Filing for bankruptcy is not as uncommon as one might think. While bankruptcy may sound confusing or frightening, like all legal processes, there are clearly defined rules for how one navigates bankruptcy. This article will provide a general overview explaining how to file for bankruptcy in New Jersey. Hopefully, this crash course will ease some of your concerns or confusion surrounding bankruptcy.
What is Bankruptcy?
Bankruptcy is the process that repays or forgives debt. Filing for bankruptcy allows you to legally eliminate most debts. The process is overseen by federal courts; however, New Jersey has specific laws and policies that govern how debts are forgiven or repaid. Filing for bankruptcy is a good option when you have more debt than valuable assets. The bankruptcy process can be complicated, but we have broken down some of the steps for you below.
Retaining an Attorney
While retaining an attorney is not a requirement to file for bankruptcy, it is highly recommended that you do so. It is a complicated legal process, and having a seasoned professional walk you through the process in detail will make the process less daunting. With bankruptcy court, you often speak directly with a judge, who will ask you numerous questions regarding your finances and your specific case. While this article provides a comprehensive overview of the process, an attorney can assist you with the more complicated legalese.
Paying the Filing Cost
Once you have an attorney at your side, you will need to pay the court a filing fee. The courts will always require a processing fee when filing for bankruptcy. Note that this fee does not go to your attorney, but rather, it is paid to the court itself. For Chapter 7 bankruptcy, it will cost $306 to file, and for Chapter 13 bankruptcy, it will cost $281 to file. Neither of these fees can be waived, though it is possible to pay the Chapter 7 fee in installments instead of in a lump sum. We will discuss Chapter 7 and Chapter 13 filing in more detail later on in this article.
An Automatic Stay
After the court has processed your filing fees, an automatic stay will be placed on your credit report. As explained in our article about the effects of bankruptcy in New Jersey, an automatic stay is put into effect only when you successfully file for bankruptcy. An automatic stay is a notice to most creditors that they can no longer collect loan repayments from you. While most debts will be put on hold, there are some debts that are immune to automatic stays. This means that some creditors will continue to require you to make repayments to them. Your attorney can assist you in navigating which debts are exempt from an automatic stay.
Filing Under a Chapter
In order to file for bankruptcy, you must file under a specific chapter. There is no single process through which you apply for bankruptcy. There are several chapters under which you can file for bankruptcy: each has a separate repayment process. Some chapters are designed specifically for individuals, while other chapters outline bankruptcy filing options for corporations and businesses. We will only be discussing Chapter 7 and Chapter 13 because they are the most common chapters that individuals file under.
This chapter is a total liquidation of one’s assets. The goal of a Chapter 7 bankruptcy is to discharge all of your debts. To discharge debt means to eliminate it or forgive it. You are not required to pay back debt that is discharged. Under Chapter 7 – in order to forgive your debts – the court uses your valuable assets to pay back your creditors. Valuable assets can include cars, real estate, jewelry, special collection items, and other property that has considerable value. Rest assured, however, that some assets will not be sold. An asset can only be sold if it has value. For example, if your home is worth only $300,000, but you owe an excess of $450,000, then selling your property would not benefit the court at all. A trustee appointed by the court will collect your assets and sell them on your behalf. There are many exemptions and exceptions surrounding the Chapter 7 filing process, however.
In New Jersey, your pension cannot be taken away, nor can the courts use any compensation from unemployment to repay your debts. Additionally, if you own any property in a business, even though you are filing for personal bankruptcy, the state will not touch your business assets. While the goal of Chapter 7 is to discharge your debts, there are certain debts that are immune from discharge. This means that you will still be required to pay back certain debts after filing for bankruptcy. A Chapter 7 filing will not allow you to discharge debts related to fraud, alimony, child support, or student loans. So, should you file under Chapter 7? Typically, Chapter 7 is optimal for an individual who has a modest income.
The goal of a Chapter 13 filing is to reorganize how you pay back your debts. Instead of your debts being discharged, Chapter 13 allows you to propose a debt repayment plan that lasts a couple of years (typically 3 to 5 years). If the court approves of your repayment plan, then you are required to follow the plan for the determined amount of time. Your repayment plan may dictate that you pay back all of or part of your debt. A Chapter 13 repayment plan will take a long time to discuss, because creditors will not receive the full amount of the money they initially loaned out. Once the payment plan’s period comes to an end, any remaining debt is discharged. Remember, however, that some debts cannot be discharged in the state of New Jersey. For example, debt that is owed to the IRS cannot be forgiven or eliminated. Chapter 13 is typically beneficial to a debtor who has a higher income: you are worth more to the courts if you continue working and paying off your debts, rather than merely selling off your assets. Read about the other benefits of Chapter 13 filing in our article that discusses Chapter 13 in more detail.
A Note on Chapter 11
Chapter 11 is a form of bankruptcy that is similar to Chapter 13: it is a reorganization style of bankruptcy that allows one to institute a repayment plan. However, Chapter 11 is typically used by business owners. Chapter 11 allows a business to continue to operate, despite the debts that they owe. Chapter 11 does not affect a filer’s personal finances either. For an example of how Chapter 11 filing affects someone’s personal finances, you can read about how Donald Trump managed to retain his billionaire status despite filing for Chapter 11 bankruptcy. Individuals can file under Chapter 11, but typically Chapters 7 or 13 are better for an individual than Chapter 11.
The Consequences of Filing for Bankruptcy
Loss of Property
If you file for Chapter 7, then you will lose some personal property. However, it’s important to remember that, ultimately, material things are just that: things. You can always buy items back later. What matters most is that your family’s financial future is secure. By working towards eliminating your debts, you make it possible to clean up your credit for future purchases.
Impact on Your Credit
It is true that bankruptcy will impact your credit score. However, there are a few factors to bear in mind. First, a bankruptcy notice on your credit report will typically only lasts for seven years. Additionally, the process of bankruptcy will help discharge most of your debts, which will allow you to rebuild your credit faster in the future. To learn more about how your credit score will be impacted by bankruptcy, read our article regarding bankruptcy and credit. You must be prepared for your credit to be impacted when you decide to file for bankruptcy, but it can be rebuilt in the future.
The Benefits of Filing for Bankruptcy
Peace of Mind
While declaring bankruptcy may appear to be a stressful ordeal, it will actually allow you to have some peace of mind. Trying to manage surmountable debts can be a very daunting task, building your stress over time. If you choose to file for bankruptcy, an automatic stay will keep most of your creditors at bay, which in turn will allow you to have some financial breathing room. Many people who file for bankruptcy report that the process allows them to have a peace of mind, knowing that their financial future will be more manageable.
If you are considering filing for bankruptcy, then we at the Law Offices of Marc A. Futterweit are here to help you. We use our legal expertise to provide personalized care to each of our clients. Our goal is to help you and your family move past this trying time, and to help you return to a financially safe and comfortable place as quickly as possible. If you would like to discuss your situation in more detail, please feel free to call our office at 947-442-0200 or you can visit our website at www.futterweit.com.