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Is Bankruptcy Right For You?

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Some reasons for filing bankruptcy include stopping the sale of your home or car, stopping an existing wage garnishment, obtaining a fresh start by ridding yourself of past credit card or medical bills, DMV fines.  Bankruptcy can provide your with a fresh start and clean slate to begin your life without creditors, depending upon the type of bankruptcy that you choose.

How to qualify for bankruptcy?

Generally, your expenses have to more than your income in order to qualify for a bankruptcy?  This lopsided debt to income ration must prevent you from paying your creditors.  Speak to an attorney about your debt to income ratio, some people may not recognize what qualifies as debt.  Also, certain types of bankruptcy, Chapter 7, can only be filed every seven years.

Which type of bankruptcy do I file?

There three main types of bankruptcies that individuals file Chapter 13 and Chapter 7.  Then there is a Chapter 11 for businesses.  Here, I will only discuss Chapter 7 and 13, leaving Chapter 11 for another article.  Most poor to middle class people will be filing a Chapter 7 Bankruptcy, wherein their homeownership equity is below $23,675.00 for a single person and $47,350.00 for a married couple if they were to even own a home, plus their ownership equity in their car is not over approximately $7,500.00 for a single person and $15,000.00 for a married couple, if they were to own a car or cars.  Ideally, a Chapter 7 Bankruptcy will permit a debtor to have all of thier medical, consumer debt and DMV fines removed (unsecured debts), while giving them an opportunity to stay any home foreclosure proceedings and obtain a home modification if he/she needs to.  Whereas, a Chapter 13 Bankruptcy is where a debtor has more than the above listed amount of equity in their home, has a host of other unsecured (medical & consumer) debts, plus some secured debt (home, car) along with a certain amount of property that would not be exempted.  Here, the debtor will have to pay all past due secured debts and a certain percentage of secured debt over a either three or five year plan.

Can I save my home during a bankruptcy?

A bankruptcy automatically stays all foreclosure proceedings.  What type of bankruptcy you file, depends upon how much equity (ownership value) you have in your home.  For example, if your home is worth $100,000, but you only recently started paying your loan, odds are you have zero equity in the home, whereas if you have owned it for ten years and have been making payments, odds are you will have a 5% to 10% ownership equity value, which will be $5,000.00 to $10,000.00.  In order to qualify   For the year of 2017, you can own up $47,350.00 for a married couple, $23,675.00 for a single person filing bankruptcy.

What types of Debts Can I avoid in Bankruptcy

A person filing bankruptcy can eliminate almost all unsecured debts (debts not secured with the purchase of property, i.e. house or car mainly).  This means that your past consumer credit cards, medical bills and personal loans can be eliminated.  In New Jersey, you can also eliminate your DMV fines, as long as they have not been reduced to a judgment.  Also, possibly state and federal taxes can be eliminated, depending upon the year.  Debts that are secured by a loan, for example, a loan on a house or car cannot be eliminated without either giving up the car or house itself. However, in a Chapter 13 Bankruptcy, a cramdown (cramming down the debt on a car or house) or lien stripping, wherein you strip off and avoid a second loan on a home may be achieved.

What types of Debts Can I not avoid in Bankruptcy?

Divorce judgments, spousal support, child support, government backed student loans, state and federal taxes (generally), secured debts (debt secured with the purchase of property, cars or houses, etc.).  These are some of the debts that one cannot avoid by filing bankruptcy.

What steps must I take to file bankruptcy?

First step is to contact a competent attorney who is familiar with the changing laws surrounding bankruptcy.  Though the bankruptcy laws in some part have become more forgiving and some experienced filers have been able to file pro se (without professional assistance), there are a host of costly mistakes that a person can make in filing their bankruptcies.  These mistakes, whether you left something out, provided inappropriate or incorrect information to the bankruptcy trustee.  Whatever the reason, these mistakes may leave you shut out of the bankruptcy court for the time being or may land you with being charged with breaking a federal statute.  A good attorney will guide you through your bankruptcy process.

The following sentences contain the usual steps one takes to filing and completing a successful bankruptcy, after you have already decided upon your attorney.

  • Second step is to gather all of your personal information, past due bills, credit cards, medical, personal loans, tax records, w-2s, bank statements, both business and personal.
  • Third step is to make a list of all of your debts, divide them up into secured and unsecured debts. And to verify that your drivers’ license or passport and social security are up to date, because you will need these as identification for the trustee.
  • Fourth step is to bring all of your documents, lists to your attorney.
  • Fifth step is to take the appropriate credit counseling courses, which are a necessary pre-requisite.
  • Sixth step is only for people filing a Chapter 13 Bankruptcy. In this type of bankruptcy, you have to develop a plan of paying back your past due secured debts and a percentage of your unsecured debts over a three or five-year period. Also, in a Chapter 13 plan, the debtor and their attorney will discuss whether any of the debtor’s secured debts can be stripped away or crammed down (the amount of debt is crammed down to the value of the property)
  • Seventh step is for you to review your attorney prepared petition, before it is filed. This is also a prerequisite.  No one knows your debts and financial information as well as you yourself.  Also, the trustee will ask you if you reviewed your petition before was filed.
  • Eighth step is to meet with the trustee at a 341 Meeting (bring your social security card and drivers’ license or passport). Though your attorney will be present at this meeting, it is you who will be doing the talking.
  • Ninth step, your attorney will re-affirming or renegotiating your secured debts (home and car). Or on the other hand, some debtors choose to return their house or car back to bank.
  • Tenth step is your taking another bankruptcy related course.
  • Eleventh step for a Chapter 7 debtor is the positive completion and closing of your case, with all of your eligible debts discharged, but for a Chapter 13 debtor, the eleventh step is the acceptance by the trustee of your bankruptcy plan. During the next three or five years, you will be making monthly payments to a bankruptcy trustee that the debtor can afford. It is only after the completion of this bankruptcy plan by a Chapter 13 debtor, will the debtor be able to discharge all of their eligible debts.



DISCLAIMER – This discussion is only for informative purposes only and does not constitute a legal opinion, nor is it a complete description of an actual bankruptcy.  Further, this does not create a legal relationship with its author.  Please speak with an attorney and an accountant before you make any decisions in regard to a bankruptcy.

Raymond is experienced in a host of different areas, including Immigration, Criminal, Divorce & Family Law, Wills & Estate, Incorporating your business as well as advising small businesses with their tax and investment choices.
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