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Chapter 1: Bankruptcy Basics

New Jersey can be a great place to live. Unfortunately, it also has one of the highest costs of living in the country. Housing costs, credit card bills, car loans, and more can keep many people living from paycheck to paycheck. And the loss of a job or a major illness can easily send you into financial ruin. If you’re overwhelmed by debt and finding it impossible to keep up, bankruptcy may be one option. And bankruptcy isnotjust for people who have already lost everything. Many people with good jobs and regular income fall behind on their bills. These people also have options under the U.S. Bankruptcy Code. But bankruptcy is still a big decision — after all, it’ll affect your life foryearsto come. So before you file, you should make sure you understand all of your options and the issues you may encounter during the bankruptcy process. An experienced bankruptcy attorney can help you determine whether bankruptcy is the right choice for you, and if so, the best strategy for your specific financial situation. This guide will help you understand what bankruptcy means, what you should consider before filing, and what will happen during and after the bankruptcy process.

What is Bankruptcy?

Bankruptcy is a legal process through which you can either wipe out certain debts entirely (called “discharging”), or get more time to pay certain debts over the course of a few years. One of the main goals of this process is to give individuals overburdened by debt a “fresh start.” The U.S. Bankruptcy Code governs the bankruptcy process. The types of debt you can discharge, and how much, will depend on which chapter of the Bankruptcy Code you file under. And which chapter you should file under depends on your goals, income, debts, and property at the time you file. Below is a summary of Chapters 7, 11, and 13, which are the chapters available to individual filers (or married couples).Chapter 3: Which Chapter Should You File Under?explains each of these chapters in more detail, including key considerations for choosing between them.

• Chapter 7. Chapter 7 is usually used by individuals with lower incomes and little property. To be eligible for Chapter 7, your income must be below certain thresholds. In a Chapter 7 bankruptcy, a case trustee overseeing your case will “liquidate” your property. This means they’ll take your property, sell it for cash, and distribute the proceeds to your creditors. This is subject to your right to claim exemptions for certain property (seeChapter 2: Effects of Bankruptcy on Your Debt and Property — Keeping Your Home and Other Property — Exemptions). If you don’t have any non-exempt property, there won’t actually be a liquidation. At the end of a Chapter 7 case, you’ll get to wipe out all your dischargeable debt.
• Chapter 11. Chapter 11 is usually used by businesses that want to continue operating and repay creditors over time. But individuals may also choose to file under Chapter 11. This is rare, but may be the only option if you don’t qualify for Chapter 7 or Chapter 13. Under Chapter 11, you’ll have to file a plan of reorganization. You’ll also have to prepare a disclosure statement with enough information for creditors to evaluate the plan. Your creditors will vote on your plan, and the court will decide whether to approve (or “confirm”) the plan. Under a confirmed plan, it’s possible to reduce your debt by repaying only a portion of some debts and discharging others.
• Chapter 13. Chapter 13 is usually used by individuals who aren’t eligible for Chapter 7, or who have regular income and want to keep valuable property (like a house) through a repayment plan. Under Chapter 13, you’ll propose a plan to repay creditors over a period of 3-5 years. The court will then decide whether to approve your plan at a confirmation hearing. Once you’ve completed all payments under the plan, the remaining debt included in the plan will be discharged.

When to Consider Bankruptcy

Deciding to file for bankruptcy is a serious decision. Most people only file for bankruptcy after they’ve gone over all other options and can’t find a way out of their financial situation. Alternatives to bankruptcy are discussed below underAlternatives to Bankruptcy. Job loss and medical debt are two big reasons that people end up considering bankruptcy. Sometimes it’s both, since health problems can make it hard to do your job. There are also many other common situations that may cause you to consider bankruptcy:

• You’re getting sued by creditors for unpaid debt
• Your home is in danger of foreclosure
• You can only pay for your expenses with credit cards
• You’re paying the bill for one credit card with another credit card
• You’re consider withdrawing from your 401(k) account to pay bills

There are many factors that should go into your decision to file for bankruptcy. The sections below discuss a few considerations. You should consult with a bankruptcy attorney to evaluate the pros and cons of filing in your particular circumstances.

Advantages of Bankruptcy

As noted above, bankruptcy can help you get out from under crushing debt by either discharging certain debts, or by giving you more time to repay your debts. Another major benefit of filing for bankruptcy is that as soon as you file, you’ll get immediate relief from debt collection through an “automatic stay.”ˆAn “automatic stay” immediately stops creditors from trying to collect debts from you. This includes collection calls, filing lawsuits, garnishing wages, and potentially sheriff’s sales (depending on timing). The stay also temporarily stops foreclosure proceedings. But that doesn’t mean you’ll ultimately be able to keep your home (seeChapter 2: Effects of Bankruptcy on Your Debt and Property — Keeping Your Home and Other Property). The stay is subject to limited exceptions, such as the collection of child or spousal support. If a creditor attempts to collect payment during an automatic stay, you should let them know that you’ve filed for bankruptcy. Attempting to collect may simply be a mistake. But if they continue trying to collect from you, you should contact your attorney or the bankruptcy court. Creditors who violate an automatic stay may be liable to you for actual and punitive damages. Note that if you’ve had a bankruptcy case dismissed in the past year, your automatic stay will be affected:

• If you hadonebankruptcy case dismissed within the past year, the automatic stay only goes into effect for 30 days after you file the current case.
• If you hadtwo or morebankruptcy cases dismissed within the past year, the automatic stay won’t go into effect at all.

These exceptions are designed to stop debtors from filing bankruptcy cases in bad faith as a way to interfere with foreclosure proceedings. If an exception applies to your bankruptcy case, you can file a motion asking the court to impose the automatic stay. But you’ll need to provide clear evidence that you didn’t file your previous cases in bad faith.

Disadvantages of Bankruptcy

Although bankruptcy can help you get a fresh start, there are still several drawbacks. Here are a few things you should consider:

• Bankruptcy negatively impacts your credit score. If you’re filing for bankruptcy, there’s a good chance that your credit score has already been damaged by nonpayment. But filing for bankruptcy will further affect your credit score. Generally, the higher your score is, the more points it will drop when you file for bankruptcy. A Chapter 7 or 11 bankruptcy will stay on your report for ten years. A Chapter 13 bankruptcy will generally stay on your report for seven years (or ten if you don’t complete your repayment plan). You can mend your score over time, but the bankruptcy will affect your score for as long as it’s on your credit report.
• Your bankruptcy will be public. Bankruptcy cases may appear in legal notices in local newspapers or on radio or TV stations that announce such notices. Your case documents will also be available through court record databases, so anyone with a Public Access to Court Electronics Records (PACER) account will be able to access them. Your meeting with creditors during the bankruptcy process is also open to the public. SeeChapter 4: The Bankruptcy Process — Step 7: 341 Meeting of Creditors and Sale of Assets.
• Co-debtors will still be liable. Co-debtors are individuals who either jointly owe a debt with you, or co-signed a debt, promising to pay the debt if you failed to pay. In a Chapter 7 or 11 case, the automatic stay that halts payments usually doesn’t apply to co-debtors. In a Chapter 13 case, the automatic stay only applies to co-debtors for consumer debts. And under all chapters, if any debt is discharged at the end of the process, your co-debtors who don’t jointly file bankruptcy with you won’t benefit. They’ll still be responsible for paying those debts, and creditors can still try to collect from them.

Alternatives to Bankruptcy

Before you file for bankruptcy, you should consider whether you’ve exhausted all other possibilities for getting your debt under control. And sometimes, even if you want to file for bankruptcy, you may not be eligible. SeeChapter 3: Which Chapter Should You File Under?for eligibility requirements for each chapter. As a first step, it may help to get serious about creating and sticking to a budget. You may also try to supplement your income with a second job or sell assets to pay your debt. If you still can’t get a handle on your debt, a good next step is to attend a credit counseling program. This involves meeting with a credit counselor to review your finances, including your income, debt, and credit score. The counselor may then suggest some options for handling your debt. Below are some potential alternatives to bankruptcy that may make sense for you.

