MONMOUTH COUNTY CHAPTER 7 BANKRUPTCY BASICS
The Cassidy Law Firm Monmouth County Bankruptcy and Criminal Law Attorney
If you are one of the millions of Americans who works hard yet cannot seem to get out of debt, bankruptcy may be the answer. All too often it only takes a brief period of unemployment, an extended illness, or a family emergency to cause your finances to spiral out of control. Once that happens it is often impossible to get back to where you were before the unemployment, illness, or emergency. If you are like many debtors you may be hesitant to consider bankruptcy because of the many misconceptions people have about the process and the consequences of filing for bankruptcy. Educating yourself about some of the basics of a chapter 7 bankruptcy, however, may result in considering bankruptcy as a viable option.
CHOOSING A CHAPTER The right to file bankruptcy in the United States is found in the U.S. Bankruptcy Code. This means that the federal court system has jurisdiction over bankruptcy proceedings. With one exception, this also means that the bankruptcy process, rules, and procedures are the same for debtors across the country. The exception to this general rule relates to exemptions and will be discussed in depth later on. The U.S Bankruptcy Code provides a number of chapters under which a debtor may file
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for bankruptcy protection. Individuals (or a married couple filing jointly) may file under the following chapters: Chapter 11 –though available to an individual a chapter 11 is usually only used when a small business is involved in a personal bankruptcy. Chapter 12 –this chapter is reserved specifically for a debtor who qualifies as a family fisherman or family farmer. Chapter 13 – typically used by a debtor who has a moderate to high income and/or who needs to protect valuable non-exempt assets in the bankruptcy. Chapter 13 requires the debtor to develop a repayment plan that allows the debtor to repay most debts over an extended period of time, usually three to five years. Chapter 7 – commonly referred to as a ―liquidation‖, chapter 7 is the most commonly used chapter. A chapter 7 bankruptcy only takes, on average, about four to five months to complete. At the end of a chapter 7 bankruptcy most debts are discharged, meaning the debtor is no longer legally responsible for paying the debt. A debtor must pass the ―means test‖ to be eligible to file a chapter 7 bankruptcy.
THE “MEANS TEST” Unlike the other chapters, a chapter 7 bankruptcy essentially allows the debtor to wipe the slate clean without having to repay any of the debts. No repayment plan is required yet all of the debts are discharged at the end of the bankruptcy. Because a chapter 7 allows a debtor to avoid paying back debts it is intended to
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be used only by debtors without the ability to pay those debts. Therefore, a debtor must qualify to proceed under a chapter 7 by passing the ―means test‖. The means test is a set of calculations intended to compare your income against that of other similarly situated households within the same geographic area. If your income falls below the median you may use chapter 7. The test itself is complicated and confusing and often results in a debtor assuming he or she does not qualify when, in fact, the debtor may qualify to use chapter 7. Unless your income is clearly below the median do not attempt to determine your eligibility without the assistance of an experienced New Jersey bankruptcy attorney. There is a good chance you will qualify by having an expert perform the calculations.
THE CHAPTER 7 STEPS Once you have determined you qualify to file a chapter 7 bankruptcy, and have made the decision to do so, the bankruptcy will proceed more or less as follows: 1. Credit counseling.This is a pre-filing requirement. The course that can be taken over the internet. 2. Filing the petition.Your petition and accompanying schedules are filed in the appropriate court.
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3. Automatic stay.The court issues and automatic stay which prevents creditors from any further attempts to collect on debts. 4. Trustee assigned.The trustee oversees the bankruptcy process. Although you will meet the trustee you will likely never see the judge or step foot in a courtroom. 5. Meeting of creditors.Usually a formality. Held at the trustee’s office or in a room in the courthouse. Creditors have the right to attend and question you about assets and income but most creditors will not attend in a chapter 7 bankruptcy. 6. Sale of assets. If you have any non-exempt assets the trustee will take possession of them and sell them with the proceeds going to creditors. 7. Debtor education.Another course required pre-discharge. This may also be taken online. 8. Discharge.All dischargeable debts are discharged, or forgiven.
