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| Bankruptcy Relief Bankruptcy is an often misunderstood legal right that offers relief to millions each year. If you have a large amount of debt, bankruptcy may be a viable decision for both you and or your businesses alike. Please read below for a straight-forward explanation of the process. | |
| Bankruptcy Q&A
Q: What is the purpose of bankruptcy? A: The United States Supreme Court declared as far back as 1904, that the purpose of bankruptcy was to give the honest debtor a fresh start, free from the burden of oppressive debt. Wetmore v. Markoe, 196 U.S. 68, 77 (1904). Bankruptcy law has evolved since that time, usually with that goal in mind. In 2005, Congress passed a new law, with the name Bankruptcy Abuse Prevention & Consumer Protection Act of 2005. This new Act places significant burdens in front of many hoping for a fresh start. For most purposes, the Act goes applies to cases filed on or after October 17, 2005. For additional information, see also, Book of Deuteronomy 15:1-2 ("At the end of every seven-year period you shall have a relaxation of debts, which shall be observed as follows. Every creditor shall relax his claim on what he has loaned his neighbor; he must not press his neighbor, his kinsman, because a relaxation in honor of the LORD has been proclaimed.")
Q: What are the different types of bankruptcy?
A: There are five different types of bankruptcy. Each is referred to by its chapter number in the bankruptcy code: Chapter 7, Chapter 9, Chapter 11, Chapter 12 and Chapter 13. Each Chapter has different requirements and results. Most individuals file Chapter 7 or Chapter 13 bankruptcies, although some need Chapter 11 or Chapter 12. Corporations cannot file Chapter 13. Chapter 7 requires individual debtors to turn over all but specifically exempted assets to a bankruptcy trustee, who will sell the assets to pay creditors. Businesses filing Chapter 7 are completely liquidated. Chapter 9 is reserved for municipalities and governmental agencies. Chapter 13 provides for three to five year payment plans that allow debtors to cure mortgage defaults and pay back a portion of their debts. Chapter 12 is reserved for family farmers. Chapter 11 allows businesses and individuals with higher incomes and large debts to reorganize their debts or control a liquidation. It is a flexible remedy. Each debtor develops an individually crafted plan, which is presented to the Bankruptcy Court for confirmation. Chapter 11 is more complicated than can easily be described here. If you believe your business needs to file Chapter 11, please call Middlebrooks Shapiro & Nachbar, P.C. or a licensed attorney in your state to arrange a free initial consultation. Chapter 13 allows individuals to re-organize their debts. A three to five year payment Plan is developed and presented for Court approval. Chapter 13 is particularly useful when individuals have high incomes, valuable non-exempt assets, or debts which would be non-dischargeable in another Chapter. Chapter 13 offers a “Super Discharge” allowing the elimination or reduction of many debts which would not be discharged in a Chapter 7 or 11. Chapter 13 can also be used to retrieve repossessed cars, reinstate drivers licenses while surcharges are paid over time, or cure mortgage defaults and prevent foreclosure.
Q: What is bankruptcy protection? A: The filing of a bankruptcy petition creates an automatic stay, protecting you from creditors trying to collect debts. Creditors can no longer call you, send collection letters, sue you, collect judgments, garnish your wages, or take any other legal action against a debtor, without permission of the BankruptcyCourt.
Q: Which form of bankruptcy is right for me? A: Everyone is different. We would want to ask you a number of questions before commenting. If you live in New Jersey or the New York metropolitan area, please call Middlebrooks Shapiro & Nachbar for a free consultation.
Q: Do I have to list all creditors?
A: YES! Occasionally, clients wish to omit debts to friends, family or a doctor. Sometimes clients attempt to preserve one credit card by omitting it from the bankruptcy. This is illegal and could result in a denial of discharge. In addition, the credit card company inevitably finds out about the omitted credit card and cancels it. Do not intentionally omit any creditors! If you realize after filing your bankruptcy that you forgot to include a creditor, speak to your lawyer so the creditor can be added.
If there is a debt you do not want “included” in the bankruptcy, there are alternatives. There is nothing that says that you cannot chose to pay back a debt after bankruptcy. A bankruptcy discharge only prohibits creditors from attempting to collect debts, it does not limit you. During your bankruptcy, you may also reaffirm debts. Reaffirmation is an agreement to waive the discharge as to the reaffirmed debt and to pay the debt according to the terms of the original agreement.
Q: Do I have to list all my assets?
A: YES! Intentionally concealing assets from the bankruptcy trustee and the court is a Federal crime. You could be fined up to $5,000, imprisoned for up to five years, or both. In addition, the court can deny you your
discharge or dismiss your bankruptcy proceeding.
Q: What can I keep?