DEBT MANAGEMENT PROGRAM

One option is to create a debt management plan with a credit counselor. This plan will set forth a schedule for repaying your debt over time in an amount that’s feasible based on your income. You’ll submit the plan directly to your creditors. If they agree, collection attempts will stop and you’ll begin making payments to a third party, who’s responsible for distributing payments to creditors. If you primarily have credit card debt and you have regular income to keep up with a repayment plan, this may be a good option for you. But there are downsides to this approach. First, your plan can be as long as five years. During that time, you won’t be able to open any new lines of credit. And while credit counseling won’t affect your credit score, a repayment plan likely will. The effect, however, will be less severe than filing for bankruptcy.

DEBT CONSOLIDATION

If you have debt from multiple sources, debt consolidation may help you lower your interest rate and reduce your monthly payments. To consolidate your debt, you’ll need to get approved for a loan in the amount of your total debt. The loan usually has a lower interest rate than your other debt. You’ll then use this loan to pay off all your other debt. You’ll then just have one lower-interest payment to make each month to a single lender. This option is only available if you can get a bank to approve your consolidation loan. This will depend on your finances, including your credit score, total debt, and income. Offering collateral like your home may help you get a secured consolidation loan. But this comes with the added risk that if you don’t make the loan payments, you could lose that property.

LOW OR NO-INTEREST CREDIT CARD TRANSFER

If you have good credit, you may be able to get a new credit card with a low- or no-interest debt transfer deal. This will allow you to transfer debt from multiple sources to the new card. You’ll then pay off the new card debt at a very low or even 0% interest rate for a period of time — sometimes up to two years. This may be a good option if your debt mostly consists of high-interest credit card debt or other relatively small amounts of consumer debt, and you need more time to pay it off. But not all debt can be transferred onto a credit card. That means if you have student loans or home loans, this is likely not a good option. These cards also usually have a high regular interest rate, so you should make sure that you’ll be able to pay off the balance before the low or no-interest period ends.

FORECLOSURE MEDIATION

New Jersey has some of the most expensive real estate in the country — and one of the highest rates of foreclosure. If your creditor has already started the foreclosure process, you may be able to request foreclosure mediation. To be eligible, the property in foreclosure must be your primary residence. It also must be a one to four family dwelling, and all co-borrowers for the property must request mediation. By law, your lender must take part in this process if you’re eligible and you request it. But this option will no longer be available once you’ve filed for bankruptcy. During the mediation, you and your lender will try to reach an agreement on an alternative to foreclosure. This agreement may result in, among other options:

• loan modification;
• temporarily reducing or pausing payments (called “forbearance”);
• forgiving the debt in exchange for you conveying ownership of the property to your lender (called “deed in lieu of foreclosure”); or
• the lender offering a lump sum for relocation in exchange for you surrendering the property (called “cash for keys”).

DEBT NEGOTIATION OR SETTLEMENT

Sometimes, it’s possible to negotiate paying a smaller amount than you actually owe. To do this, you’ll need to contact your creditor directly and negotiate an amount that’s acceptable to both you and the lender. This means you’ll need enough available funds to negotiate. But if you can reach an agreement (called a “settlement’), you can immediately get reduced payments, or even wipe out the entire debt for a smaller lump sum. Debt negotiation is most successful where you have unsecured consumer debt that’s too small to be worth a lawsuit for the creditor, but still worth trying to collect. In this case, the creditor would rather getsomethingrather thannothing. But creditors generally won’t negotiate with you until you’re at least 90 days behind on your payments. Creditors ofsecureddebt also usually won’t negotiate if they still have the option of repossessing the property that secures the debt. To reach a successful agreement, you’ll need to clearly understand your options and speak with confidence. Creditors handle settlements on a regular basis, so they’re generally good at negotiating. It might be a good idea to hire an experienced attorney to negotiate on your behalf. They’ll often be able to get a more favorable agreement than you could obtain on your own.

TAKING NO ACTION

One tempting option is to take no action at all — especially if you have no assets or income that could be handed over to a creditor in a lawsuit or through repossession. But failing to take action will allow the problem to persist. Court judgments last for many years and can be renewable in certain circumstances. That means if your finances improve over time, a creditor could still try to collect from you. Failing to pay will also severely damage your credit score. This can make it impossible for you to get credit, including loans or credit cards. Certain professions also require disclosure of any judgments against you. In most cases, you’re better off considering one of the options above or filing for bankruptcy. An experienced attorney can help you decide which option is best for your specific circumstances.

DEBT RELIEF SCAMS

While considering your options, you should stay on guard for “debt relief service” scams. These companies typically charge a large upfront fee to help you with your debt without filing for bankruptcy. Once they have your money, they’ll make a few weak attempts (if any at all) to reduce your debt. They often fail to do so, and will refuse to refund your fee. The government has shut down many of these companies over the years, but many still exist. If you’re considering a debt relief service, be sure to do your homework. You should especially be skeptical of any company that charges a large upfront fee, guarantees debt reduction in a set timeframe, or doesn’t provide adequate information about its services.

Timing Considerations

If you decide that bankruptcy is the right choice for you, you’ll need to decidewhento file. When you file can impact your eligibility, whether your petition is successful, how much debt you’ll have to repay, and what property you’ll have to surrender. For example, depending on when you file, you might encounter issues such as:

• Having too much income to meet income eligibility requirements
• Having your case dismissed because you filed too soon after a previous bankruptcy
• Not being able to include debts for luxury items because you filed to soon after purchasing
• Delays due to an ongoing divorce proceeding

While in some cases waiting to file for bankruptcy is a good idea, you’ll also need to consider that the longer you wait to file, the longer you’ll be subject to debt collection and foreclosure proceedings. The sooner you file, the sooner you’ll get an automatic stay. SeeAdvantages of Bankruptcyabove. Deciding when to file is not an easy decision, and there are many factors you should take into account. An experienced bankruptcy attorney can help you decide the best time to file based on your circumstances.

Hiring a Bankruptcy Lawyer

Filing for bankruptcy is a complex process. To avoid delays, dismissal, or mistakes that can significantly impact the outcome of your case, you’ll need to follow strict rules and procedures. You’ll also need to appear in court at least once — maybe more if a creditor objects to including a debt in your bankruptcy or to your repayment plan. It’s not easy to know how to respond to an objection. But if you don’t address it properly, you may end up having to repay that debt. While representing yourself in bankruptcyispossible, in most cases hiring an attorney will help you achieve the best possible outcome. Your attorney can help you:

• Understand your options and decide whether you should file at all
• Determine which chapters you’re eligible for
• Decide which chapter is best suited for your goals
• Understand which of your debts may be dischargeable
• Understand the effect of bankruptcy on your property
• Choose the most advantageous exemptions (seeChapter 2: Effects of Bankruptcy on Your Debt and Property — Keeping Your Home and Other Property — Exemptions)
• Fill out all your forms, including accurately reporting your income, property, and debts
• Navigate the court process

Chapter 2: Effects of Bankruptcy on Your Debt and Property

When filing for personal bankruptcy, the goal is typically to get rid of much debt as possible while keeping as much property as possible. But which debts can be wiped out (or “discharged”) and which property you can keep depends on many factors, including the type of bankruptcy. Before you file for bankruptcy, you should have a clear understanding of its impact on each of your debts, as well as your property. A bankruptcy attorney can help you make the best decision for your specific goals.

Dischargeable Debt

As noted above, when a debt is “discharged” in bankruptcy, it means it’s wiped out. You no longer have a legal obligation to pay it, and the creditor can no longer try to collect it from you. This includes through legal action, calls, letters, or any other type of communication. If a creditordoestry to collect the debt, it’ll be subject to court penalties. Many types of debt are dischargeable in bankruptcy, including, among others:

• Credit card bills
• Medical bills
• Personal loans
• Lawsuit judgments
• Lease or contract obligations

But you’ll need to make sure that you include all such debt in your forms filed with the bankruptcy court. Otherwise, they will not be discharged. In addition, co-debtors willstillbe liable for discharged debt unless they filed the bankruptcy petition jointly with you. Also keep in mind that even if you discharge debt that’s secured by valuable property (called “secured debt”), the creditor may still be able to seize the property. The timing of a discharge in a bankruptcy case depends on the chapter you filed under. In a Chapter 7 case, it usually takes about 4-6 months after you file your petition with the court before your debt is discharged. In a Chapter 11 or 13 case, the court will grant the discharge as soon as practicable after you complete all payments under your plan. Chapter 13 plans last 3-5 years. While Chapter 11 plans have no absolute time limit, they also typically last 3-5 years.

