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New Jersey Bankruptcy: Frequently Asked Questions

Lots of people wonder if they can file for bankruptcy, and they all have plenty of questions about the process. Read on for a list of frequently asked questions about NJ bankruptcy law.

If you don't see your question answered here, call the Rokicki Law Firm for a free consultation at 973 - 671 - 8529. Or, email us at [email protected]

What is bankruptcy?

Sometimes, people simply cannot pay the debts that they owe. Bankruptcy is an opportunity for people (and corporations) to either work out a payment plan to pay their debts or, in some cases, to completely eliminate their legal liability to pay those debts.

What is the difference between secured and unsecured debt?

Secured debt is a debt secured by collateral. For example, a mortgage is a debt secured by your house. If you default on secured debt, the lender has the opportunity to minimize its loss by regaining possession of the collateral. If you default on your mortgage, the lender will usually try to get the collateral, your house, back through a foreclosure proceeding. If you file for bankruptcy, creditors will usually retake any secured debt property and use it to pay off your debt.

Unsecured debt is not secured by collateral, and creditors cannot claim any property for it if you file for bankruptcy.

What are the different types of bankruptcy?

Consumer debtors generally file Chapter 7 bankruptcy or Chapter 13 bankruptcy. A Chapter 7 bankruptcy filing is sometimes referred to as a "liquidation"; in essence, the debtor surrenders all of his non-exempt assets to the Bankruptcy Court in order to receive a discharge. Usually, with proper exemption planning, a debtor can keep all of his property while receiving a discharge.

A Chapter 13 bankruptcy entails the debtor maintaining a 3 or 5-year payment plan with the Bankruptcy Trustee to pay off a percentage of his debts. This type of bankruptcy can be useful to the debtor who does not qualify for a Chapter 7 Bankruptcy or who wants to keep certain assets (such as a house) by paying them through the plan over the applicable time period.

Can I change from one type of bankruptcy to another?

With some exceptions, a debtor can generally convert their bankruptcy case to another chapter once throughout the bankruptcy process. However, one should carefully consider the consequences before conversion. For example, if a case filed originally under Chapter 13 is converted to Chapter 7, any non-exempt property would be seized and liquidated by the Bankruptcy Trustee.

Who can file bankruptcy?

Generally, any individual or business owing money to a creditor can file for bankruptcy. For a list of requirements for filing for bankruptcy in New Jersey, click here.

How often can I file for bankruptcy?

A Chapter 7 bankruptcy petition can be filed 8 years from a previous Chapter 7 petition, or 6 years from a previous Chapter 13 petition.

A Chapter 13 petition can be filed 4 years from a previous Chapter 7 petition, or 2 years from a previous Chapter 13 petition.

How do I file for bankruptcy?

A debtor can file for bankruptcy by completing a bankruptcy petition under the applicable Chapter of the Bankruptcy Code. A petition consists of schedules of assets and liabilities. Before a bankruptcy petition can be filed, a debtor must take a mandatory credit counseling course.

Due to the complexity of the Bankruptcy Code and the severe consequences of any mistakes made in the bankruptcy petition (such as dismissal of the petition or losing any non-exempt property), it is strongly recommended that debtors use an experienced attorney to file for bankruptcy. For a free bankruptcy consultation, call the Rokicki Law Firm at 973 - 671 - 8529.

Do I have to have a certain amount of debt to file?

No. However, filing for bankruptcy may not always be the best solution if a debtor has only minimal debt. Moreover, if a debtor has no property, it may not be necessary to file for bankruptcy, as a creditor would be unable to collect anything from the debtor.

Can I file for bankruptcy jointly with my spouse?

Yes- spouses can file joint bankruptcy petitions. This is recommended if both spouses are filing for bankruptcy, as it reduces the filing fee needed to be paid. Unmarried partners, however, must file individually.

What happens if I file for bankruptcy but my spouse doesn't?

