Scura, Wigfield, Heyer, Stevens & Cammarota Blog
Foreclosures and Evictions Have Already Started in New Jersey
Due to COVID-19’s continuing negative impact on the economy, thousands of New Jersey residents are still experiencing financial difficulties. Among these are homeowners receiving foreclosure complaints and renters facing eviction proceedings. For many homeowners, forbearance on their mortgage is no longer an option. Since many homeowners have already used their allotted forbearance, private lenders are no longer approving additional requests. This means New Jersey courts can start eviction proceedings against tenants that are behind on their rent. Additionally, with Executive Order No. 249 having not been extended, the New Jersey Foreclosure Moratorium ended on November 15, 2021. A dreadful statistic- in the past year more than 62,000 eviction cases have been filed in New Jersey courts alone. With the New Jersey eviction moratorium on low-income tenants having ended on January 1, 2022, New Jersey tenants could be facing even greater evictions with the new year.
If You are Facing Foreclosure or Eviction - You Have Options
Given the current situation, many New Jersey homeowners are in dire need of options to help them keep their residence and avoid foreclosure. Renters are also seeking options to help them avoid eviction. They are seeking practical alternatives that will allow them to keep their property from foreclosing or stave off creditors so that they can afford to pay their rent. If you are one of these individuals, a great option could be filing for bankruptcy.
Bankruptcy Can Help
Bankruptcy is a time-tested method provided for in the United Sates Constitution. If you are struggling with debt, bankruptcy can act as a life preserver tossed into the ocean. It can allow you to stay afloat, reach the shore, and start anew. The primary goal of bankruptcy is to make a fresh financial start. At the same time, bankruptcy protection can help keep valuable assets such as your home or car and prevent wage execution or bank levies. At the onset of a bankruptcy proceeding, the automatic stay is invoked. This provision of the bankruptcy code forbids creditors from attempting to collect on their debts that the person filing for bankruptcy, the “debtor”, may owe. While there are ways around the automatic stay for some creditors, the bankruptcy code provides this stay to allow some breathing room for debtors, to collect their assets and determine what the best course of action is.
Which Chapter Works For Your Circumstances?
Individuals most commonly file a Chapter 7 or Chapter 13. While there are other chapters of the bankruptcy code, Chapter 7 and Chapter 13 apply to individual debtors, and allow an individual to better reorganize after either their unsecured debts are discharged, or they pay back on a scheduled payment plan with no interest. In either case, the courts will stop creditors from collecting on debts, and allow some breathing room for a debtor to determine the best course forward.
What is a Chapter 7 Bankruptcy?
A Chapter 7 bankruptcy, the most common form, is commonly known as a liquidation case. In a Chapter 7 case, the court will appoint a trustee to gather your assets, value them, and sell them to pay your creditors. There are, however, exemptions which a debtor can claim on certain property. These are things that, should you sell them, you would likely have to purchase them again almost immediately because of how important they are. These tend to include:
- Cemetery Plots
- Health Aides
In most cases equity in your home, car, household goods, life insurance, social security benefits, and alimony are all completely exempt. The purpose of bankruptcy is to allow the debtor room to breathe, and taking away personal property that is necessary to continue to function is not the goal. One of the great advantages of a Chapter 7 Bankruptcy is that it can discharge your legal obligation to pay for unsecured debt such as credit cards, utility bills and medical bills. This can help free up your finances so that you can pay your mortgage or rent. In these trying times this can mean the difference between having a roof over your head or losing your residence.
Do you Qualify For Chapter 7 Bankruptcy?
There are some requirements to qualify for Chapter 7 bankruptcy. These are usually not hard to meet for those individuals struggling with debt. One requirement is that you must have a lower average income in the last six months than the median income of the same-sized household in New Jersey. If this is not possible then a means test is applied. This test basically determines whether your disposable income is high enough to make partial payments to unsecured creditors. Even if you fail the means test, you can still potentially qualify for a Chapter 13 bankruptcy. As mentioned earlier, there is usually a type of bankruptcy that can help most anyone that is financially struggling.
How Often Can You Apply for Chapter 7 Bankruptcy Protection?
There is no limit on how many times you can file for a Chapter 7 bankruptcy. However, how often you file a Chapter 7 bankruptcy and obtain a discharge of your debt is limited. Also, usually just because you filed a Chapter 7 bankruptcy does not mean you cannot pursue other types of bankruptcies. However, if you receive a discharge in one type of bankruptcy, it can impact your ability to get a discharge in another type of bankruptcy, unless you wait a certain amount of time before filing. Here is a complete list of wait times to qualify for discharges for Chapter 7 and 13 bankruptcies.