Nondischargeable Debt

Regardless of which chapter you file under, certain debts are nondischargeable. This means you’ll still owe the full amounts once your bankruptcy case is over. As an initial matter, you can’t discharge debt that you don’t list in your filing. So it’s important to list all your debt accurately. Some other types of debts are nondischargeable for public policy reasons — either because of the nature of the debt, or because they were incurred through improper behavior on the part of the debtor. There are 19 categories of nondischargeable debt under Chapters 7 and 11, and a more limited list under Chapter 13. Debts dischargeable in Chapter 13, but not in chapter 7 or 11, include:

• debts related to willful and malicious injury to property;
• debts incurred to pay nondischargeable tax obligations; and
• debts arising from property settlements in divorce or separation proceedings.

Below is a discussion of some of the most common types of nondischargeable debt. Understanding the treatment of your different types of debt requires extensive knowledge of bankruptcy laws and procedures. You should consult with a bankruptcy attorney to develop a strategy for discharging the most debt possible.

PRIORITY DEBTS

“Priority debts” are debts that have a higher status by law because of their nature. Not paying them can have serious consequences. Examples include:

• Child support
• Alimony
• Certain tax debts
• Most fines or penalties owed to a government agency

Priority debts are not dischargeable under Chapter 7 bankruptcy. If your bankruptcy involves the sale of assets to repay creditors, your priority debt will be paid first. If the priority debt isn’t paid in bankruptcy, you’ll still have to pay them after the bankruptcy. If you’re filing for Chapter 11 or 13 bankruptcy, you must pay all these debts in full or bring them current over the course of your plan. If you can’t do this, the bankruptcy court won’t confirm your plan.

STUDENT LOANS

Although many people struggle with student loans, in most cases, they won’t be discharged in bankruptcy. This is because to discharge student loans, you must show “undue hardship.” In New Jersey, this involves proving the following conditions:

• Based on your current income and expenses, you can’t maintain a minimal standard of living for you and your dependents if you’re forced to repay the student loans;
• Your current financial situation is likely to continue for a large part of the repayment period; and
• You’ve made a good faith effort to repay your student loans.

This is called theBrunner Test, and it’s difficult to pass. If one of your goals in bankruptcy is to discharge student loans, an experienced bankruptcy attorney can help you evaluate your chances of satisfying this test.

DEBTS INCURRED IN CONNECTION WITH CRIMINAL ACTIVITY

Bankruptcy rules generally don’t allow debt incurred through criminal activity to be discharged. That’s because it’s in the public interest to not allow people convicted of a crime to avoid liability for the costs of the crime. Certain of these debts areautomaticallynondischargeable, including debt arising from:

• drunk driving causing death or injury
• criminal fines, penalties, and restitution
• securities fraud or securities law violations
• willful and malicious injury to another person (Chapter 13 only)

But certain other debts incurred in connection with criminal activitywillbe discharged, unless the creditor requests the court to exclude the debt from discharge. These include debts arising from:

• fraud
• larceny
• embezzlement
• willful and malicious injury to another person or property (Chapter 7 only)

In these cases, if the creditor doesn’t make an affirmative request or the court denies the request, these debts will be discharged.

RECENT LUXURY PURCHASES AND CASH ADVANCES

When filing your bankruptcy petition, the court will look back at the previous 90 days to see whether you’ve made any “luxury” purchases. These generally include items and services valued above $725. If these purchases weren’t necessary to support you or your dependents, the associated debt will be nondischargeable. Cash advances of more than $1,000 in the previous 70 days before filing also aren’t dischargeable. The idea is that it’s unfair and against the public interest to allow someone to go on a spending spree only to dismiss all the debt in bankruptcy. If you’ve made any recent luxury purchases or taken cash advances, you should take this into consideration when deciding when to file your petition.

FUTURE DEBTS

In a Chapter 7 case, you generally won’t be able to discharge any debts you incur after you’ve filed your bankruptcy petition. In a Chapter 11 or 13 case, it can be harder to avoid new debt, since your plan will typically last 3-5 years. If you need to take on new debt during this period, you should seek court approval.

Keeping Your Home and Other Property

Whether you can keep your home or other property in bankruptcy depends on several factors. If you file for Chapter 11 or 13, you’ll generally be able to keep your property as long as you make the required payments under your court-approved plan. If you have secured debt, such as a home mortgage, you’ll either have to stay current on payments or catch up on payments through your plan. If this isn’t possible, the creditor may be able to repossess the property. If you file for Chapter 7, the case trustee will sell most of your assets to repay your creditors. But you may still be able to keep your home or certain other property in two ways: by claiming an exemption, or through a reaffirmation agreement. These two options are discussed below. If you want to keep your home or certain other property, it’s important to consult with an experienced bankruptcy attorney.

EXEMPTIONS

When you file for bankruptcy, you can claim certain property as “exempt” from the proceedings. In a Chapter 7 case, this means the property won’t become part of your bankruptcy estate to be sold for the benefit of creditors. In a Chapter 11 or 13 case, you won’t have to turn overanyproperty to the trustee. But exemptions will still affect the terms of your plan to repay creditors. In New Jersey, you can choose between using state exemptions or federal exemptions. There are important differences between these lists that can impact what property you can keep. And you’ll have to choose one set of exemptions or the other — you can’t mix and match exemptions from both lists. If you want to keep your home and/or car, exemptions can help. A discussion of these exemptions is below. Depending on whether you choose New Jersey or federal exemptions, you may also be able to protect certain other personal property, certain government pensions, tax-exempt retirement accounts, and more. You should consult a bankruptcy attorney to help you navigate exemption rules and determine which option is best for your circumstances.

HOMESTEAD EXEMPTION

If keeping your home is a top priority, you should know that New Jersey does not have a homestead exemption. But the federal rules do. So choosing federal exemptions may make sense. But even if you choose the federal exemptions, the homestead exemption is currently limited to $25,150. This amount is doubled if you file jointly with your spouse and you both own the property. To keep your home safe from the trustee, your “equity” in your home can’t exceed the exemption amount. Your “equity” is the value of your property minus what you owe on your mortgage. If you do have more equity than the exemption amount, the case trustee may still sell your home to repay creditors. If this happens, the case trustee will pay you an amount equal to the exemption out of the proceeds. Also keep in mind that even if exemptions protect your home from the trustee, you’ll still have to keep up with your mortgage payments if you don’t want your lender to foreclose on your home.

MOTOR VEHICLE EXEMPTION

If you’re concerned about keeping your car, federal exemptions include up to $4,000 for a motor vehicle. New Jersey exemptions only provide $1,000 for a motor vehicle. These amounts are doubled if you’re filing jointly with your spouse and co-own your vehicle. As with your home, if your equity in your vehicle is more than the exemption, the case trustee may still sell your car. In that case, the trustee would pay you an amount equal to the exemption out of the proceeds. Depending on what would be left after all the costs associated with the sale, the case trustee may also decide to:

• abandon the vehicle, or
• let you buy it for an amount equal to the amount creditors would have received.

Also keep in mind that even if exemptions protect your car from the trustee, you’ll still have to keep up with your car loan payments if you don’t want your lender to repossess your car.

WILDCARD EXEMPTION

Wildcard exemptions can be used to protect property of your choosing. So if, for example, your equity in your home is higher than the homestead exemption, you might still be able to save it by applying the wildcard exemption to cover more equity. The New Jersey wildcard exemption allows you to exempt up to $1,000 of personal property that is not covered by your other exemptions. The federal wildcard exemption allows you to exempt $1,325 of any property. You can also use up to $12,575 from your homestead exemption for other property if you’re not using that portion to cover your home. These amounts are doubled if you’re filing jointly with your spouse.