Be very careful about filing for bankruptcy if any of your debts are held jointly with your spouse. Even if your personal obligation to repay the debt is discharged in bankruptcy, the entire debt could then be owed by your spouse.

Can a co-signor on my loan be liable for the loan debt if I file?

Yes. The lender can require the co-signor to make payments under the loan if the principal declares bankruptcy. Carefully review this with your attorney when determining if filing for bankruptcy is a good idea or not.

Will all my debts be discharged?

Not all debt is discharged in bankruptcy. Whether certain debt can be discharged or not depends on the chapter of bankruptcy you file under, so check with an attorney before filing. Common examples of nondischargeable debt are:

- Debts for taxes owed to local, state or federal agencies.

- Debts for money, property, services, or an extension, renewal, or refinancing of credit, which was obtained fraudulently.

- Debts owed to a spouse, former spouse, or child, for alimony, maintenance, or support of a spouse or child, with a separation agreement, divorce decree or other order of a court of record.

- Debts owed for injury to another person or property owned by another (as in a court judgment).

- Debts for government-sponsored educational loans, unless it can be shown that repayment will cause an undue hardship.

- Debts for death or personal injury caused by the debtor's drunk driving or from driving while under the influence of drugs or other substances (as in a court judgment).

- Debts incurred after a bankruptcy is filed.

Do I have to give up my property if I file for bankruptcy?

You do not have to automatically give up all of your property when filing for bankruptcy. In New Jersey, a debtor is able to claim federal exemptions to protect certain types of property from being distributed to creditors. See the NJ Exemptions page for a detailed list of common exemptions available to bankruptcy filers in New Jersey.

Can I choose which debts to include in my bankruptcy?

No- you must list all of your debts on your bankruptcy petition. Of course, you are always allowed to make voluntary payments on a debt that has been discharged. You can also reaffirm certain debts (such as a car loan) so that you can keep secured property while continuing payments on it.

What is a reaffirmation agreement?

Debts can be voluntarily reaffirmed, although this is not a mandatory process. Reaffirming a debt means that you agree to pay it in spite of the bankruptcy filing- even when your other debts are discharged, you remain liable for any debt you have reaffirmed. Debtors sometimes choose to reaffirm car loans to ensure that the creditor does not attempt to repossess the vehicle.

Will I lose my retirement accounts or Social Security payments?

Generally, ERISA-qualified retirement accounts are not considered part of the bankruptcy estate; as such, you will not lose these accounts if you file for bankruptcy. Social Security and unemployment benefits are able to be exempted from the bankruptcy estate.

Will bankruptcy affect my credit rating?

It will, but maybe not in the way you think! If you are deep in debt and have already defaulted on several debts, filing for bankruptcy will likely increase your credit score. This is because your income to debt ratio will substantially increase once your debts are wiped out. Since your credit rating is usually already low to begin with if you are considering bankruptcy, some debtors are pleasantly surprised when they see the impact bankruptcy has on their credit rating.

How long does a bankruptcy remain on my credit report?

A bankruptcy can remain on your credit report for 10 years.

When can I apply for credit again?

The granting of credit is an act governed by each individual creditor's rules and policies. Since there is no law stating that bankrupt debtors are not allowed to be extended credit, you could theoretically be offered credit immediately after you file for bankruptcy. Companies may be quick to grant you credit as they know that you won't be able to file bankruptcy again for a period of time. Note that until your credit score improves, any interest rates offered may be quite high.

Can a "credit repair" company really help save me from bankruptcy?

Be very, very careful when dealing with credit repair companies. While there are assuredly many honest companies out there that get positive results for their customers, there are a significant number of unethical companies whose business models can only be described as scams. An easy way to identify such a scam is to listen to what a credit repair company says it can do. If it promises to "clean up" your credit so that you can qualify for a loan, insurance, or even a job, stay far away. This is illegal: no one can remove accurate negative information from your credit report. After you fall for such a scam and owe a credit repair company hundreds or thousands of dollars in fees, you are left with the same credit report- with the only difference being that someone else has your money.