Chapter 7 Bankruptcy Protections in Evictions and Foreclosures
As discussed above, at the onset of the bankruptcy proceedings, the automatic stay is put in place to protect a debtor from their creditors attempting to collect on debts. The automatic stay grants many powers to the debtor, including the ability to put a halt to current litigation. What this means for debtors is should a landlord be in the process of eviction, or a creditor be in the process of a foreclosure, the automatic stay can stop these proceedings, at least while the bankruptcy case begins. While the automatic stay is not all powerful, and does have its limits, it can be an incredibly useful power to stop creditors from displacing you and your family as you attempt to reorganize.
In a Chapter 7 Bankruptcy, this will allow the debtor breathing room until the discharge of debts at the conclusion of the case. After the bankruptcy case has concluded, creditors can no longer attempt to collect on debts that have been discharged, and face legal ramifications if they attempt to do so. A Chapter 7 filing is best for those wishing to have discharged their unsecured debt. For example, credit card debt, personal loans, and medical bills are generally dischargeable in a Chapter 7 Bankruptcy. However, Chapter 7 bankruptcy will not discharge debts secured by property, such as your car payment or mortgage. Those debts will still be secured by property you own, and that property will still be subject to that debt. This means the service provider you used to purchase your car can still repossess it, or the mortgage company can still foreclose on your home, but only after the bankruptcy case has been completed and if you do not continue with repayment. A Chapter 7 Bankruptcy provides protection during the pendency of the case, and a discharge of unsecured debts at the conclusion.
What is a Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy will allow you to reorganize your debt into a structured repayment plan following rules that are set forth in the Bankruptcy Code. The advantage of this type of bankruptcy is that it can allow you to catch up on your essential payments such as mortgages or car loans without the threat of foreclosure or repossession. For example, bankruptcy laws currently allow entire past due amounts owned on a mortgage to be spread over a period of up to five years (11 U.S.C. §1322(d)) thus easing the tremendous burden of making these payments upfront. Chapter 13 Bankruptcy provides a mechanism for debtors to prevent foreclosures and sheriff sales, while also being able to stop repossessions. Therefore, Chapter 13 cases are usually used by people looking to stave off foreclosure.
Another advantage of a Chapter 13 bankruptcy is that it can allow a homeowner to pay the lender the value of the property rather than the mortgage owed (Section 506(a)). If the proposed payments are made, a debtor’s property will be protected from seizure by lienholders and creditors.
Do You Qualify for Chapter 13 Bankruptcy Protection?
Much like a Chapter 7 bankruptcy, there are also some requirements to qualify for a Chapter 13 bankruptcy. These are also usually not hard to meet for those individuals struggling with debt. For example, even if you are not employed, you can still file for a Chapter 13 bankruptcy. If you do not have employment income, you can show some type of other income such as unemployment benefits, Social Security funds, retirement benefits or even regular family contributions. This is mainly to ensure that you can afford your proposed plan and make payments on time.
Also, to qualify, you must owe less than $419,275, in unsecured debt (like credit card and medical bills) and you must owe less than $1,257,850 in secured debt (like mortgage and car payments). These debt limits are revised periodically. You will also have to provide proof of filed federal and state income tax returns for the past four years in order to confirm the plan of reorganization. (The returns are not necessary before filing the case however.)
Much like a Chapter 7 bankruptcy there is no limit on the amount of times a Chapter 13 bankruptcy can be filed. And unlike a Chapter 7 bankruptcy where once given a discharge you are ineligible for another discharge for 8 years; in a chapter 13 bankruptcy you are eligible to get a discharge every two years. And in the interim you can still file another case to prevent a foreclosure or stop a repossession.
Chapter 13 Bankruptcy Protections in Evictions and Foreclosures
For homeowners and renters, bankruptcy Chapters 7 and 13 can be powerful tools to help you protect your valuable assets and stave off foreclosure, repossession, and seizure. Homeowners, like you can halt foreclosure proceedings. At the very least, this will buy you time so that you can consider your options. And there are options- such as remodifying your loan/mortgage or filing a Chapter 13 repayment proposal. Also, renters who choose to file a Chapter 13 bankruptcy, can arrange a three to five year payment plan to pay off their debts, with no interest. While the case is ongoing, creditors cannot pursue collections. You can take advantage of this time to pay off your landlord or other secured debt. In addition, if the case is successful, unsecured creditors will be wiped out or discharged.
During these trying times of economic and financial uncertainty, New Jersey homeowners and renters should know that filing for bankruptcy is a time-tested option available though the United States Constitution. And though the present may look bleak, filing for bankruptcy can be the first step towards a financially secure future.
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