REAFFIRMATIONS

Depending on your situation, you may also be able to keep a valuable asset like your home or car in a Chapter 7 bankruptcy by “reaffirming” the debt. A reaffirmation is an agreement between you and a creditor that you’ll remain liable for a secured debt after bankruptcy, even if it’s eligible for discharge. The creditor won’t repossess or sell the property securing the debt, so long as you keep making payments and follow the terms of the agreement. To reaffirm a debt, you must be current on your payments and file the written reaffirmation agreement with the court before discharge. If the court finds that the debt will cause hardship for you, it may deny the reaffirmation. You should keep in mind that reaffirming debt means you’ll be personally liable for it even after your bankruptcy is complete. This is true even if the property is damaged or destroyed. And since you won’t be able to file another Chapter 7 case for eight years, you could be liable for the debt for a long time. So you should only consider reaffirmation if you’re confident you’ll be able to pay off the debt. A bankruptcy attorney can help you determine whether reaffirmation is right for you.

CHAPTER 3: WHICH CHAPTER SHOULD YOU FILE UNDER?

Deciding which chapter you should file under will depend on your specific circumstances, including your debt, income, property, and goals. But in general, Chapter 7 is best for those who have lower income and little property. If you don’t qualify for Chapter 7, or if you have a stable income and want to keep valuable property like your home, Chapter 13 may be your best option. Chapter 11 is rarely used by individuals, since it’s an especially complicated and expensive process. But if you have a high net worth and too much debt to qualify for Chapter 13, it may be your only option. Below are more details about each of these chapters. Given the complexity of bankruptcy rules, including eligibility requirements, it’s best to discuss your situation with an experienced bankruptcy attorney. Your attorney can help you decide which chapter, if any, is the best choice for you.

Chapter 7 (Lower Income and Little Property)

Chapter 7 bankruptcy, or liquidation bankruptcy, is the most common type of bankruptcy for individuals (or married couples). It’s called a “liquidation” bankruptcy because it involves the sale of your property (if any) so creditors can be paid from the proceeds. The sale of your property is subject to:

• your right to keep certain exempt property (seeChapter 2: Effects of Bankruptcy on Your Debt and Property — Keeping Your Home and Other Property — Exemptions); and
• the rights of secured creditors to repossess property that secures the debt you owe them.

In many cases, there’s little or no non-exempt property that can be sold. These are called “no-asset cases.” If you have a no-asset case, the creditors of your dischargeable debt will not be repaid any amount. Chapter 7 is usually the best option if your debt exceeds your assets, your income can’t support your bills, and you’re looking for a “fresh start.” At the end of the process, all your eligible debt will be wiped out. This usually happens 4-6 months after filing your petition.

CHAPTER 7 INCOME AND DEBT REQUIREMENTS

Chapter 7 doesn’t have a limit on the amount of debt you can have to qualify. But youwillhave to apply the “means test” to confirm you meet income requirements. To apply the means test, you first have to compare your income to the New Jersey median for a household of equal size. As of May 1, 2020, the median income for New Jersey based on household size is as follows:

You determine your monthly and annual income by:

1. adding all your income fromallsources for the past six months (including your spouse’s income, if you’re married and living in the same household), then
2. dividing that number by six for your monthly income, then
3. multiplying your monthly income by 12 for your annual income.

As an example, if your total income for the last six months was $24,000, your monthly income would be $4,000 and your annual income would be $48,000. That means you could qualify for bankruptcy regardless of your household size. If your total income isabovethe median income for your household size, you’ll have to apply the second part of the means test. This requires calculating the amount left over each month after allowable bankruptcy expenses. This amount is called your “disposable monthly income.” To qualify for Chapter 7, you’ll usually have to have negative disposable monthly income. If you have positive disposable income, this may mean you have money to pay down your debt and should file under Chapter 13 instead. If you file under Chapter 7 and the court finds you don’t meet the income requirements, the court may convert your case to Chapter 13 or dismiss your petition completely.

OTHER CHAPTER 7 REQUIREMENTS

If you previously received a discharge through a Chapter 7 or 11 bankruptcy, you must wait at least eight years from your last filing before filing your new petition. If you previously received a discharge under Chapter 13, you must wait at least six years unless:

• you paid all allowed unsecured claims in the earlier case in full, or
• you made payments under the plan in the earlier case totaling at least 70% of the allowed unsecured claims, your plan was proposed in good faith, and the payments represented your best effort.

As under other chapters, you’ll also have to pay filing fees, attend credit counseling, and provide financial documents. Any errors in your financial information could cause the court to dismiss your petition, so it’s important to provide accurate and honest information.

DISCHARGEABLE DEBT UNDER CHAPTER 7

Under Chapter 7, you can discharge most of your unsecured debt. “Unsecured debt” is debt that isnotattached to a piece of valuable property that can be repossessed in the event of nonpayment (called “collateral”). Most consumer debts are unsecured debt and can be wiped out in Chapter 7. Common debts discharged under Chapter 7 include:

• credit card charges
• medical bills
• accounts under collection
• civil court judgments (unless criminal activity is involved, like fraud)
• past due rent

But notalldebt will be discharged under Chapter 7. Examples of nondischargeable debt include child support, alimony, student loans (absent a showing of undue hardship), debts incurred through criminal activity, and recent luxury purchases. SeeChapter 2: Effects of Bankruptcy on Your Debt and Property — Nondischargeable Debt. You should also keep in mind that while secured debt may be discharged, the creditor will still be able to take back the property securing the debt. In some cases, you may be able to keep such property through reaffirmation. SeeChapter 2: Effects of Bankruptcy on Your Debt and Property — Keeping Your Home and Other Property — Reaffirmations.

CHAPTER 7 PROCESS

After you file your Chapter 7 petition, a case trustee will be appointed to oversee your case. The case trustee’s duties include, among other things, reviewing filings, calculating payment requirements, conducting the meeting of creditors, and ensuring compliance with the Bankruptcy Code. The case trustee can make recommendations to the court, which are often approved without a hearing. During the Chapter 7 process, your non-exempt assets (if any) will also be turned over to the case trustee. For information about exempt property, seeChapter 2: Effects of Bankruptcy on Your Debt and Property — Keeping Your Home and Other Property — Exemptions. The case trustee will then sell the property in the bankruptcy estate and distribute the proceeds to your creditors. Once that’s complete, the court will discharge your remaining debt. The entire process usually takes 4-6 months. To make sure you navigate this process successfully, you should consult with an experienced bankruptcy attorney. For more information about the bankruptcy process, seeChapter 4: The Bankruptcy Process.

OTHER CHAPTER 7 CONSIDERATIONS

If you’re considering Chapter 7 bankruptcy, keep in mind that it will stay on your credit report for ten years. This can have a significant impact on your ability to get credit, including a mortgage or other loans. You’ll also have to decide whether to file jointly with your spouse or individually. If you file alone, your bankruptcy generally won’t affect your spouse’s credit score. But if you have joint debt, your discharge may appear on your spouse’s credit report. Not filing jointly also means that if you have joint debt with your spouse, the automatic stay willnotprotect your spouse from collection during the bankruptcy proceedings. And once the bankruptcy proceedings are complete, the discharge won’t protect your spouse, either. Creditors can still go after your spouse for any unpaid joint debt, as well for their personal debt. In addition, the case trustee can sell jointly-owned property if you can’t exempt your interest in the property. In this case, the case trustee would pay your spouse an amount equal to their interest in the property from the proceeds.

Chapter 11 (High Net Worth and Debt Exceeding Chapter 13 Limits)

Chapter 11 bankruptcy, also called a reorganization, is mostly used by businesses that have more debt than they can afford to pay. But in rare cases, it can also be used by individuals who aren’t eligible for Chapter 7 or 13. When you file for Chapter 11 bankruptcy, you’ll propose a plan to pay your creditors over time. There’s no limit to the duration of your plan, though plans are typically 3-5 years. The court can extend the time frame if you need more time to make the required payments. Through your plan, you can catch up on your mortgage, restructure debt on investment property, and often pay pennies on the dollar for your consumer debt like credit card and medical bills.

