; allowable food and living expenses, allowable transportation expenses, allowable clothing expenses, allowable auto operating expenses; 4. insurance payments; 5.mortgage payments, 6. auto finance payments or lease payments; etc. Please note that this list of expenses is not complete and may vary. Also, these expenses may not be your actual expenses, but the expenses that are allowable under the I.R.S. guidelines.

If after deducting these allowable items from gross income results in an amount in excess of $0.00, the chapter 7 is deemed to have been filed in bad faith. If the case is deemed having been filed in bad faith, the individual would be unable to file for chapter 7 protection.

With regard to the relevant income period, the six month period starts on the first pay of the sixth month prior to the month filed and ends with the last pay of the month prior to the filing. Therefore, if the petition is filed in February of 2008, the six month period would start on August 1, 2007 and end with the last pay for January of 2008. Also, please note that certain types of income may not be included.

The Means Test and its application has not yet been clarified and clearly defined by the courts and trustees. Therefore, the application may vary based on the trustee and judge who is assigned to your case.

One issue that has not been settled is which individuals represent the household. There may be people living in the house that must be included and others whom are not included in the test. If an individual contributes income to the household on a continuous and monthly basis, this contribution must be included in the test, as gross income. Please note that in every case, if the husband and wife live together and are not separated, the income of both spouses are included, even though only one spouse files.

The IRS average income is based on the U.S. Census Bureas for each state. The IRS National Standards govern such items as food, clothing, personal items, housekeeping supplies, and entertainment. The IRS. Local standards govern housing, utility and transportation costs. The IRS standards may be found at www.irs.gov.

Present Income and Expenses (third requirement)

To meet this requirement, your present household monthly net (after tax income) income must be less than or almost less than your monthly necessary, actual, but reasonable expenses. The expenses include your living expenses only and not payments to your unsecured (credit card debt, personal loans, doctors’ bills) creditors. The monthly expenses include, but are not limited to the following: mortgage, rental, real estate taxes, housing insurance, food, clothing, water, sewer, medical, auto, transportation, auto insurance, support, child care, etc. All expenses must be reasonable based on the number of individuals in the household and other special circumstances. Similar to the means test, the household income includes the husband and wife’s income and expenses, no matter if one or both spouse’s are filing.

There are two basic differences between this and the means test requirement. The first difference is that the means test includes the expenses that are allowable under the IRS laws, based on the number of household members, and under this requirement, the expenses represent the actual, but reasonable expenses for the household.

The second difference is that under the means test, household income represents the household income for the six months prior to the filing and under this requirement, income is based on the amount earned immediately prior to and as of the time of the filing. The trustee may also consider the debtor’s foreseeable future income. This requirement may not include household members’ income that is included under the means test.