NEW JERSEY EXEMPTIONS An exemption allows a debtor to protect an asset from seizure and sale during the bankruptcy process. In a chapter 7 bankruptcy the trustee is, in theory,
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allowed to sell the debtor’s non-exempt property to satisfy credit claims. In reality, most chapter 7 debtors have little, or no, non-exempt property available to sell. Usually, if a debtor has valuable non-exempt assets he or she will choose to file a chapter 13 instead of a chapter 7. Although bankruptcy is a product of federal law, one aspect of bankruptcy differs from state to state – exemptions. The U.S. Bankruptcy Code provides a list of exemptions; however, the individual states are also allowed to create their own exemptions. The state decides if the debtor must use the federal exemptions, the state exemptions, or may choose between the two. In New Jersey a debtor has the option to use either the federal or state exemptions, but not both.
NON-DISCHARGEABLE DEBTS It is important for any debtor considering bankruptcy to understand that there are some debts that cannot be discharged regardless of what chapter you file under. A debtor will continue to be responsible for these debts after discharge. A few of the more common non-dischargeable debts include: Spousal support or alimony Child support Certain tax debts Student loan debts except in extreme circumstances Court fines and penalties Debts for personal injury if caused by driving while intoxicated
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LIFE AFTER A CHAPTER 7 BANKRUPTCY One of the most common reasons why people hesitate to consider bankruptcy as an option when they are facing serious financial hardship is because they are concerned about the long-term consequences of bankruptcy. For most people the reality is that they are in a much better position both financially, and in terms of their credit, shortly after discharge than they were prior to filing the petition. If you are considering bankruptcy, chances are your credit score is less than stellar now. There is a good chance that your score will begin to climb right after the discharge because your debt to income ratio will significantly improve. Many debtors are able to finance a vehicle, for example, within a year after discharge. Qualifying for a mortgage loan takes a little longer; however, most debtors can qualify within two to four years after a chapter 7 discharge as long as they meet all other eligibility requirements and continue to work on improving their credit score. With a better understanding of process itself as well as the benefits of filing for a chapter 7 bankruptcy, it may now be time to contact an experienced New Jersey bankruptcy attorney to discuss your options.
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U.S. Courts, Liquidation under the Bankruptcy Code U.S. Bankruptcy Court District of New Jersey, How to File a Chapter 7 Bankruptcy NOLO, New Jersey Bankruptcy Exemptions NOLO, Non-Dischargeable in Under a Chapter 7 Bankruptcy
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About The Cassidy Law Firm, Attorneys at Law Few attorneys can match the unique success that Harold Cassidy — the founder of our law firm — has achieved. Well-earned statewide awards from his peers and national recognition from mainstream media outlets have resulted from Mr. Cassidy establishing legal precedents and handling high-profile cases. For his blazing of new legal trails, our founder has received national recognition as an ABC News ―Person of the Week,‖ as well as recognition from the state as a Top Lawyer in New Jersey Monthly and inclusion in New Jersey Super Lawyers Magazine. While a high level of acclaim has come our way, we do not forget where our roots are. The attorneys at The Cassidy Law Firm are dedicated to helping New Jersey residents charged with crimes, injured in an accident or needing help with a Chapter 7 or Chapter 13 bankruptcy filing. Attorney Harold Cassidy brings more than 35 years of experience providing representation that some clients have referred to as exquisite. He appreciates the unique problems his clients face, and he provides empathetic and attentive advocacy to the legal matters impacting their lives that include: Car accidents Birth injuries Surrogate mother and gestation carrier cases Medical malpractice Abortion malpractice Informed consent malpractice Trips, slips and falls Juvenile crimes Criminal appeals Municipal court cases DWI and drunk driving The Cassidy Law Firm 750 Broad Street, Suite 3 Shrewsbury NJ 07702 Telephone: (732) 747-3999 Fax: (732) 747-3944 Website: www.thecassidylawfirm.com
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