CHAPTER 11 INCOME AND DEBT REQUIREMENTS

Chapter 11 is available to nearly anyone — businesses and individuals alike. There’s no income requirement, nor is there a limit to the amount of debt you can have. You’ll still have to complete a simple 2-page means test form, but it won’t be used to determine your eligibility. This is only used to determine your monthly income. Since Chapter 11 is the most complex and expensive form of bankruptcy, it’s typically only used by businesses or high net worth individuals.

OTHER CHAPTER 11 REQUIREMENTS

There’s generally no waiting period to file for Chapter 11, even if you’ve previously discharged debt in bankruptcy. But as under other chapters, there are a number of other requirements, including paying filing fees, attending credit counseling, and providing financial documents. Any errors in your financial information could cause the court to dismiss your petition, so it’s important to provide accurate and honest information.

DISCHARGEABLE DEBT UNDER CHAPTER 11

The types of debt that are dischargeable under Chapter 11 at the end of your plan are similar to those dischargeable under Chapter 7. For more information about the effect of bankruptcy on your debt, seeChapter 2: Effects of Bankruptcy on Your Debt and Property.

CREATING A CHAPTER 11 PLAN

Once you file for Chapter 11 bankruptcy, you’ll have the exclusive right to file a proposed plan for the first 120 days after filing the petition. After that, other interested parties such as your creditors can also propose a plan. Due to the cost, however, this is rare in individual cases. Unlike a Chapter 13 plan, there’s no deadline for filing the plan. For the court to approve your Chapter 11 plan, it must be “financially feasible.” It must also pay out at least as much as creditors would receive if you filed under Chapter 7. There’s no limit to the length of a Chapter 11 plan, though generally they last 3-5 years. In a Chapter 11 bankruptcy, you’ll also have to file a detailed disclosure statement with information about your assets, debt, and expected future income. This disclosure statement is subject to court approval. Its purpose is to help creditors evaluate your plan.

CHAPTER 11 PROCESS

In a Chapter 11 case, a case trustee usually won’t be appointed to oversee your case, unless there’s fraud or mismanagement. Instead, you’ll become a “debtor in possession” and perform many of the same functions as a case trustee. As debtor in possession, you’ll have to close all prepetition bank accounts and open new Debtor-in-Possession, or DIP, bank accounts. All funds passing through your hands will have to go through the DIP accounts. You’ll be held to the standards of a fiduciary and operate the bankruptcy estate for the benefit of the creditors. You’ll also have to file monthly operating reports detailing your income and expenses. Some aspects of your case will also be reviewed by the U.S. trustee. The role of the U.S. trustee is different from a case trustee in a Chapter 7 or 13 case. The U.S. trustee typically won’t give as much guidance as a case trustee in a Chapter 13 case in terms of plan formulation, requirement payments, or other terms. Once you’ve proposed a plan, your creditors will vote on the approval of the plan. They may object to it, though in some cases the court may approve the plan over objections. You won’t start making payments under the plan until after your plan is confirmed by the court. This can take six months to a year, or even longer. After you’ve made all payments under your plan, the court will discharge eligible debt as soon as possible. The types of debts that can and cannot be discharged are similar to those in a Chapter 7 case. SeeChapter 2: Effect of Bankruptcy on Your Debt and Property. For more information about the bankruptcy process, seeChapter 4: The Bankruptcy Process.

OTHER CHAPTER 11 CONSIDERATIONS

If you’re considering Chapter 11 bankruptcy, keep in mind that it will stay on your credit report for ten years. This can have a significant impact on your ability to get credit, such as a mortgage or other loans. You’ll also have to decide whether to file jointly with your spouse or individually. If you file alone, your bankruptcy generally won’t affect your spouse’s credit score. But if you have joint debt, your discharge may appear on your spouse’s credit report. Not filing jointly also means that if you have joint debt with your spouse, the automatic stay willnotprotect your spouse during the bankruptcy proceedings. And once the bankruptcy proceedings are complete, the discharge won’t protect your spouse, either. Creditors can still go after your spouse for any unpaid joint debt, as well for their personal debt. Chapter 11 cases are especially complex. If you’re considering filing under Chapter 11, speaking with an experienced bankruptcy attorney is essential.

Chapter 13 (Stable Income and Desire to Keep Property)

Chapter 13 bankruptcy is designed for individuals with stable income. You might choose Chapter 13 if you’re not eligible for Chapter 7. Or you might choose Chapter 13 if you have assets you want to keep, like your home or car. SeeChapter 2: Effects of Bankruptcy on Your Debt and Property — Keeping Your Home and Other Property — Exemptions. Like Chapter 11, Chapter 13 is a reorganization rather than a liquidation. When you file under Chapter 13, you’ll propose a 3-5 year repayment plan to pay all or part of your debts. Under this plan, you’ll be able to keep certain property (such as your home) while also getting more time to pay your debt.

CHAPTER 13 INCOME AND DEBT REQUIREMENTS

You can only file under Chapter 13 if you have enough regular income to make payments under your proposed planandsupport yourself over the next several years. If you don’t have enough income, Chapter 7 may be a better option. You’ll use a variation of the means test formula to calculate what you have to pay to unsecured creditors in your bankruptcy. You’ll have to take into account most sources of income other than child support payments — not just wages from your job. This includes, among other sources:

• pension payments
• social security benefits
• unemployment benefits
• proceeds from the sale of property
• your spouse’s income (even if you’re not filing jointly)

To file under Chapter 13, you must also meet certain other requirements, including:

• Maximum unsecured debt. Your unsecured debt (like credit card and medical bills) can’t exceed $394,725.
• Maximum secured debt. Your secured debt (like your home mortgage) can’t exceed $1,184,200.
• Current on income taxes. You must provide proof that you’ve filed your federal and state taxes for the past four years.

OTHER CHAPTER 13 REQUIREMENTS

If you received a discharge through a previous Chapter 13 bankruptcy, you must wait at least two years before filing your new petition. Because a repayment plan is 3-5 years, you’ll likely be able to file another Chapter 13 case immediately. If you’ve previously received a discharge under Chapter 7 or 11, you have to wait at least four years from the previous filing to file your Chapter 13 petition. As under other chapters, you’ll also have to attend credit counseling, pay filing fees, and provide financial documents. Any errors in your filing could cause the court to dismiss your case, so it’s important to provide accurate and honest information.

DISCHARGEABLE DEBT UNDER CHAPTER 13

The types of debt that are dischargeable under Chapter 13 are a little broader than under Chapter 7 or 11. Debts dischargeable in a Chapter 13 case, but not in Chapter 7 or 11, include:

• debt related to willful and malicious injury to property;
• debt incurred to pay nondischargeable tax obligations; and
• debt arising from property settlements in divorce or separation proceedings.

For more information about the effect of bankruptcy on your debt, seeChapter 2: Effects of Bankruptcy on Your Debt and Property.

CREATING A CHAPTER 13 PLAN

In a Chapter 13 case, you have to create a plan to repay your debt over the course of 3-5 years and file it within 14 days of your petition. Unlike a Chapter 11 case, onlyyouhave the right to file a plan. Most jurisdictions, including New Jersey, have a form plan that you can use. The length of your plan will generally depend on your monthly income and household size at the time of filing:

• Three years if you fall below the state median income, or
• Five years if you’re above the state median income.

SeeChapter 7 (Lower Income and Little Property) — Chapter 7 Income and Debt Requirementsabove for New Jersey median income information. To create the plan, you’ll have to figure out your disposable income. Your disposable income is the amount that remains after subtracting allowable expenses from your monthly gross income. You’ll then have to divide this amount among your creditors. The amount you pay to creditors under the plan generally has to be equivalent or better than what they’d receive under Chapter 7. Your plan will be subject to court approval. For the court to approve your plan at the confirmation hearing, your plan must address the following:

• Repayment of all “priority debt.” Priority debts are special types of debt protected by law. They include debts like child support, alimony, and certain tax obligations. Unless the creditor agrees otherwise, you must repay all these debts in full under your repayment plan.
• Repayment of secured debts. Secured debts are debts that are attached to a piece of collateral that can be repossessed in the event of nonpayment. Examples include a mortgage or car loan. Under your plan, you must pay at least the value of the collateral over the course of the plan. For your mortgage, you can stay on the original payment schedule so long as you bring any past due payments current.
• Some repayment of unsecured debts. Unsecured debt is debt that isn’t attached to any piece of collateral. In your plan, you must try to repay this debt in full. But if full repayment isn’t possible after repaying priority and secured debts, then you must use all your disposable income over the course of the plan to repay as much as possible. Any dischargeable unsecured debt remaining at the end of your plan will be wiped out if you make all your payments.