A: This varies with the Chapter you file under. In Chapters 11 or 13, you can keep all of your property, but the value of your property will be considered when determining how much you will have to pay in your Plan. New Jersey Chapter 7 debtors may chose from a New Jersey or a Federal list of assets which are exempt from sale by a Chapter 7 trustee. In virtually all cases, the Federal list is more generous. The more important items on the Federal list of exemptions are described below. This list describes what an individual debtor may keep. Thus, a couple can keep double the amounts specified. Homes: Each debtor may retain $20,200 in equity in a residence. Cars: Debtors may keep up to $3,225 in equity in a motor vehicle. Since most car loans exceed the value of the car, debtors can usually keep their car, so long as they continue their car payments. Household Goods: Each debtor may keep $10,775 in household goods like furniture, appliances, clothes, books, etc. No single item, however, may exceed $550 in value. Tools of the Trade: Debtors may retain $2,025 of tools used in their trade. Jewelry: Debtors may keep up to $1,350 of jewelry. Wildcard: The wildcard exemption may be used to protect anything at all, even cash. It ranges from $975 to $10,125 depending on how much of the home equity exemption is used. Income: Income from social security, veteran’s benefits, unemployment, disability, or pension is protected. Retirement savings: Due to a quirk in New Jersey law, money in IRA’s and 401K’s is completely protected, unlike the situation in New York and many other states. New York Chapter 7 debtors may only use the New York exemptions. A New York debtor may only retain $10,000 in equity in his or her home or $5,000 in cash. The homestead exemption may be doubled for couples filing jointly. The exemption for household goods is only $5,000. The motor vehicle exemption is $2,400. IRA’s, 401K’s and other pension monies are only exempted to the extent needed for support of the debtor. Some of the New York exemptions are very dated. For example debtors may exempt a wedding ring or a watch worth up to $35.
Q: What debts cannot be discharged?
A: The following cannot be discharged: Student loans; Debts arising from fraud or misrepresentation; Alimony; Child support and some divorce property settlements; Debts from recently purchased “luxury goods”; Debts from willful and malicious injury; Debts from death or personal injury caused by drunk driving; Criminal fines and penalties; and Some tax debts are among the debts non-dischargeable in a Chapter 7 or Chapter 11. Previously, under the old Code, because Chapter 13 requires partial repayment of debt, it provided a “super discharge”. In a Chapter 13, student loans, alimony, child support, debts from death or personal injury caused by drunk driving, criminal fines and penalties, and slightly fewer types of tax debts are non-dischargeable. One of the major advantages of Chapter 13 is the ability to discharge some debts that survive Chapter 7. The Bankruptcy Abuse Prevention & Consumer Protection Act of 2005 has severely restricted the “super discharge.”
Q: Can I get rid of judgments?
A: Some judgments can be avoided as part of the bankruptcy process. A New Jersey state law allows judgments that survive bankruptcy to be terminated in state court one year after your bankruptcy discharge is granted.
Q: Will I have to go to court?
A: A month or two after you file bankruptcy, you will have to attend a § 341(a) meeting of creditors. Your creditors may also attend, but rarely do. You will have to answer a series of questions from your bankruptcy trustee about your petition, your assets, and your debts. The setting is usually informal and the questioning typically lasts only five or six minutes. While the lawyer may have to go to Court for you after that, your presence is rarely required.
Q: How long does it take and what else must I do?
A: Chapter 7 debtors usually receive their discharge in about six months. Chapter 13 Plans can last up to five years. It is mandatory the you take a Credit Counseling Course from an approved provider prior to filing for bankruptcy. Pending on which Chapter you file, will also determine when you will have to take the Debtor Education Course. Both of these courses are available on-line and a bankruptcy professional will explain these courses to you.
Q: What will happen to my credit?
A: If you thinking of filing for bankruptcy, your credit is probably already bad. Many people find that they have easier access to credit, once they have completed their bankruptcy. The bankruptcy can remain on your credit report for up to ten years, however.
Q: What should I do if I am going to file for bankruptcy?
A: The following pre-bankruptcy preparation steps: First, prepare a list of all your creditors and keep copies of any bills or payment demands; Second, immediately STOP using your credit cards. If you don’t, you may get sued and have to pay back the credit card company in whole or part; Third, DO NOT transfer your assets to friends or family and business associates to protect the assets from your creditors or the bankruptcy trustee. The transfer may be considered a fraudulent transfer. You could face the expense of a lawsuit, lose the property, and be denied a bankruptcy discharge; Fourth, don't destroy any business or financial records. You can lose your right to a bankruptcy discharge as a result; Fifth, call Middlebrooks Shapiro & Nachbar at (908) 687-6161 for a free consultation. | |
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