Category Archives: Bankruptcy myths

Should You Use Your 401(k) to Pay Off Credit Card Debt? The Truth About Retirement Savings and Debt Relief

Are you considering using your 401(k) to pay off credit card debt? While some financial experts may suggest this as a solution, it is not always the best option. In many cases, using your retirement savings to pay off credit card debt can have negative consequences and end up depriving future you of the funds you will need for basic living expenses after retirement.

Is it a good idea to use your 401(k) to pay credit card debt?

Your 401(k) contains the money that you will need in order to live after retirement.

Instead, bankruptcy may be a better, cheaper solution for those who cannot afford to pay back their debts. In New Jersey, bankruptcy laws allow individuals to keep their 401(k) money untouched throughout the process. This means that, with the help of a bankruptcy attorney, you can achieve debt relief and protect your retirement savings at the same time.

It is important to carefully consider your financial situation and weigh the costs and benefits of each option before making a decision. Dipping into your 401(k) may seem like a quick fix, but it can have long-term consequences. Bankruptcy, on the other hand, is a solution proposed by Federal law for individuals who cannot afford to pay back their debts.

In conclusion, if you are struggling with credit card debt, it is best to consider bankruptcy as a solution before using your 401(k) to pay off your debts. With the help of a bankruptcy attorney, you can achieve debt relief, protect your retirement savings, and start fresh towards a financially stable future.

Not sure if bankruptcy is right for you? Well, it’s not right for everyone, but it’s a great solution for a lot of people. Schedule a free telephone appointment to discuss your unique debt situation with attorney Jennifer Weil at my Setmore page.

Why Bankruptcy Attorney Fees are a Wise Investment – A Guide to Debt Relief

If you’re facing overwhelming debt, you may be considering various options for debt relief. While the cost of hiring a bankruptcy attorney may seem like an added expense, it can actually be a wise investment. In this post, I’ll explore why bankruptcy attorney fees are a good deal and how they can help you achieve a fresh start.

Expertise: Bankruptcy is a complex legal process, and working with an experienced attorney is crucial for ensuring a successful outcome. Attorneys are knowledgeable in bankruptcy law and can guide you through the process, meeting all necessary deadlines and requirements.

Protection: A bankruptcy attorney provides legal protection and representation in court. They can help protect your assets and negotiate with creditors on your behalf, ensuring your rights are protected and that you are not taken advantage of.

Fresh Start: Bankruptcy offers individuals a fresh start by discharging most unsecured debts, allowing you to rebuild your financial future. A bankruptcy attorney can help ensure the process is completed correctly and all of your debts are discharged.

Savings: While attorney fees may seem costly, the savings from a successful bankruptcy can often outweigh the cost. In many cases, individuals can save thousands of dollars by discharging their debts through bankruptcy instead of negotiating a settlement or paying off debts over a longer period.

In conclusion, hiring a bankruptcy attorney is a wise investment for individuals struggling with debt. With expert guidance, legal protection, a fresh start, and potential savings, bankruptcy attorney fees can be a good deal for those seeking debt relief. Find a reputable and experienced attorney to help guide you through the bankruptcy process.

The #1 Best Judgment Protection: Bankruptcy

The #1 best judgment protection is bankruptcy. If you can qualify for a bankruptcy and you’re considering whether to file a bankruptcy or do debt settlement instead, consider the issue of judgment protection. Does bankruptcy protect me from judgments? Some think that hiring a debt consolidation (aka debt settlement) company provides the same level of protection as a bankruptcy.

But if you believe that a debt consolidation or a debt settlement company can protect you in any way, shape or form from debt collectors and their tactics, you’re wrong. It’s that simple. Bankruptcy can protect you from judgments and from debt collection. How does bankruptcy provide protection from judgment collection?

The Automatic Stay

Bankruptcy protections from debt collection activities come through the automatic stay. The automatic stay has the effect of a court order stopping all attempts to collect a debt from you, the debtor, during the course of your bankruptcy case. This is the biggest, most important difference between bankruptcy and debt settlement.

Bankruptcy Automatic Stay Protection vs. Debt Settlement

Whether you are settling your own debts or you’ve hired someone else to settle your debts, you need to know that no part of the debt-settlement process protects you from any type of debt collection at all. Many people believe that if they’ve hired an attorney to settle their debts, or if the debt settlement company assigns an attorney to their case, that they will get some type of protection from debt collection activities such as lawsuits, wage garnishments, or bank levy. Nothing could be further from the truth.

