Bankruptcy & Debt Relief for Individuals and Small Businesses
Bankruptcy has helped millions of people get rid of their debt. Bankruptcy can also help businesses facing financial difficulties. For more than 30 years, the attorneys at Levitt & Slafkes, P.C., have helped many individuals and businesses get a financial fresh start by filing bankruptcy in NJ. We represent our clients with honesty, compassion and most importantly, years of experience. In certain situations, a bankruptcy lawyer can make all the difference in how you emerge from a troubling situation.
There are different bankruptcy types (called “Chapters”) so it’s important to know the differences and similarities. Before you file bankruptcy in New Jersey it’s important to make the right decision about which of the bankruptcy types is best for your unique situation.
The right to file for Bankruptcy is set forth in federal law, and all bankruptcy cases are handled in the federal court. Bankruptcy can be filed under various Chapters of Title 11 of the United States Bankruptcy Code. For individuals and couples, the most common bankruptcy types are Chapter 7 and Chapter 13, although in certain cases individuals may also file under Chapter 11. Small businesses generally will file a Chapter 11 bankruptcy although sometimes a bankruptcy under Chapter 7 may be appropriate. A person or company declaring bankruptcy is called the “debtor” and the person or company to whom a debt is owed is called the “creditor.”
Bankruptcy Types Explained
Each of the different bankruptcy types is designed for a specific purpose and has its own positives and negatives. This article will provide an overview of the bankruptcy types available for relief. It is important to recognize that every situation is unique and therefore you should speak to an experienced new jersey bankruptcy attorney before filing.
3 Bankruptcy Types for Individuals
Bankruptcy Under Chapter 7
A bankruptcy under Chapter 7 is a quick and cost-effective way to eliminate most types of debts. No payments are made to creditors and most of our clients get to keep everything they own, including their car. Most people prefer to file a Chapter 7 bankruptcy because it lasts only about 3-4 months and most of your debts are discharged. Student loans, most tax debts, and alimony and child support are some of the debts that are not discharged.
How do I qualify for a bankruptcy under Chapter 7?
Who is Eligible for Chapter 7- Before you can file a bankruptcy under Chapter 7 you must first pass a “means test”. If the average of your last 6 months of household income is less than the median income for your family size in New Jersey you will automatically qualify. If your income exceeds the median, it is still possible that you could pass and file for bankruptcy under Chapter 7, depending upon your particular financial situation. If you have significant assets or equity, or don’t pass the means test, Chapter 13 might be the type of bankruptcy for you.
Who Should File for Bankruptcy Under Chapter 7?
Generally, Chapter 7 is the right bankruptcy to file for people who have a lot of unsecured debt and don’t have many assets or much equity in property such as a house. If you do not meet these criteria or if you don’t pass the means test, a Chapter 13 bankruptcy may be the right bankruptcy for you.
Bankruptcy Under Chapter 13
Filing for bankruptcy under Chapter 13 is also known as a wage earner reorganization plan. In a Chapter 13, you file a Plan showing how you will pay some or all of your debts over 3 to 5 years. Under a Chapter 13 you don’t have to sell any of your assets. Often you only pay a small portion of what you owe to your creditors depending upon your income and assets. When you complete the payment plan, any remaining debt is discharged.
Who is Eligible to file for bankruptcy under Chapter 13: Only individuals can file a Chapter 13. Corporations and LLC’s cannot. For the Court to approve the Plan, you must have enough disposable income to make the monthly payments. There are debt limits for Chapter 13. Currently you cannot file a bankruptcy under Chapter 13 if you have more than $419,275 in unsecured debt (debts not secured by any property such as medical bills and most credit card debt) and $1,257,850 in secured debt (such as mortgage or car payments).
Who Should File For Bankruptcy Under Chapter 13?
If you earn too much to file for Chapter 7, Chapter 13 might be a good alternative. If you have significant assets and/or equity in your property Chapter 13 might be the right bankruptcy for you. Importantly, Chapter 13 might be right for you if you are behind on car or mortgage payments and want to keep the asset as filing for bankruptcy under Chapter 13 will allow you to pay the arrears during the bankruptcy plan and help you keep your home or vehicle.
Bankruptcy Under Chapter 11
Individuals rarely choose to file for Chapter 11 bankruptcy. They usually only file Chapter 11 if they do not qualify to file a Chapter 7 or a Chapter 13 bankruptcy. Every bankruptcy filing under Chapter 11 is more complicated and expensive than Chapter 7 or 13.
Who Files For Bankruptcy Under Chapter 11?
