New Jersey Bankruptcy FAQs
What are the main differences between Chapter 7 and Chapter 13 Bankruptcy?
Chapter 7 Bankruptcy
Chapter 7 affords an individual or married couple a complete discharge (forgiveness) on their debts. Generally, the discharge excludes tax debt and will exclude student loan debt. In a Chapter 7 Bankruptcy, you must meet income qualifications and asset qualifications. Income qualifications are set by the IRS for the number of people in your household. Expenses must be within IRS guidelines and meet the approval of the bankruptcy trustee assigned to your case. In addition, all of your assets must be determined to be exempt (protected) under the bankruptcy code or you must be willing to let your assets be liquidated to pay your creditors.
In a business Chapter 7 Bankruptcy, as of the date of the business case filing, the business ceases operating, and the bankruptcy trustee can sell off the business assets to pay the creditors.
Chapter 13 Bankruptcy
In a Chapter 13 Bankruptcy, you are assured protection of your assets and voluntarily repay a portion of your debt over 36-60 months. The payment can be as little as $150.00 per month for 36 months. Many people do not qualify for a Chapter 7 Bankruptcy for a variety of reasons such as: earning more money than allowable to qualify for a Chapter 7, having equity in their home beyond what is allowable in Chapter 7. In addition, there are many strategic reasons to file a Chapter 13 such as: protecting assets, stopping home foreclosure, and affording the time for a thorough loan modification review or sale of property, to repay tax debt over time, because a debtor had a prior Chapter 7 filing in the past 8 years. Keep in mind that Chapter 13 Bankruptcy is only for individual debtors. Businesses cannot reorganize under Chapter 13.
What is Chapter 11 Bankruptcy?
Chapter 11 Bankruptcy is for businesses who want an orderly liquidation of assets or to reorganize their debt and continue operating. In addition, Chapter 11 Bankruptcy is for individuals seeking a reorganization of their personal debt who are over the debt limits for a Chapter 13 Bankruptcy. The debt limit for a Chapter 13 Bankruptcy through May of 2024 is $2.75m.
Who will know if I file for bankruptcy?
Bankruptcy is tied to your Social Security Number. The only parties that get notice are your creditors and the IRS.
How will bankruptcy affect my job/business?
For the overwhelming majority of my clients, bankruptcy does not affect their job or business. Employers are not notified of a bankruptcy case filing. I have represented countless professionals including individuals in finance, law, accounting, consulting, and medicine and bankruptcy has benefited them and not affected their jobs.
A personal bankruptcy filing should have no effect on your business. But let’s definitely discuss in more detail during your consultation.
Will Bankruptcy wipe out unpaid medical bills?
Yes. Absolutely. Bankruptcy will wipe out unpaid medical bills.
Can Bankruptcy erase student loan debt?
Good question! In New Jersey, there are very narrow circumstances where student loan debt can be erased in bankruptcy. If you are permanently disabled, you can apply for student loan forgiveness and do not need bankruptcy to do so.
Otherwise, discharging (erasing) student loan debt in bankruptcy is a costly, complicated litigation based process.
Can I file for bankruptcy on my own without any attorney?
Sure you can. However, there are many things to consider with a Pro Se filing:
- You may not receive a forgiveness of debt because you did not interpret the laws the right way.
- You can end up having your assets liquidated and sold to pay your creditors because you did not properly disclose or schedule your assets
- Expect multiple court appearances spread out over several months and many trips to the federal bankruptcy court to deliver filings and corrected filings
- You will likely need to hire an attorney when your case was not filed correctly, or you missed critical parts of bankruptcy law. I have represented many clients who began Pro-Se filings and needed to hire counsel to correct costly mistakes.
Are you able to do your own eye exams and diagnose the correct prescription? Can you perform your own dental work? Would you perform your own open heart surgery? If so, a Pro Se filing may be for you. Otherwise, please do not go it alone.
How often can I file for Chapter 7 Bankruptcy?
For individuals or a married couple filing jointly, a Chapter 7 Bankruptcy can be filed after 8 years have elapsed from the date your previous Chapter 7 was filed. If less than 8 years have passed between Chapter 7 filings, you will need to file a Chapter 13 Bankruptcy.
How much does bankruptcy cost?
Bankruptcy is affordable and cost-effective. For most of my clients, they were spending far more on their minimum debt payments each month, not making a dent in them and bankruptcy makes perfect financial sense. Keep in mind that every bankruptcy case is different. During your consultation I will go over legal fees, costs, and affordable payment options. If bankruptcy makes sense for you, I will work with you to come up with an affordable payment plan so that we can get your case rolling and filed as soon as possible. I look forward to discussing how I can be of assistance during your consultation.
Do I have to take a credit counseling course? What does that mean?
In order to file for a personal bankruptcy, you will have to complete an online credit counseling course. It’s your ticket into bankruptcy. Don’t worry, I will walk you through it. It’s simple and takes about an hour. After your case is filed, you will complete Debtor Education, which is the second half of the course. Again, don’t sweat it.
Can I run up my credit cards before filing for bankruptcy?
No. Your creditors will review your credit card activity before your case is filed. If there are large charges, multiple small charges that add up in the aggregate to a particular creditor, cash advances, or the like, the credit card company may file an Adversary Proceeding (lawsuit) in bankruptcy court. The creditor will argue that you should not receive a forgiveness of their debt.