The reason that you don’t get any protection from debt collection through debt settlement is simply because the debt collector doesn’t have to stop trying to collect. There’s nothing to stop them.

Debt Settlement’s False Security

Federal law does require debt collectors (but not original creditors) to stop calling you on the phone if you’ve told them that you have an attorney, which gives people a false sense of security. You may falsely believe that, because the debt collector is no longer calling you, they won’t sue you or try to collect on an existing judgment. Again, it’s not true – you can be sued, you can have your wages garnished, and your bank account can be levied.

To be sure, debt collection law firms often will verbally agree to temporarily suspend collection activity while your attorney is discussing settlement with them, but there is no requirement that they do so. If settlement talks fall apart, debt collection activity will resume.

Limits Of The Automatic Stay

It’s important to know that the bankruptcy automatic stay has limits. First of all, the automatic stay only last as long as your bankruptcy case lasts. If you receive a bankruptcy discharge of your debts, you will be protected from collection on the discharged debts by the discharge order itself. The bankruptcy discharge takes the form of a court order that creditors and debt collectors must obey.

Further limits of the bankruptcy automatic stay can result from multiple bankruptcy filings within a short period of time. For example, if you filed a bankruptcy case that was dismissed and then you file another bankruptcy case within a year, your automatic stay will be limited to 30 days only, unless a judge grants your formal, written request to extend the stay. And it’s possible to have no automatic stay at all if you have filed too many bankruptcy cases in a year.

If you have questions about judgment protection, debt settlement, debt consolidation, or the bankruptcy automatic stay, call to schedule a free bankruptcy phone consultation with attorney Jennifer Weil at (201) 676-0722, or go to my Setmore page.

How To Afford Bankruptcy

A lot of people think that if they can’t afford their credit card payments, then they can’t afford bankruptcy. But this isn’t necessarily true.

How To Afford Bankruptcy: Stop Paying Credit Cards

The way to afford bankruptcy often is to stop making your credit-card payments and to use that money for your bankruptcy. After all, you are throwing money out the window by paying on credit cards if you are going to file for bankruptcy anyway.

Decide If Bankruptcy Is Right For You

If you’re still in good standing on all your credit cards, it’s best to be sure that bankruptcy is the solution for you, before you stop paying on all your credit cards. The way to do that is to do your research and to talk with an experienced bankruptcy attorney who is familiar with all the different solutions for your debt problems. Most bankruptcy attorneys can evaluate your situation and tell you whether bankruptcy is a good idea for you and if it’s not, they can recommend other solutions.

Decide If Debt Settlement Is Right For You

Keep in mind that a non-bankruptcy solution such as debt settlement will also involve stopping payments on credit cards, although you have the option of stopping one or two at a time instead of all of them. And debt settlement is often more expensive than bankruptcy, depending on your individual situation.

Get The Money From A Relative

Another way to afford bankruptcy is to obtain the money from a relative who is willing to give it to you.

Can You Qualify For Free Legal Services?

There are legal services organizations out there who will refer you to an attorney that will do your bankruptcy for free, if your income meets a certain low threshold.

Explore your options. Contact attorney Jennifer Weil to schedule a free telephone consultation: (201) 676-0722. Or you can schedule your own consultation online at my Setmore page.

The 2 Biggest Bankruptcy Myths, or: How Long Does A Chapter 7 Bankruptcy Stay On Your Credit Report?

The question of how long a Chapter 7 bankruptcy stays on your credit report is one I get all the time. The short answer is 10 years. But the real reason that people ask me this question is because they’ve heard that a bankruptcy, especially a Chapter 7 bankruptcy, destroys the credit report for as long as it appears on their credit report, or even permanently. However, this reflects a couple of fundamental misunderstandings about the impact of bankruptcy on your credit report.

Myth #1: Chapter 7 Bankruptcy Destroys Your Credit

Simply put, it isn’t true that Chapter 7 bankruptcy, or any chapter of bankruptcy, destroys your credit. Your credit score takes an initial hit of several points as a result of the Chapter 7 being filed. But in saying that a Chapter 7 “destroys your credit,” you are giving too much power to bankruptcy – even more power than your bad debts have. It’s not possible for bankruptcy to “destroy” your credit report. What does it even mean for something to destroy your credit?

Let’s examine this belief: Does it mean that, when you apply for credit after bankruptcy, the decision maker will see that you filed for bankruptcy and automatically deny you? That’s just not true, but let’s assume for a moment that it is, and work through it logically.

