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There are many reasons for financial difficulties, such as loss of a job, death of a breadwinner or too many credit card purchases. Money problems can be emotionally wrenching and seriously damage family relations.
However disturbing the idea of bankruptcy might initially seem, in fact, bankruptcy laws are there to help those who are unable to pay their bills. This article reviews your alternatives under the bankruptcy laws. Our experienced NJ bankruptcy lawyers can advise you about your options so that you can get the maximum advantage of the bankruptcy laws. Our NJ bankruptcy attorneys represent both debtors and creditors in Chapter 7, Chapter 11, and Chapter 13 bankruptcy filings throughout Northern, Central and Southern New Jersey districts – Newark, Trenton, and Camden.
CHOOSING A BANKRUPTCY OPTION
There are two options under the bankruptcy laws: liquidation or a repayment plan. The information that appears below pertains to the current bankruptcy laws. Effective October 2005 the bankruptcy laws changed substantially. It is now more difficult to file a Chapter 7 bankruptcy due to income limitations incorporated in a financial means test.
In liquidation, also called a Chapter 7 bankruptcy, you sell your property and use whatever cash is generated to fully satisfy creditor claims. You will be allowed to keep certain kinds of property under the exemptions allowed by federal and state bankruptcy laws. The definition of “exempt property” differs in each state, and it can include clothing, furniture, and household appliances, tools of your trade and perhaps your home or car. The trustee will also determine which of your property is exempt from sale to pay your debts. Have a specific question about Chapter 7 bankruptcy? Go to our Chapter 7 FAQ’s.
In a repayment plan, sometimes called a Chapter 13 bankruptcy, you pay a portion of your monthly income to a trustee for distribution to your creditors. A repayment plan is useful when you are behind on your home or car loan. The repayment plan can be used to extend, for up to 5 years, the time period for paying your bills and might allow you to pay less than you owe. The extended payment period has the advantage of allowing you to make smaller payments. You will be allowed to keep part of your monthly income to pay for living expenses like food, clothing, rent and medicine. Have a specific question about Chapter 13 bankruptcy? Go to our Chapter 13 FAQ’s.
To qualify for a Chapter 13 Repayment Plan, you must have regular income and your unsecured debts cannot exceed $360,475, and your secured debts cannot exceed $1,081,400. If your unsecured debts exceed $360,475 and/or your secured debt exceeds $1,081,400, you may qualify for a repayment plan under Chapter 11. Bankruptcy proceedings under Chapter 11 are more complicated than those available under Chapter 13.
STARTING BANKRUPTCY PROCEEDINGS
Bankruptcy proceedings begin with the filing of bankruptcy forms at the federal courthouse. The forms are comprehensive and include thorough lists of your income sources, property, debts and living expenses.
About one month after your bankruptcy forms have been filed, a meeting of your creditors will take place. You will be required to appear at this meeting with your records. Although most creditors do not attend the meeting, those who do can question you about your income, property and debts. The main purpose of this questioning is to confirm that the information in your bankruptcy forms is correct and complete.
DEALING WITH CREDITORS
Our New Jersey bankruptcy attorneys can help you deal with your creditors before, during and after bankruptcy proceedings. Before starting bankruptcy proceedings, you are protected by laws that prohibit creditors from harassing you to collect money. Bill collectors may not contact you at unreasonable times at home, and they may not embarrass you by telling your friends, relatives or employers about your debt. Bill collectors may not contact you at work if they know that your employer disapproves. If you have a lawyer, bill collectors may only contact your lawyer.
During bankruptcy proceedings, you will receive additional protection from bill collectors. At the beginning of the proceedings, the court will order your creditors to stop their collection activities, including lawsuits, wage garnishments, repossessions and telephone calls demanding payment. It is unlawful for your employer to fire you for seeking bankruptcy protection.
After the bankruptcy proceedings have been completed, you must take care when dealing with creditors. Some creditors may try to collect debts that were discharged by the bankruptcy proceedings. These creditors may ask you to renew the debt by signing an agreement to pay it. Consult our lawyers when creditors contact you so that you do not inadvertently obligate yourself to pay an old bill that was discharged by your bankruptcy proceedings.
WORKING WITH YOUR TRUSTEE
The bankruptcy court will appoint a trustee for your case shortly after the bankruptcy forms are filed. In a liquidation proceeding, the role of the trustee is to sell your property and distribute the proceeds to your creditors. The trustee can also set aside fraudulent transfers and preferential transfers made to creditors within the 90 days prior to the bankruptcy proceedings. The trustee will also determine which items of your property are exempt from sale to pay your debts.
In a repayment plan proceeding, the trustee will collect payments from you and distribute them to your creditors. The trustee is also responsible for approving any new credit obligations that you undertake before the completion of your repayment plan.
KEEPING YOUR PROPERTY
Our bankruptcy lawyers will advise you about the protection available for your property with a bankruptcy proceeding. For example, in a liquidation proceeding, the bankruptcy law allows you to keep your exempt property.
Prior to beginning bankruptcy proceedings, our attorneys may advise you to sell some of your nonexempt property and use the cash to purchase exempt property. Although you may convert your nonexempt property into exempt property, you will be subject to severe penalties if you try to hide your property.
Any property that you receive after 180 days from the start of the bankruptcy is yours to keep, including inheritances, gifts and life insurance. Our bankruptcy lawyers may recommend that you speed up your bankruptcy filing if you expect to receive a substantial amount of property in the near future.
EFFECTS OF THE BANKRUPTCY
The end of your bankruptcy proceedings can provide you with a “fresh start.” The court order will end your responsibility for dischargeable debts. The order will not affect non-dischargeable debts such as alimony, child support, educational loans, taxes, or debts that you incurred by deliberately injuring someone. After the bankruptcy, your creditors may no longer try to collect the discharged debts.
Your bankruptcy proceedings will be noted on credit records for up to 10 years after your bankruptcy filing. During that time, lenders, stores and finance companies may consider your bankruptcy among the many factors they review when you apply for a loan or credit card. Surprisingly, since you cannot file again for Chapter 7 for 6 years, it may be easier for you to obtain a mortgage loan or installment credit for an auto or home appliance. An application for such credit is much easier if you want to wait at least 1 year before applying for credit and show a history of paying bills on time after the bankruptcy.
You may need the protection of the bankruptcy laws if you are unable to pay your bills on time. Bankruptcy proceedings can help protect you against aggressive bill collectors and preserve as much of your property for you as possible.
Our New Jersey bankruptcy lawyers will advise you about your bankruptcy options and help you make the best of your situation. If you cannot manage your bills, contact us immediately to learn about your rights and avoid missing advantages that can be lost with the passage of time.