Types of Bankruptcy in NJ
If you are facing financial challenges in your personal life or in your business, chances are the concept of filing bankruptcy has crossed your mind. If it has, it also makes sense that you have a lot of bankruptcy questions that need answers. Many people actually cannot answer the question “what is bankruptcy” in anything except general terms.
Understanding bankruptcy law and when it makes sense for you to consider filing bankruptcy is an important decision for your current circumstances, and also for your future. Bankruptcy allows individuals, burdened by overwhelming debt, to obtain a fresh start and wipe out dischargable debt. One of our firm's primary practice areas is representing clients in bankruptcy cases in Chapter 7, Chapter 13 and Chapter 11 under the Bankruptcy Code.
As expert attorneys in all things bankruptcy related, we are committed to providing you the best advice for your specific situation. That starts with us listening to you and understanding what brought you to this place, then continues with us educating you about the options for debt relief and answering all your bankruptcy questions.
Many people do not realize that there are several types of bankruptcy, such as Chapter 7, Chapter 11 and Chapter 13. Each has its benefits and challenges, so knowing which is the best option for your present situation as well as your future recovery can make all the difference in your life. Here at Scura, Wigfield, Heyer, Stevens & Cammarota, LLP we handle all types of bankruptcy cases, so we are able to answer your bankruptcy questions and help you make the best decision for your case.
What Is a Chapter 7 Bankruptcy?
Chapter 7 is termed the liquidation bankruptcy chapter. In a chapter 7 bankruptcy you can eliminate, wipe out or discharge most types of debt. Examples of unsecured debt that can be wiped out are credit cards and medical bills. All types of people and companies -- individuals, married couples, corporations and partnerships can all file a Chapter 7 bankruptcy if eligible.
Most Chapter 7 filers struggle monthly to keep up with their recurring obligations. They are concerned about losing utilities or keeping their home. They may use credit cards to pay for necessary expenses on a regular basis. Their monthly bills often consist of ordinary living costs (food, clothing, utilities, etc), credit card payments, student loan payments, medical payments, or some combination of these. Some Chapter 7 filers use payday loans or personal loans frequently, but not always.
Many Chapter 7 filers do not have much in the way of assets. They may be renters and own an older car, or no car at all. Some live with parents, friends, or siblings. Others have houses that do not have much equity or are in serious need of repair. One of the reasons that Chapter 7 bankruptcy works well for these individuals is that they do not have to give up large assets because they simply do not have much equity or all their assets are exempt.
Debtors must also qualify for Chapter 7 bankruptcy by going through the “means test.” If debtors do not pass this test, then they must file Chapter 13 or cannot file bankruptcy at all.
A debtor who files under Chapter 7 is entitled to retain certain assets, while the remaining assets, if any, are sold and distributed pro rata to his/her creditors in an effort to partially satisfy the debt. More often than not, a debtor under a Chapter 7 has a "No Asset Case". By filing Chapter 7, our lawyers may be able to help you:
- Eliminate your credit card debt
- Prevent car repossession
- Stop wage garnishment and tax liens
- Get your financial house in order
Stop Harassing Credit Collection Calls and Letters Immediately
Simply stated, the debtor may keep all of the property (house, car, 401K and personal property) he or she owns without having any of it liquidated. A bankruptcy under this chapter typically involves a 4 to 5 month period, at which time the debtor is fully discharged from his or her debt.
Once you file a Chapter 7, all collection activity towards you must immediately cease. All telephone calls, lawsuits, and wage garnishments will stop. Upon receiving a discharge from the Bankruptcy Court, you will no longer be obligated to pay most, if not all, of these debts.
Although a bankruptcy stays on your credit report for a ten (10) year period, there are a number of ways in which you can reestablish your credit report. Once you are discharged from your debt under the Chapter 7, you cannot file another Chapter 7 petition for a eight (8) year period.
In a Chapter 7, or liquidation case, the bankruptcy court appoints a trustee to examine the debtor's assets and divide them into exempt and nonexempt property. Exempt property is limited to a certain amount of equity in the debtor's residence, known as a homestead exemption, motor vehicle, household goods, life insurance, health aids, specified future earnings such as social security benefits and alimony, and certain other personal property.
The trustee may then sell the nonexempt property and distribute the proceeds among the unsecured creditors. Although a liquidation case can rarely help with secured debt (the secured creditor still has the right to repossess the collateral), the debtor will be discharged from the legal obligation to pay unsecured debts such as credit card debts, medical bills and utility arrearages. However, certain types of unsecured debt are allowed special treatment and cannot be discharged. These include some student loans, alimony, child support, criminal fines, and some taxes.
What is a Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is often thought of as the commercial bankruptcy option for businesses, sole proprietors and partnerships seeking to restructure their debts while they liquidate assets and restructure payment plans with creditors. Individuals with more than $1 million in secured debt and $330,000 in unsecured debt may also take advantage of the provisions of Chapter 11 bankruptcy.
What Can Chapter 11 Do?
A chapter 11 bankruptcy case of a corporation (corporation as debtor) does not put the personal assets of the stockholders at risk other than the value of their investment in the company's stock.