Let’s start with basic facts: You have unmanageable credit card debt. Either all of that credit card debt shows up on your credit report, or it doesn’t because it’s business debt or because it’s pretty old. If it shows up, your credit report already looks bad because your debt-to-income ratio is bad and/or one or more accounts shows as being in default. But whether the debt appears on your credit report or not, you are living under the threat of debt collection, which includes debt-collection lawsuits. If you get sued for a debt and get a judgment against you, you could be subject to bank levy and/or wage garnishment. That’s even worse for your income and credit; it deprives you of full control over your income and your bank account.

Let’s say that instead of keeping these unmanageable debts on your credit report, instead of subjecting yourself to debt-collection lawsuits, you qualify and file for a Chapter 7 bankruptcy and you get all those credit-card debts discharged. How does your credit report look then? Yes, the bankruptcy shows up. Yes, all your credit-card accounts show up…but NOT as owing any balances. Instead, they show up as “$0 owed, discharged in bankruptcy” or something similar.

How does the sudden lack of debt affect your credit report? Positively, to be sure. Your debt-to-income ratio, which looked pretty bad just a few months before, looks a lot better after all that debt is wiped out in bankruptcy. Any creditor, such as a mortgage company, who is interested in how much debt you’re carrying, will see that you have several $0 balances, instead of credit-card balances totaling $20,000, $30,000 or more. Owing $0 gives you more money to put toward other things, such as a new mortgage, than owing $30,000 or more on credit cards. Mortgage companies know this.

Yes, there’s a waiting period of a couple years after bankruptcy before you can qualify for a mortgage, but that waiting period is shorter than the amount of time that bad (defaulted) credit-card debt stays on your credit report. Bad debt generally stays on your credit for 7 1/2 years. Which one do you think looks “better”? Seven and a half years of owing a ton of unmanageable credit card debt, or a Chapter 7 bankruptcy notation with no credit card debt at all? If you said the former, then you really need to put yourself in the shoes of creditors and re-examine your financial belief system.

Myth #2: Chapter 7 Bankruptcy Looks Worse on Your Credit Than Chapter 13 Bankruptcy

The basis of the myth that Chapter 13 bankruptcy looks better on your credit report than Chapter 7 bankruptcy comes from the idea that it is better to repay your debts, even partially, and Chapter 13 allows you to do that.

While it’s true that any individual creditor could choose to look more favorably on Chapter 13 for this reason, it’s a myth to believe that a Chapter 13 is always better for your credit. In fact, a Chapter 7 bankruptcy can be better for your credit in that it ends more quickly. To be successful, a Chapter 13 bankruptcy must last either 3 years or 5 years, which is the length of your plan. For each month of your Chapter 13 plan, you pay 100% of your disposable monthly income into the plan.

Either chapter of bankruptcy may be used as a method of solving your debt problems. It’s helpful to keep that in mind: Bankruptcy is a solution, not a way of making your debt problems worse. Don’t let the myths override your ability to rationally think about your financial situation.

For help rationally thinking about solutions to your debt problems, call (201) 676-0722 to schedule a specific day and time to have a discussion with attorney Jennifer Weil, or email weilattorney@gmail.com.

Discharging Income Taxes In Bankruptcy

Introduction

Dispelling common myths surrounding income-tax debts is crucial for making informed financial decisions. While Chapter 13 bankruptcy is often associated with a prolonged repayment plan, the reality is that various options exist, and each individual’s situation is unique. Let’s explore the truth behind these myths and how a personalized approach can guide you towards the most effective solution.

Myth 1: Chapter 13 is the Only Solution for Income-Tax Debts

Contrary to popular belief, filing for Chapter 13 bankruptcy isn’t the sole solution for handling income-tax debts. The myth persists because Chapter 13 is indeed an excellent option for certain cases. However, the key lies in understanding the specifics of your situation, which requires a tailored evaluation by an experienced attorney.

Myth 2: Income Tax Debts Cannot Be Discharged in Bankruptcy

While it’s true that not all income-tax debts are dischargeable, the blanket statement that they cannot be discharged is a myth. There are conditions that, if met, allow for the discharge of income-tax debts. An attorney, equipped with your tax account transcripts, can assess each tax year individually to determine eligibility for discharge.

Navigating Chapter 7 vs. Chapter 13

Determining whether Chapter 7 or Chapter 13 is more suitable depends on various factors, including the recency of the income-tax debt. Chapter 13 may be preferable for recent debts, offering a chance to avoid penalties and interest. However, if most of your tax debts are dischargeable, Chapter 7 might be a more favorable option based on your overall financial circumstances.

