Given the current economic climate, many Americans are forced to consider what happens when you declare bankruptcy. Whether a job loss, illness, divorce, or another unexpected turn of events has you looking at bankruptcy, here’s your guide to understanding the process.
What Is Bankruptcy?
When a person cannot pay their debts with their existing assets and income, they are considered bankrupt. Filing for bankruptcy can stall foreclosure and debt collection proceedings and eliminate most of your debt. Some forms of bankruptcy allow you to reorganize your debt to enable you to catch up on missed payments while retaining your assets and property.
There are several types of bankruptcy. The type of case you file depends on your situation and your goals for filing. The two most common options are Chapters 7 and 13.
Chapter 7: Also known as straight bankruptcy, Chapter 7 is the most common. People who file Chapter 7 are typically able to keep most of their assets while eliminating most of their debt. Chapter 7 can be a quick and easy restart for many people who have gotten in over their heads through a divorce, unexpected expenses, or the loss of a job.
Chapter 13: Known as reorganization bankruptcy, Chapter 13 buys the filer time to pay off their debt without risk of collection or foreclosure. After the repayment period, the rest of the debts are discharged. The significant benefit to Chapter 13 is that filers get to keep their personal possessions.
Both Chapter 7 and Chapter 13 bankruptcy have different eligibility requirements and their own pros and cons. To determine which one is best for your situation it’s wise to consult with a qualified bankruptcy attorney.
What Happens When You Declare Bankruptcy?
The Automatic Stay Stops Creditors From Coming After You
When you file for bankruptcy, you will be protected by an automatic stay which means creditors cannot begin or continue debt collection actions while it’s in place. The automatic stay gives you relief from constant threats by creditors.
All creditor activity, including phone calls, must stop once you inform the creditor that you have filed bankruptcy. You should provide them with your attorney’s name and phone number and ask that all communication be directed to your attorney. The Fair Debt Collections Practices Act (FDCPA) requires that they abide by your request.
Understanding Exemptions: Will You Lose Your Property?
For those considering bankruptcy proceedings, concerns over losing property, retirement, and pensions are among the most frequently asked questions. When you file for bankruptcy, certain things are considered exempt from the bankruptcy proceedings.
In New Jersey, you can choose to use Federal exemptions or the exemptions set forth by New Jersey. Your attorney will help you understand which option is best for you and what property is exempt, including the state and federal rules governing your home and personal vehicle. Generally, you will be allowed to keep:
- Your retirement account, up to a specific limit
- Unemployment compensation
- Workers compensation
- Social Security income and Social Security Disability income
- Veterans benefits
- Life insurance
- Personal property, household furnishings, clothing, and jewelry up to a certain amount
Once you’ve decided between using the Federal or State exemptions you must list all of your assets and report them to the court on official bankruptcy forms (Schedule A/B). From there, you identify the property you claim as exempt on Schedule C. An attorney will provide you with the proper forms and guide you through the entire process to help you protect your property.
What about your non-exempt property? The way non-exempt assets are handled depends on which type of bankruptcy was filed. In Chapter 7, the non-exempt property will be sold and the proceeds will be distributed to creditors. In Chapter 13, you keep everything you own, but the value of non-exempt assets will be used in calculating your repayment plan.
Bankruptcy Education Courses
Typically, two financial education classes are required during the course of bankruptcy.
The first requirement is Pre-Bankruptcy Credit Counseling, which must be completed before you can even file bankruptcy. The class is required for most filers but can be waived under certain circumstances. If you are active-duty military, must file immediately, or have a mental or physical disability that would make taking the class difficult, you can have the requirement waived.
The second class, Post-Bankruptcy Debtor Education, also referred to as the Personal Financial Management Course, must be completed in order for your bankruptcy to be discharged.
Both courses must be taken through approved providers, and Certificates of Completion must be filed with the court. There are different deadlines based upon which type of bankruptcy is filed. If these deadlines are missed, the court may close your case and you would have to repay all of the filing fees to have it re-opened. It’s always best to work with an attorney to ensure that all documents are properly filed with the court and that you don’t miss any critical deadlines.
Attend A Creditors Meeting
A few weeks into proceedings, you’ll be required to attend a creditor’s meeting. You, the court, your bankruptcy lawyer, and any creditors who care to attend will review your list of assets and debts. This meeting is usually short, but it is a necessary step in the bankruptcy process.
Filing Fees And Costs
Bankruptcy isn’t free. A filing fee of several hundred dollars is paid to the court to file a case. There are also fees associated with the required financial education classes.
While a lawyer is an additional fee, they’re worth the cost. Navigating the complicated bankruptcy proceeding laws can be tricky and time-consuming. Mistakes can be costly, so an experienced bankruptcy attorney can help make sure you do everything right and get the best outcome.
Contact The Law Office Of Levitt & Slafkes Today
If you are in a financial bind and need to explore the option of bankruptcy, an experienced bankruptcy attorney can answer your questions and help you understand the complicated rules and laws that govern bankruptcy. Levitt & Slafkes have over 30 years of experience helping people just like you with their New Jersey bankruptcy and will help you understand your options for a clean financial slate.
Contact The Law Office of Levitt & Slafkes, P.C. today to discuss the best resolution to your financial situation.
We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.