I am being sued for non-payment of a debt. Do I have to answer the lawsuit?
When a bankruptcy case is filed, all lawsuits are stayed (stopped). You will likely not need to file an Answer to the lawsuit if we are filing a bankruptcy case for you in short order.
Why should I file for bankruptcy instead of doing a debt management plan?
Over 65% of my clients have tried some form of debt management or debt consolidation before filing for bankruptcy.
Debt management can be successful if you have a substantial lump sum of readily available funds to settle your debts. In this scenario, I reach out to each of your creditors individually and settle the debts at the most favorable terms available. The representation for debt settlement is done at my customary hourly rate. When a settlement agreement is reached, the settlement must be paid immediately, in a lump sum. Paying over time results in repaying 100% to the creditor.
If you do not have the funds on hand to pay your debts immediately in a single payment, debt management will not be successful. Debt management/debt consolidation doesn’t work with payments made over time. Debt management/consolidation has an incredibly high failure rate (roughly 90% of debt management/consolidation plans fail). The companies who advertise debt management services are shrewd at marketing their services. They spend millions of dollars per year on advertising. The cost of debt management with these companies is exorbitant. The true costs and fees can be roughly 25%-30% of the total amount you owe. However, the biggest concern with debt management/consolidation is that there is no guarantee that it will work. Even if you are paying a certain amount per month to your creditors, the creditors are not obligated to take settlements or installment payments. Most of the time, the creditors end up suing you for the total balance owed regardless of whether or not they are in your “debt management plan” and you end having to up filing for bankruptcy anyway. Second, if you manage to settle any of your debts, the amount of debt that is forgiven is considered earned income. You end up trading the minimal saving from any attempted debt settlement for tax liability. Third, in the end, bankruptcy can be more beneficial for your credit (see the next question below).
To sum it up, bankruptcy provides a guarantee of success unlike debt management, is far less costly than debt management, improves your credit faster and with long-lasting results, and does not have tax consequences for forgiven debt.
What happens to my credit after filing for bankruptcy? And how do I rebuild it?
Great question! Thanks for asking. When preparing your bankruptcy case, I pull your credit reports from Equifax, Experian, and TransUnion along with a Lexis/Nexis search. My bankruptcy software will show what your current credit score is, your score after filing bankruptcy, and your score 12 months after bankruptcy.
In my experience, your credit starts improving one year after your bankruptcy filing. For my average client, their credit is in the high 600s a year after filing for bankruptcy. Two years after bankruptcy, credit scores tend to be well over 700.
A year after bankruptcy, apply for a new credit card. As my client, we will go over rebuilding your credit in detail. Skip prepaid credit cards or any schemes that promise to boost your credit or repair it. Time is the magic answer. After one year, apply for credit cards.
Two years after bankruptcy, you should be able to do anything that requires credit, such as purchasing a home for the first time, refinancing a mortgage, or purchasing a vehicle at a competitive interest rate.
A creditor has a judgement against me. Can bankruptcy stop collection efforts, bank levies, and wage garnishments?
Yes! When a bankruptcy case is filed, collection efforts, wage garnishments, bank levies, and pending lawsuits must stop. This is due to the Automatic Stay afforded by bankruptcy law. If your wages have been garnished, the garnished wages should be returned. If your bank account has been levied, it must be unfrozen and the funds returned to you.
I am suing someone in a personal injury lawsuit. Can I still file for bankruptcy?
Absolutely. However, depending on the amount that you anticipate recovering, it will likely make the most sense to file a Chapter 13 Bankruptcy to protect as much of your recovery as possible.
What if I have a pending medical malpractice case? Or employment discrimination case?
The same rules apply in medical malpractice and employment law discrimination cases as in personal injury cases. Chapter 13 will likely make the most sense And let’s discuss.
What if I have a pending worker’s compensation case?
Generally speaking, most worker’s compensation cases are protected from your creditors.
How do I find out my creditors?
I pull credit reports from all three (3) credit reporting agencies for all clients. Most of the time, all of your creditors will be on your credit reports. We will review them together. If a creditor is not on your credit report, I will get the creditor’s name and mailing address from you so that I can provide the creditor with proper notice of your bankruptcy filing. As necessary, I can also order a Charles Jones search which will show all pending lawsuits and judgements.
What if I miss listing a creditor on my bankruptcy petition?
Not to worry. Bankruptcy law sets forth that if you inadvertently missed listing a creditor on your bankruptcy petition, and your debt was forgiven in bankruptcy, the missing creditor is not entitled to collect from you even if they were not listed on your bankruptcy petition.
How do I stop creditors from calling and harassing me?
Once you become my client, you can immediately direct all creditor calls and communications to my office. In addition, I send out letters to your creditors called a Notice of Representation of Consumer Debtor. The letter states that I represent you for a bankruptcy filing and that by law, the creditor must cease contacting you about the debt. Once your case is filed, creditors cannot contact you again.
I have an auto title loan. The car is worth much less than what I owe on the loan. Can Bankruptcy help?
Yes. Chapter 13 Bankruptcy can help change the terms of your auto title loan both by lowering the interest rate and amount owed. For example, let’s say your car is worth $5,000.00 and you have an auto title loan for $15,000.00. In a Chapter 13 Bankruptcy, I can propose that you only pay back $5,000.00, the actual value of your car to the lender plus reasonable interest. The remaining $10,000.00 of the auto title loan could be forgiven in the Chapter 13.