If you don’t have enough income to cover your payments, the court may convert your case to a Chapter 7 bankruptcy or dismiss it. Creating a Chapter 13 repayment plan is a difficult process. It will be unique to you and your specific circumstances when filing. To successfully avoid potential pitfalls, you should consult a bankruptcy attorney. Your attorney will be able to help you develop a plan that addresses all requirements as well as your personal needs and goals.

CHAPTER 13 PROCESS

After you file your Chapter 13 petition, a case trustee will be appointed to oversee your case. The case trustee’s duties include, among other things, reviewing filings, calculating payment requirements, conducting the meeting of creditors, and ensuring compliance with the Bankruptcy Code. The case trustee can make recommendations to the court, which are often approved without a hearing. Because you’ll have a case trustee, unlike a Chapter 11 case, you won’t be held to the standards of a fiduciary. Also unlike a Chapter 11 case, you can continue to use your existing bank accounts. You’ll typically start making plan payments to the case trustee 30 days after your petition is filed. This is true even if your plan isn’t approved by the court yet. The case trustee will in turn pay your creditors. Before your plan is confirmed, your creditors will have the chance to object to it. If a creditor makes an objection, you’ll need to evaluate and respond to the factual and legal reasoning behind it. This could delay approval of your plan for months, or cause the court to deny your plan. If you follow the plan for its full term (3-5 years), the court will discharge your remaining debt that’s included in the plan. Chapter 13 allows for the discharge of certain debts that are nondischargeable in a Chapter 7 or 11 case. SeeChapter 2: Effect of Bankruptcy on Your Debt and Property. If you fail to make all payments under your plan, in limited circumstances, you may ask the court to grant a “hardship discharge.” This is only available if you fail to make all your payments due to circumstances beyond your control. SeeChapter 4: The Bankruptcy Processfor more information about the bankruptcy process.

OTHER CHAPTER 13 CONSIDERATIONS

If you’re considering Chapter 13 bankruptcy, you should keep in mind that it will generally stay on your credit report for seven years (ten if you don’t complete your repayment plan). This can have a significant impact on your ability to get credit, including a mortgage or other loans. You’ll also have to decide whether to file jointly with your spouse or individually. If you file alone, your bankruptcy generally won’t affect your spouse’s credit score. But if you have joint debt, your discharge may appear on your spouse’s credit report. If you have joint consumer debt with your spouse, the automatic stay in a Chapter 13 case will protect your spouse from collection of that debt during the bankruptcy proceedings. But it’s possible for a creditor to ask the court to lift the stay if you don’t pay off the debt as part of your plan. And once the bankrupting proceedings are complete, the discharge won’t protect your spouse. Creditors can also still go after your spouse for any unpaid joint debt, as well as their personal debt.

Summary: Chapter 7 vs. 11 vs. 13

It’s important to consider all your filing options. But in most cases, you’ll be choosing between Chapter 7 or 13. It’s rare for individuals to file for Chapter 11 unless they don’t qualify for Chapter 7 or 13 and have a high net worth. If you’re eligible for both Chapter 7 and 13, you should consider, among other things:

• Length of the case. If you file under Chapter 7, you’ll usually complete the process in less than a year. Chapter 13 will take 3-5 years to complete.
• Amount of debt you’ll have to repay. Under Chapter 7, you won’t be responsible for repaying any debt that’s discharged at the end of that process. That means in less than a year, much of your debt could be wiped out. But under Chapter 13, you’ll pay as much debt as your disposable income will allow for the next 3-5 years. During this time, you generally won’t be able to spend on “luxury” items like vacations or set aside money for savings without trustee approval.
• Whether you have property you want to keep. Chapter 7 is a “liquidation.” This means the case trustee will sell all your assets (minus exempt property) and distribute the proceeds to your creditors. In a Chapter 13 case, you won’t be required to hand over any property to the case trustee for sale. As long as you can make payments according to your plan, you can keep your possessions throughout the proceeding.

These are just some of the considerations. It’s important to discuss the pros and cons of each chapter with a bankruptcy attorney. Your attorney will help you understand all your options, devise the most beneficial strategy, and guide you through the process.

CHAPTER 4: THE BANKRUPTCY PROCESS

The bankruptcy process is governed by the Federal Rules of Bankruptcy Procedures and the local rules of each bankruptcy court. The judge of the bankruptcy court where you file will have official decision-making power in your case. They’ll decide any matter connected with your case. That includes filing eligibility and whether to discharge debts. However, most of the bankruptcy process is administrative. That means it isn’t conducted in court. In Chapter 7 and 13 cases, a case trustee will be appointed to carry out the administrative process. Case trustees are rare in Chapter 11 cases, but the U.S. trustee will oversee limited parts of the case. Below is a general overview of the bankruptcy process. This process is complex and requires you to strictly follow all rules and procedures. If you don’t, you may face objections or even dismissal. An experienced bankruptcy attorney can help you navigate this process and make sure it goes as smoothly as possible.

Step 1: Collect Documents and Information

Before you can file a bankruptcy petition, you’ll need to collect all your financial documents and information, such as:

• pay stubs and information on all your other income sources;
• evidence of your monthly living expenses;
• documents relating to any recent major financial transactions (like buying a home);
• a list of all your current assets (including real property and valuable possessions like jewelry and cars);
• a list of all your debts (secured and unsecured), including the names of the creditors;
• your tax returns for the last two years;
• any real estate deeds or car titles;
• any loan documents;
• any collection letters; and
• your credit report.

Organizing all of this information ahead of time will help make sure you can accurately complete your forms.

Step 2: Determine Exemptions

Before you file, you’ll also have to choose between New Jersey and federal exemptions. In a Chapter 7 case, these exemptions will determine which property you’ll be able to keep. In a Chapter 11 or 13 case, they’ll affect how much you have to pay under your plan. Chosing the best set of exemptions is complicated exercise. It’s best to get the help of an experienced bankruptcy attorney. SeeChapter 2: Effects of Bankruptcy on Your Debt and Property — Keeping Your Home and Other Property — Exemptions.

>Step 3: Complete Forms

Once you’ve gathered all your information and documents, the next step is to complete your petition and related forms accurately and honestly. Errors can cause the court to dismiss your petition. And if you don’t list a debt accurately, you may still owe the debt after your bankruptcy proceedings are complete. The forms you must file are listed on the website of theU.S. Bankruptcy Court for the District of New Jersey. If you’re filing under Chapter 13, you’ll also have to prepare your plan. If filing under Chapter 11, you’ll have to prepare a plan as well as a disclosure statement with enough information for creditors to evaluate the plan. The court must approve your disclosure statement before there’s a vote on the plan.

>Step 4: Attend Credit Counseling

Regardless of which chapter you file under, you’ll have to receive credit counseling from an approved agency within 180 days before filing. If you’re married and filing a joint petition, both you and your spouse must get credit counseling. You can get counseling over the phone, over the internet, or in person. You’ll have to pay a fee, but this may be waived if you can’t afford it. Once you complete the counseling, the agency will issue you a credit counseling certificate. You’ll need to file this certificate and a copy of any debt repayment plan you develop through counseling. There are very limited exceptions to the credit counseling requirement. For example, you can ask the court for an extra 30 days to file your counseling certificate if:

• exigent circumstances stopped you from getting counseling before filing your petition, or
• you requested counseling from an approved agency, but they were unable to provide services within 7 days of your request.

