Filing For Bankruptcy in NJ: An Overview of How it Works
For an ordinary person, bankruptcy can be an overwhelming undertaking that is seemingly littered with obstacles. Do not fret. Bankruptcy is largely a process of filing the correct paperwork and handling the procedure in a systematic fashion.
In a typical bankruptcy, a debtor is the person, partnership, or corporation who is responsible for debts, and who is the subject of the case. A creditor is the person or organization who the debtor owes a sum of money, or some other type of legal obligation. A government employee typically examines the case and they are called a trustee. The responsibility of the trustee is to manage issues associated with the case and generally oversee the parties. It is rare that a party appear in court in a bankruptcy proceeding – instead, cases are usually commenced and conducted through paperwork, resembling more closely an administrative process as opposed to a lawsuit.
Two Forms of Bankruptcy – Chapter 7 and Chapter 13
Chapter 7 Bankruptcy is available if a debtor is unable to repay their debt in a repayment plan. If a debtor cannot afford to repay creditors for three or five years under a Chapter 13 plan, Chapter 7 becomes the best option. Time frames for debt discharge are typically short in a Chapter 7, with some discharge court orders being issued in as little as three months. Upon receiving a discharge order, the debtor is no longer liable to their creditor for the discharged debt. Most types of dischargeable debt includes personal loans, credit card debt, and medical bills.
Chapter 7 proceedings also require most assets to be liquidated in order to pay off debt owed. As a safeguard, debtors must pass a “means test” – a method for excluding individuals with high income or a healthy portfolio of assets.
Chapter 13 Bankruptcy is available to those persons who fail to pass the “means test.” Unlike Chapter 7, this process creates a payment plan and restructuring of debts owed. Monthly payments are thereafter rendered with the goal of settling as much debt as possible under a debtor’s current income.
Property sales are typically avoidable in a Chapter 13 case as current income is employed to pay off debt. Payment plans range between three and five years, and once the payment plan is satisfactorily completed, all debts included under the plan are deemed paid off.
Know Your Finances: Conduct an Inventory
Understanding your financial situation is crucial in beginning the bankruptcy process. Gathering the requisite information takes time, however it will make your experience less burdensome later on.
- Income: Calculate any money you have received for any reason in the past six months, as well as any money expected to be received in the future. Note how often the money is received and what the source of income is. Unemployment compensation, side job income, dividends or interest from investments, pensions, money contributed to your home from spouses or family members, and ordinary job income are all relevant. Note that Social Security income is not included in your calculations.
- Debts: Figure out who you owe money to (the creditor), how much money is owed, the interest rate, what the monthly payments are, and any other information that may be helpful. All debts, including those being paid, must be included.
- Property and Other Assets: Take into consideration anything you own that holds value, including: savings accounts, stocks, real estate, vehicles, art, collectibles, and more. Personal property is generally considered exempt – however, it is best to consult with your attorney about the specific details of personal property exemptions in New Jersey.
- Monthly Living Expenses: Calculate your cost for rent or a mortgage, taxes, transportation, child support, alimony, food, utilities, medical bills, insurance, and any other regular expenses. Take averages on items that fluctuate in cost, such as utilities.
- Compile Documentation: As you create a master list of all the information discussed in 1-4 above, consider that the trustee may ask for additional information to clarify the amounts claimed. It is best to organize this information in print form in a folder or similar organizer.
Upon satisfactorily compiling your financial information, the next step will be to complete credit counseling. The counseling is required before submitting your bankruptcy petition, often times it is inexpensive, and may be conducted through the internet. It is a necessary part of the bankruptcy process.
Once the bankruptcy petition has been filed and accepted, creditors will receive a notice that they have been included in your petition. A Creditor’s Meeting is usually scheduled where lenders attend and are allowed to question you and/or the trustee. The trustee will confirm your desire to move forward in the case and reaffirm your understanding of the consequences of declaring bankruptcy (impact on credit, etc).
After completing the Creditor’s Meeting, a creditor may object or do nothing. In Chapter 7 cases, the liquidation of assets is typically the next step. Trustees will pay your creditors from the proceeds and a judge will typically issue a discharge order, absolving creditors from pursuing collection against you.
Chapter 13 cases will require approval of a payment plan upon satisfaction of any objections raised. After the plan is confirmed as approved, you will make payments to the trustee on a monthly or otherwise scheduled basis. The trustee is responsible for paying the creditors on your behalf. Upon completion of the payment plan, any remaining debt will be discharged.
Post-Bankruptcy Credit Counseling is usually the final task that must be completed before all debts are discharged.
Contact a Skilled New Jersey Bankruptcy Attorney at the Law Offices of Marc A. Futterweit
The road to resolving debt issues is often bumpy and laden with blind corners. Hiring a skilled attorney to help you file bankruptcy is a wise decision and we can help you resolve your matters amicably. Consumers often times fail to see the risks involved in bankruptcy proceedings including: some or all debt will not be discharged, creditors raising objections, and the court preventing debts from being discharged for legal or procedural reasons. Call our law office 973-442-0200 today or visit us online at www.Futterweit.com to see how we can help assist you or answer any questions.