Can a creditor continue to contact me after I file for bankruptcy?

As soon as you file for bankruptcy, the Automatic Stay comes into effect. This means that any contact regarding debt collection must immediately cease. If a creditor insists on contacting you, make sure that the creditor understands that you have filed for bankruptcy. Ultimately, if the creditor refuses to abide by the rules of the Bankruptcy Court, you may commence legal action against it.

How do my creditors know I've filed for bankruptcy?

When you file your bankruptcy petition with the Bankruptcy Court, the Court will mail out a notice to your creditors advising them of the following:

- The filing of the bankruptcy.

- The case number.

- The automatic stay.

- The Trustee assigned to the case.

- The date set for the Section 341 Meeting of Creditors.

- The deadline, if any, set for filing objections to the dismissal of the debts.

- Whether and where to file claims.

Who is the Trustee and what do they do?

In a Chapter 7 or Chapter 13 consumer bankruptcy, a Trustee is assigned in order to:

- Administer the bankruptcy estate.

- Make sure creditors receive as much money as possible.

- Oversee the Section 341 Meeting of Creditors.

- Collect and sell any non-exempt property in a Chapter 7 case.

- Pay out money in a repayment plan in a Chapter 13 case.

- Obtain information and documents from the debtor regarding their bankruptcy.

Can creditors object to my bankruptcy filing?

Yes- creditors can object to certain debts being dischargeable or even the entire bankruptcy discharge being granted. In a Chapter 7 case, creditors usually have 60 days after the first Section 341 Meeting of Creditors to object to the discharge of a specific debt. If no objections are made, then the Trustee will administer any assets of the Bankruptcy Estate and the Court will file a Discharge Order. If there are any objections, then there may be litigation in Bankruptcy Court to determine the dischargeability of the debt that is being objected to.

What is the Section 341 Meeting of Creditors?

The Section 341 Meeting of Creditors is an official proceeding at which the Trustee takes sworn testimony from the Debtor about his bankruptcy filing. It is a mandatory part of the bankruptcy process- if the Debtor does not attend, his bankruptcy petition will be dismissed. At the meeting, the Debtor will be asked to explain:

- The circumstances leading up to the bankruptcy filing.

- Any actions taken with regard to property preceding the bankruptcy.

- The source of debts listed in the bankruptcy petition and any other financial information requested by the Trustee.

As the proceeding is taken under oath, failure to answer truthfully may result in the bankruptcy petition being dismissed, or, in extreme cases, a charge of perjury. Creditors are able to attend the meeting and ask limited questions of the Debtor, but most usually do not.

What happens if I forget to list a debt on my bankruptcy petition?

In no-asset Chapter 7 cases, even debts that were inadvertently omitted from the bankruptcy petition can be discharged. Remember, though, that when you sign your bankruptcy petition and testify at the Section 341 Meeting of Creditors, you are doing so under penalty of perjury, so it is very important for you to make sure that all of your debts and assets are listed correctly in the petition.

A bankruptcy petition can also be amended, so if you realize that something is missing, be sure to notify your attorney immediately so that an amendment can be timely filed with the Bankruptcy Court.

Can I keep using my credit cards after I file for bankruptcy?

Most credit card companies track bankruptcy filings on a daily basis and will immediately cancel your card if you file for bankruptcy. Moreover, any debt that you incur after filing for bankruptcy will not be discharged- so if you do use a credit card after you file, you will be obligated to pay the debt. Moreover, it is a good idea to completely stop using credit cards for at least 3 months prior to filing for bankruptcy, as credit card companies can argue that purchases or cash advances incurred immediately prior to a bankruptcy filing should be non-dischargeable.

Can a bankruptcy case ever be reopened?

Yes- both debtors and the Trustee can reopen a closed bankruptcy case. A debtor may choose to do so to correct the petition or to schedule an omitted debt, while a Trustee might do so if any irregularities are noted after case closure or if any hidden assets are discovered.