You also won’t be required to get credit counseling if:

• you have an incapacity or disability that prevents you from attending counseling;
• you’re on active military duty in a military combat zone; or
• the U.S. trustee determines there are no courses available in your area (unlikely since you can take the course remotely by phone or over the internet).

Note that this requirement is not the same as the personal financial management course. The personal financial management course is required after you file your petition and before receiving a discharge. SeeStep 8: Personal Financial Management Coursebelow.

Step 5: File Your Forms

The process of gathering your information, completing forms, and attending counseling can take a few months. But once you’re ready to file your petition and supporting documents, you’ll file at the United States Bankruptcy Court for the District of New Jersey. Below are the filing fees for each type of bankruptcy.

If you can’t afford the filing fee, you can ask the court to waive the fee or allow you to pay installments. But keep in mind you’ll also have to pay attorneys’ fees, plus other court fees that you may incur for any amendments, motions, and other filings during your case. If you file under Chapter 13, your repayment plan must be filed within 14 days of your petition. You’ll also have to start making payments 30 days after filing the petition, regardless of whether the court has approved your plan yet. In a Chapter 11 case, you’ll have the exclusive right to file a plan for four months. After that, creditors may also propose a plan, unless the court extends the exclusivity period.

Step 6: Automatic Stay and Appointment of Trustee

Once you’ve filed your petition, the automatic stay will start immediately. This means creditors must stop trying to collect debt from you. If they continue, they’ll be subject to penalties. The stay will not protect co-debtors in a Chapter 7 or 11 case, but it will protect co-debtors of consumer debt in a Chapter 13 case. SeeChapter 1: Bankruptcy Basics — Advantages of Bankruptcy. In a Chapter 7 or 13 case, a case trustee will also be appointed. The trustee is an impartial person who will be responsible for administering the bankruptcy proceeding, including distributing payments to creditors. They’ll also receive all your paperwork and have the power to challenge any element of your case. In a Chapter 11 case, a case trustee is rarely appointed. Instead, once you file you’ll become a “debtor in possession” and perform many of the functions a case trustee performs in a Chapter 7 or 13 case. The U.S. trustee will oversee a Chapter 11 case in a more limited way than a case trustee. This will include monitoring your submission of operating reports and other documents and conducting the 341 meeting of creditors.

Step 7: 341 Meeting of Creditors and Sale of Assets

About a month after filing, the case trustee or U.S. trustee will call the 341 meeting of creditors. The meeting is typically short and creditors rarely attend, but you (and your spouse, if filing together) must attend. The purpose of this meeting is to make sure that your filing is accurate and that all parties have a complete and accurate understanding of your debts, assets, and income. You’ll be placed under oath, and the trustee and your creditors may ask you about:

• your conduct,
• property,
• liabilities,
• financial condition, or
• any other matter that may affect your case.

In a Chapter 7 case, if you have any non-exempt assets, you’ll have to turn them over to the case trustee after the meeting. The case trustee will then sell the property and distribute the proceeds to your creditors. If your property isn’t worth much or would be hard to sell, the case trustee may decide to return the property to you or abandon it.

Step 8: Personal Financial Management Course

Before you can receive a discharge, you must attend a government-approved personal financial management course. The goal is to educate you on personal finance topics so you can avoid bankruptcy in the future. These topics include, among others:

• Budgeting and money management
• Using credit responsibly
• Consumer protection laws and agencies
• How to deal with financial crises

This requirement is subject to the following exceptions:

• You don’t have an adequate program available in your area (very rare).
• You have a disability or incapacity that prevents you from taking the course.
• You’re on active military duty in a combat zone.

Step 9: Objections and Adversary Proceedings

In a Chapter 7 case, a creditor, the case trustee, or the U.S. trustee may file an objection to discharge. To object, the creditor has to file a complaint with the court. This starts a lawsuit called an “adversary proceeding.” If a creditor objects, you and your attorney will try to resolve it with the creditor. But if you can’t reach a resolution, the judge will intervene. If your right to a discharge goes to trial, the objecting creditor will have to prove the facts supporting their objection. A creditor may object and the court can deny a discharge for several reasons set forth in the Bankruptcy Code, including:

• Failing to provide the right tax documents
• Failing to complete a personal financial management course
• Transfering or concealing property with the intent to hinder, delay, or defraud creditors
• Destruction or concealment of books or records
• Perjury and other fraudulent acts
• Failure to account for loss of assets
• Violation of a court order or discharge in an earlier case commenced within a certain time frame before the current petition was filed

In a Chapter 11 or 13 case, the case trustee, U.S. trustee, or creditors can object to the confirmation of your plan, too. But unlike Chapter 7, creditors don’t have the right to object to discharge, so long as you make all payments under your plan.

Step 10: Discharge (Chapter 7) or Plan Confirmation (Chapter 11 or 13)

In a Chapter 7 bankruptcy, after the case trustee distributes proceeds from the bankruptcy estate to your creditors and any objections are addressed, the court will discharge all remaining eligible debt. The discharge ends the Chapter 7 bankruptcy process. You’ll no longer owe the discharged debts, and the creditors can no longer try to collect them. The court clerk will mail a notice of the discharge to all creditors and the case trustee and its attorney, if any. You and your attorney will also get copies. If you filed under Chapter 11 or 13, you won’t get a discharge just yet. In a Chapter 11 case, your creditors will vote on your plan. Then in either a Chapter 11 or 13 case, the next step is for you or your attorney to attend a confirmation hearing for your plan. At the hearing, the judge will determine whether your plan meets all requirements and either confirm or deny your plan.

Step 11: Plan Administration (Chapter 11 or 13)

In a Chapter 11 of 13 case, you’ll have to make timely payments for the entire length of your plan. If you don’t make all payments, creditors may ask the court to allow them to pursue collection. To avoid this, if you can’t make payments, one option is to try to modify the plan. Whether this is possible will depend on your reasons for not paying. If modification isn’t possible, the court may instead convert your bankruptcy into a Chapter 7 liquidation, or dismiss it entirely. If you want to take on any new debt during the course of your plan, you’ll also have to ask the trustee and/or bankruptcy court first. This is because any new debt may affect your ability to make the required payments under the plan.

Step 12: Discharge and Final Decree (Chapter 11 or 13)

Once you make all payments under your plan, in a Chapter 11 case you’ll apply for a discharge with a certification that you’ve completed all payments. In a Chapter 13 case, the case trustee will prepare this certification. Notice of the impending discharge should also be sent to all creditors. Assuming no other issues arise, the court will then discharge your eligible debt and enter a final decree closing the case. This discharge means that you’ll no longer owe any remaining debt included in the plan. If you failed to make payments in a Chapter 13 case, you may still be able to get a “hardship discharge” if you can show that your failure to pay was beyond your control. This option isn’t available in a Chapter 11 case.

A Note About Revocation

Under certain circumstances, the court may revoke a discharge. This can happen if, for example, you obtained the discharge fraudulently or failed to make proper disclosures in your case. The request for revocation can come from:

• your trustee,
• the U.S. trustee, or
• a creditor.

A request to revoke a discharge generally must be filed within one year of the discharge, or in some cases before the date that the case is closed. The court will determine whether the allegations are true, and if so, whether to revoke the discharge. If the court grants the revocation, you’ll be liable for the previously discharged debt. If you committed fraud or abused the bankruptcy system, you may also have to face criminal charges, forfeit assets, or pay financial penalties.

CHAPTER 5: FREQUENTLY ASKED QUESTIONS

If you’re considering bankruptcy, you likely have a lot of questions about your case. Below are answers to some common questions we receive about bankruptcy, but keep in mind that every case is different. If you’d like to discuss the specifics of your case, it’s important to contact a New Jersey bankruptcy attorney.

Which chapter should you file under?

Which chapter you should file under (or whether you should file at all) will depend on your specific circumstances, including your debt, income, and goals. Chapter 7 is generally best for debtors with lower income and few assets. If you don’t qualify for Chapter 7, or you have a stable income and one of your main goals is to keep certain valuable assets, then Chapter 13 may be a better option. Chapter 11 is another option, but it’s rare for individuals unless they don’t qualify for Chapter 7 or 13 and have a high net worth. It’s important to discuss the pros and cons of each chapter with a bankruptcy attorney. Your attorney will be able to help you understand your options, create the most beneficial strategy, and guide you through the process. SeeChapter 3: Which Chapter Should You File Under?for more information.