A sole proprietorship (owner as debtor), on the other hand, does not have an identity separate and distinct from its owner(s); accordingly, a bankruptcy case involving a sole proprietorship includes both the business and personal assets of the owners-debtors. Like a corporation, a partnership exists separate and apart from its partners. In a partnership bankruptcy case (partnership as debtor), however, the partners' personal assets may, in some cases, be used to pay creditors in the bankruptcy case or the partners may, themselves, be forced to file for bankruptcy protection.
Section 1107 of the code places the debtor in possession in the position of a fiduciary, with the rights and powers of a Chapter 11 trustee, and requires the performance of all but the investigative functions and duties of a trustee. These duties are set forth in the Bankruptcy Code and Federal Rules of Bankruptcy Procedure.
Such powers and duties include accounting for property, examining and objecting to claims, and filing informational reports as required by the court and the United States trustee, such as monthly operating reports. The debtor in possession also has many of the other powers and duties of a trustee including the right, with the court's approval, to employ attorneys, accountants, appraisers, auctioneers, or other professional persons to assist the debtor during its bankruptcy case.
Other responsibilities include filing tax returns and filing such reports as are necessary or as the court orders after confirmation, such as a final accounting. The United States trustee is responsible for monitoring the compliance of the debtor in possession with the reporting requirements in a small business case. A small business case proceeds faster than a regular chapter 11 case because the court may conditionally approve a disclosure statement, subject to final approval after notice and a hearing and solicitation of votes for acceptance or rejection of the plan.
What is a Chapter 13 Bankruptcy?
Chapter 13 is a reorganization or repayment plan-type bankruptcy that allows the debtor to enter into an interest-free debt repayment plan. Typically a debtor will pay a smaller percentage of the debts over a 3 to 5 year period in the bankruptcy plan. The amount paid and the duration of the plan depends on the debtor's property, median income and expenses. Creditors are not allowed to pursue or maintain any collection activities or lawsuits during the case. If successful, these creditors will be wiped out or discharged. A Chapter 13 bankruptcy is very powerful because it provides a mechanism for debtors to prevent foreclosures and sheriff sales and stop repossessions and utility shutoffs while catching up on their secured debt.
In a Chapter 13 bankruptcy case, the debtor puts forward a plan, following the rules set forth in the bankruptcy laws, to repay all creditors over a period of time, usually from future income. A Chapter 13 case may be advantageous in that the debtor is allowed to get caught up on mortgages or car loans without the threat of foreclosure or repossession and is allowed to keep both exempt and nonexempt property. The debtor's plan is a document outlining to the bankruptcy court how the debtor proposes to pay current expenses while paying off all the old debt balances. By filing Chapter 13, you may be able to:
- Eliminate much of your credit card debt and restructure remaining payments
- Keep equity in your house and prevent mortgage foreclosure
- Keep your car
- Stop wage garnishment and tax liens
Most Chapter 13 cases are used by a person looking to save a home or real estate in a foreclosure. It gives the debtor the opportunity to either sell the home or become caught up on mortgage payments that have fallen behind. A person filing a Chapter 13 can propose a 60-month plan to cure or become current on mortgage payments. For instance, if you fell behind on $60,000 worth of mortgage payments, you could propose a plan of $1,000 a month for 60 months to bring those mortgage payments current.
In addition, in a Chapter 13 repayment plan, if you have high credit card debt and are behind on mortgage payments, depending upon your plan you may be able to pay only 5% to outstanding credit cards.
For example, if you owe $100,000 in credit card debt, you may be able to pay only $5,000 over a 60-month plan depending upon your situation. There are also trustee's commissions that can be easily calculated depending upon your plan payment. Our firm will even agree to take a portion of its legal fee through the plan of reorganization.
The debtor's property is protected from seizure from creditors, including mortgage and other lien holders, as long as the proposed payments are made. The plan generally requires monthly payments to the bankruptcy trustee over a period of three to five years. Arrangements can be made to have these payments made automatically through payroll deductions.
What Type of Bankruptcy is Best for You?
We help individuals and businesses get a fresh start from overwhelming debt obligations. Bankruptcy may or may not be the best option and our New Jersey Lawyers will take the time and advise you if bankruptcy is right for your situation. An attorney in our office will take the time to explain to you the differences between Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and Chapter 11 Bankruptcy and the best option for you. Sometimes it is better to avoid bankruptcy and settle with creditors out of court. New Jersey also has an alternative to bankruptcy for businesses called an Assignment for the Benefit of Creditors and our law firm will go over this option if it fits as a potential strategy for your business. Correct advice from the very beginning is the most important factor in leading to a successful bankruptcy or out of court settlement with creditors. We have created a tool that helps you choose what chapter your file is most likely to be filed under. Click here to use ScuraSmart and find out a possible solution for your debt.
Many people do not realize that there are several types of bankruptcy, such as Chapter 7, Chapter 11 and Chapter 13. Each has its benefits and challenges, so knowing which is the best option for your present situation as well as your future financial freedom can make all the difference in your life. Here at Scura, Wigfield, Heyer, Stevens & Cammarota, LLP we handle all types of bankruptcy cases, so we are able to answer your bankruptcy questions and help you make the best decision for your case. Here is a brief look at the debt relief options available: