Living in the modern world is expensive. It’s even more expensive in New Jersey, where our cost of living is one of the highest in the nation. On top of renting or owning a home, many of us have other bills coming in every day for medical procedures, student loans, cars, and much more. It’s no wonder that these bills can sometimes pile up to the point where it’s just not possible to pay for everything.
Fortunately the laws of our nation provide a way out: filing for bankruptcy. Bankruptcy can provide immediate relief from debt collection attempts through the automatic stay. Depending on what chapter of the bankruptcy code an individual files under, bankruptcy can also wipe out certain debts entirely, or it can provide time for an individual to repay some debts over the course of years.
Before making the decision to file, it’s vital that a person understands the different options available to them, as well as the potential issues that could arise during the filing process. An experienced attorney can assist a person thinking of filing for bankruptcy by researching their specific financial situation and developing a strategy that uses the applicable laws to their highest advantage.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, sometimes referred to as “liquidation,” is best suited to individuals or married couples looking for a “fresh start.” The process typically takes just a few months and ultimately results in a discharge of all eligible debt. Anyone considering filing for Chapter 7 must pass a means test, which will determine whether they qualify based on their monthly income and total assets.
Chapter 7 bankruptcy is completed by gathering a debtor’s assets into a “bankruptcy estate” and distributing the proceeds of their sale amongst the debtor’s creditors. Not all property is gathered into the bankruptcy estate, there are some exemptions. Once the bankruptcy estate is distributed amongst the creditors, the court will issue a discharge of the remaining debt, and the person filing will no longer be responsible for payments on that debt.
Chapter 11 Bankruptcy
Chapter 11 of the bankruptcy code, often referred to as a “reorganization” proceeding, is primarily used by businesses with more debts than their revenue can afford to pay. Business owners filing for Chapter 11 will need to compile a comprehensive disclosure statement that lays out all of the business’s financials, including all assets and debts, as well as projections for future performance.
Using this disclosure statement, the business owner will create a repayment plan that will set out to repay some or all of its debts over a set period of time. The plan will need to be financially feasible and in the best interests of the creditors, meaning it must payout at least as much as a creditor would receive if the business were to close and liquidate its assets.
Chapter 13 Bankruptcy
Chapter 13 of the bankruptcy code is designed to allow a debtor to put together a plan for repayment of their debts. This method of filing is best suited for those with a regular income that also desire to remain in possession of their property once the proceeding is complete. A person filing for Chapter 13 bankruptcy will need to gather all of their financial information and develop a plan that will allow them to repay some or all of their past due debts over the course of the next three to five years.
The repayment plan must be feasible based on their income, and it must also pay certain priority and secured debts in full. Some unsecured debts like medical bills and credit card charges may not need to be fully repaid, with the remaining amount owed being discharged at the completion of the proceeding. This is an excellent option for anyone that is looking to keep their home while also getting some time to get their other debts in order.
Alternatives to filing for bankruptcy
Not everyone is eligible to file for bankruptcy, and in some instances, it may make more sense to consider an alternative to filing. Some alternatives to filing for bankruptcy include working out a deal with one’s creditors, entering a credit counseling program to consolidate debts or settling judgments for a lesser amount than what is owed.
Timing to file bankruptcy
Choosing when to file for bankruptcy is just as important as choosing which chapter to file under. Filing too early can cause several issues like having too much monthly income to pass the means test, or having the entire case dismissed for filing too soon after a previous bankruptcy proceeding. Other issues like recent luxury purchases or divorce can also provide reasons to delay filing.
On the other hand, waiting too long to file can delay the start of the automatic stay, and keep debt collections and foreclosure proceedings going longer than they may need to.
Should I hire an attorney?
Filing for Chapter 7 and Chapter 13 bankruptcy both require a person to accurately fill out several forms, listing all of their sources of income, debts, and property. There are several prerequisites that must be met before filing, and failing to do any of these may result in delays or dismissal of the case. It’s also crucial that a person filing for bankruptcy understands what debts are eligible to be discharged and what debts have been deemed non-dischargeable by the rules.
The proceedings themselves will also require at least one court appearance, and potentially more if a creditor objects to the inclusion of a particular debt in the bankruptcy or to a Chapter 13 repayment plan. Knowing how to respond to these objections may make the difference between a debt being discharged or continuing to be owed at the completion of the bankruptcy. There are several more reasons why it’s best to consider hiring an attorney to help navigate this complex process.