Chapter 11 might be the right type of bankruptcy in certain cases including when you have too much income to qualify for Chapter 7 under the means test or your debts exceed the Chapter 13 bankruptcy limits. It may also be the right type of bankruptcy if you have assets that need protection.
How Bankruptcy Works for Married Couples
If you are married you can file your own bankruptcy or you can file with your spouse under joint bankruptcy for married couples. If the majority or all of your debt is in both of your names it might make sense to file together because if only one spouse files, the creditor can still go after the non -filing spouse for the debt.
3 Types of Bankruptcy Options for Small Businesses
There are 3 types of bankruptcy that small businesses can file. Which one is right depends upon the financial circumstances and structure of the small business. Chapter 7 and Chapter 11 bankruptcy can be used by individuals and businesses. Chapter 13 is only available to individuals and not to corporations and LLC’s.
What is the Business Structure?
A business that is a sole proprietorship is a legal extension of its owner. The owner is responsible for all the assets and liabilities of the business. The owner of the sole proprietorship often files for bankruptcy under Chapter 7 in their own name after the business closes to discharge (eliminate) any of their personal debt and business debt for which they are responsible. The sole proprietor might also file a bankruptcy under Chapter 13 in their own name to reorganize debt, avoid liquidation of the business assets and keep the business open.
Partnerships and corporations are legal businesses that are separate from their owner. They can file for Chapter 7 or Chapter 11 Bankruptcy.
Bankruptcy under Chapter 7 for Businesses
Only individuals can receive a Chapter 7 discharge. Corporations, Partnerships and LLCs cannot. Therefore, only a business that is a sole proprietorship should consider filing a bankruptcy under Chapter 7. Generally, the sole purpose of a Chapter 7 bankruptcy for a business is to liquidate assets with court assistance.
Bankruptcy Under Chapter 13 for Businesses
Only individuals can file a bankruptcy under Chapter 13. A business cannot. However, the owner of a sole proprietorship might be able to file a personal bankruptcy under Chapter 13 in their own name in order to reorganize debt, avoid liquidation of the business assets and stay in business.
Bankruptcy Under Chapter 11: Business Reorganization
Filing for bankruptcy under Chapter 11 may be useful for businesses that have the ability to reorganize and continue operating, but need some relief from their debt to do so. Bankruptcy under Chapter 11 is generally used by corporations and partnerships. It is sometimes used by sole proprietorships whose debt may be too much for the individual owner to qualify to file a Chapter 13.
Chapter 11 is a complex legal process which allows a business to reorganize or liquidate its assets with both court approval and oversight. As a business owner, you can remain in business, reorganize debt and keep the business assets during the Chapter 11. During the bankruptcy, the business is protected by an automatic stay which stops creditors from collecting debts and taking legal action. A reorganization plan is prepared for the business and voted on by creditors. If the plan is confirmed and successfully executed, the business can survive.
Small Business Bankruptcy Reorganization Act of 2019 (SBRA)
The traditional Chapter 11 Bankruptcy is very expensive and time consuming which made it impractical for financially struggling small businesses to use to stay open. The Small Business Reorganization Act (SBRA) was passed by Congress to make Chapter 11 more practical and affordable for small businesses. It became effective on February 19, 2020.
SBRA Debt Limits
As enacted, the SBRA applied to businesses with debts not exceeding $2,725,625. The Coronavirus Aid, Relief and Economic Security Act (CARES Act) increased the debt limit to $7.5 million. This increased debt limit is temporary and currently expires on March 27, 2022 when the debt limit will return to $2,725,625.
Which Businesses can Benefit from the SBRA?
A small business bankruptcy may be a viable option for businesses that can meet ongoing financial obligations but need some time to deal with past due bills including rent and loan payments. It might provide the best and maybe the only opportunity for a small business facing the threat of an eviction to stay in its location and continue operating.
We Can Help You Eliminate Your Debt
We know that the first question you often ask is “How do I find a bankruptcy attorney near me?” At Levitt & Slafkes, P.C., in Maplewood, New Jersey, we know how frustrating it can be to deal with harassment from creditors. We also understand the horrible feeling that you will never again get ahead in life. We’re here to put a stop to the pain and help you start your financial life over.
With more than 30 years of experience in personal and business bankruptcy law our attorneys have helped many of clients get their lives back on firmer financial footing. We provide answers, insight and reliable legal advice. Our firm helps people with bankruptcy, foreclosure defense, mortgage modifications and mediation, as well as debt negotiation and litigation.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.