How much does it cost to file bankruptcy?

Below are the filing fees for each type of bankruptcy in New Jersey.

These are in addition to attorneys’ fees and other court fees that you may incur throughout the process for amendments, motions, and other filings. If you can’t afford the filing fee, you may ask the court to waive the fee. You might also be able to pay the fee in installments.

Will bankruptcy erase all your debt?

No. A successful Chapter 7 bankruptcy can wipe out many types of debt, such as credit card bills, medical bills, and personal loans. But there are also many types of debt that are nondischargeable. Examples include most student loans, child support, and debt obtained through fraud. In addition, if you file a Chapter 11 or Chapter 13 case, you’ll repay as much debt as possible over the course of your plan. You’ll only be able to discharge the remaining eligible debt after you complete your plan. As in Chapter 7, there are also many types of nondischargeable debt in Chapter 11 and 13 cases. SeeChapter 2: Effects of Bankruptcy on Your Debt and Propertyfor more information on dischargeable and nondischargeable debts in bankruptcy.

Can you keep your home or vehicle?

Whether you can keep your home or other property in bankruptcy depends on several factors. But if you file under Chapter 11 or 13, you’ll generally be able to keep your property as long as you make the required payments under your plan. If you have debt secured by property, such as a home mortgage, you’ll either have to stay current on payments or catch up on payments through your plan. If this isn’t possible, the creditor may be able to repossess the property. If you file under Chapter 7, the case trustee will sell as much of your property as possible to repay your creditors. But you can still keep your home or certain other property in two ways: by claiming an exemption, or through a reaffirmation agreement. If you want to keep your home or other property, it’s important to consult with an experienced bankruptcy attorney. SeeChapter 2: Effects of Bankruptcy on Your Debt and Property — Keeping Your Home and Other Property.

How long does bankruptcy take?

Typically, a Chapter 7 case takes 4-6 months from filing to discharge, and a Chapter 13 case takes 3-5 years to complete. In a Chapter 11 case, there’s no limit on the length of the plan, but cases usually last 3-5 years as well. These estimates can be affected by many variables, such as whether:

• you need to amend your filings to correct errors;
• you need to submit additional information; or
• your bankruptcy involves an asset sale.

Can you pay discharged debt voluntarily?

Once your debt is discharged, you’ll no longer be legally obligated to pay it. Creditors also must stop trying to collect it from you. Still, you may decide to repay the discharged debt voluntarily. This may be the case if you owe the debt to a family member, or if you want to protect an ongoing relationship, like with a family doctor.

How long will bankruptcy stay on your credit report?

A Chapter 7 or Chapter 11 bankruptcy will stay on your report for ten years. A Chapter 13 bankruptcy will generally stay on your report for seven years (or ten if you don’t complete your payment plan). Having a bankruptcy on your credit report can significantly impact your ability to get credit, including a mortgage or other loan. Your score will improve over time, but the bankruptcy will be factored in for as long as it’s on your credit report.

What should you do if a creditor tries to collect a debt during the automatic stay or after discharge?

If a creditor tries to collect a debt from you during the automatic stay or after the debt has been discharged, you should notify them of your bankruptcy case. If the creditor continues to attempt collection, you can contact the bankruptcy court and/or an attorney. A creditor who violates the automatic stay or the court order discharging your debt can be sanctioned by the court and may have to pay you damages.

Can your employer fire you because you were a debtor or failed to pay a discharged debt?

It’s unlawful for either governmental units or private employers to discriminate against yousolelybecause:

• you filed for bankruptcy,
• were insolvent before or during your bankruptcy case, or
• haven’t paid a debt that was discharged.

Prohibited forms of discrimination include:

• terminating employment;
• adverse actions with respect to the terms of employment; and
• in the case of governmental units, denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege.

If you experience discrimination due to bankruptcy, you should contact an attorney.

Can a bankruptcy petition be denied or dismissed?

Yes. A court may dismiss your bankruptcy petition if you don’t follow the strict rules and procedures set forth in the Bankruptcy Code. This includes, for example, filing under a chapter you don’t qualify for, or submitting inaccurate information on your petition. If filing under Chapter 11 or 13, a court may also reject your plan if a creditor objects or it’s not feasible. Working with a bankruptcy attorney is the best way to avoid pitfalls and ensure that you get the best result possible. SeeChapter 3: Which Chapter Should You File Under?for more information about eligibility and other requirements under each chapter.

CHAPTER 6: CHOOSING A LAWYER

Bankruptcy is a complicated process. Understanding and strictly following all instructions, rules, and procedures is critical. If you don’t, you may not get the outcome you hoped for. Your case may also be converted to another kind of bankruptcy, or it may be dismissed altogether. To make sure you’re making the best choices for your specific situation, it’s important to get the help of an experienced bankruptcy attorney. Your attorney will be able to help you:

• evaluate all your options, including alternatives to bankruptcy;
• accurately complete all your paperwork; and
• navigate bankruptcy procedures from beginning to end.

What to Look for in an Attorney

Here are a few things you should look for when hiring a lawyer:

• Experience. Your attorney should have a deep understanding of bankruptcy laws and procedures and how they apply to your situation. During your initial consultation, it’s a good idea to ask how long they’ve been practicing and how many cases they’ve handled.
• Attentiveness. An attorney who pays proper attention to your case is crucial. Otherwise, they may miss important details or make the wrong choices for your situation — not to mention add to your stress. Ask during your initial consultation how you’ll be able to communicate with them if needed, and how long they typically take to return your messages. It’s best to get a feeling for how quickly they’ll respond to youbeforeyou hire them.
• Fees. Given the impact bankruptcy will have on your future, a lawyer is a worthwhile investment in almost all cases. But unexpected fees are never welcome. When choosing a lawyer, be sure to ask about their fee structures. They should be able to give you a straightforward answer so you can plan accordingly.

Questions about Bankruptcy in New Jersey?

At Rosenblum Law, we understand how overwhelming it can be to face crushing debt. But with the right strategy, youcanget relief. We’ll help you understand all your options and determine the best course of action for your particular circumstances. And if bankruptcy is right for you, we’ll guide you through the process and help make sure you get the most out of it. If you need help taking charge of your financial situation, call us today at 888-235-9021 or contact us through our website atwww.rosenblumlaw.com/contact. We’re passionate about helping all our clients secure their future, and our consultations are always free.

GLOSSARY

• An “automatic stay” is the court order that protects you from debt collection and foreclosure during bankruptcy proceedings. It generally becomes effective as soon as you file for bankruptcy.
• A “case trustee” is the impartial person appointed to oversee the administration of your bankruptcy case. A case trustee is usually appointed in a Chapter 7 or 13 case, but rarely in a Chapter 11 case.
• “Collateral” is the piece of valuable property attached to secured debt that can be taken and sold by the secured creditor in the event of nonpayment.
• A “co-debtor” is a person who either jointly owes a debt with you or co-signed a debt, promising to pay the debt if you fail to pay.
• “Dischargeable debt” is debt that can be eliminated through the bankruptcy process.
• “Exempt property” is property that is protected from bankruptcy proceedings through either state or federal law.
• “Foreclosure” is the process of your mortgage lender taking possession of your mortgaged property when you fail to make your mortgage payments.
• A “mortgage” is a loan taken out to buy property or land. It includes the right for the lender to seize the property or land if you don’t pay the loan.
• “Nondischargeable debt” is debt that cannot be eliminated through the bankruptcy process.
• “Priority debt” is debt that has a higher status by law because of its nature, such as child support, alimony, and certain tax obligations. Priority debt is nondischargeable.
• “Secured debt” is debt that is secured by collateral.
• “Unsecured debt” is debt that is not secured by collateral.
• “U.S. trustee” is a government appointee responsible for overseeing the administration of bankruptcy cases and private trustees. In a bankruptcy case, the U.S. trustee plays a much more limited ole than a case trustee.