Conditions for Discharging Income Tax Debt

Understanding the conditions for discharging income-tax debt in Chapter 7 is crucial. This includes meeting criteria such as the tax return due date, filing date, assessment period, and avoiding fraudulent activities. These factors, when evaluated by an attorney, contribute to a well-informed decision.

Conclusion

Debunking myths and understanding the nuanced conditions for dealing with income-tax debts requires a personalized approach. Consultation with a knowledgeable attorney, like Jennifer Weil, Esq., ensures a thorough evaluation of your specific circumstances.

Schedule a free bankruptcy consultation with Jennifer Weil, a New Jersey bankruptcy attorney, to discuss your options.

Woman with Autism Gets Student Loans Discharged

I wrote a post for the blog of fellow New Jersey attorney Matthew Stoloff, who represents clients in the areas of disability rights and special education rights.  That post appears on Mr. Stoloff’s blog here.  You can also read the full text of my post right as follows:

In the past, I have mentioned the difficulty of getting student loans discharged in bankruptcy. But I have yet to discuss why it is so difficult to get a bankruptcy court to discharge student loans.

In this post, I’ll examine the process through a recent case from Maryland where student loans were actually discharged in a bankruptcy and discuss why that case might be anomalous.

In a nutshell, the Bankruptcy Code states that student loans are not dischargeable unless the debtor can show that repayment of the debt will cause an “undue hardship” on the debtor and his or her dependents. The famous Brunner case set the test followed in most of the country, including New Jersey, for what constitutes an “undue hardship”:

1. Whether the debtor will be unable to maintain a minimal standard of living, based on current income and expenses, if forced to repay the student loans;

2. Whether additional circumstances exist indicating that this state of affairs is likely to persist for a significant part of the repayment period for the student loans; and

3. Whether the debtor has made a good faith effort to repay the student loans.

Pa. Higher Educ. Assistance Agency v. Faish (In re Faish), 72 F.3d 298, 304-305 (3d Cir. 1995) (quoting In re Brunner, 831 F.2d at 396 (2nd Cir. 1987)).

In case you are thinking to yourself, “It’s an undue hardship for me to pay my student loans,” pause to consider the bankruptcy case, In re Brightful. There, Ms. Brightful filed for bankruptcy, asking the court to discharge her student loans. The bankruptcy court found that she had “glaring psychiatric problems” and was “emotionally unstable” to the point that she had attempted suicide twice. The court said she could not maintain a “minimal” standard of living and still pay her student loans.

But this was not enough – the court found that, under the Brunner case, Ms. Brightful must prove “a total incapacity…in the future to pay [her] debts for reasons not within [her] control.” So, the current inability to pay student loans is notthe standard. Instead, a discharge of student loans must be based on “the certainty of hopelessness… [emphasis added].”

Recently, a Maryland court considered whether a person on the autism spectrum could get her student loans discharged. See In re Todd. The debtor, Carol Todd, has a form of autism calledAsperger’s Syndrome, in addition to post-traumatic stress disorder (PTSD) and osteoporosis. Ms. Todd had a total of about $340,000 in student loan debt and sought to get these loans discharged.

Right away, we know this case is different because the judge quotes the Webster’s dictionary definitions of “undue” and “hardship,” adding that these terms do not suggest a standard that “no debtor can ever meet.” The court went on to describe how Ms. Todd was unable to function normally due to her diagnoses of Asperger’s, PTSD, and osteoporosis – but the court focused primarily on Asperger’s.

Despite her inability to function normally, Ms. Todd obtained 5 different higher education degrees and attended 5 different colleges, plus one online college. The court, however, was influenced by Ms. Todd’s belief that she did not earn her degrees, but that they were “negotiated” for her by the Department of Education, which she said helped her to obtain accommodations. In fact, the court questioned the academic rigor of the programs that she attended.

Following graduation, Ms. Todd worked as an adjunct professor teaching classes for several years, but she was not employed after that time.

In its analysis, the court determined that Ms. Todd’s situation met the “certainty of hopelessness” test due primarily to her autism/Asperger’s. Persuading the court was a doctor’s testimony showing that Ms. Todd could be a successful student, even be able to earn a Ph.D., but that she could not be a “productive” employee in the working world as we know it. In the court’s own words:

… Autism – or Asperger’s – is a permanent condition that will not permit [Ms. Todd] to function “normally” in almost any sense of the word. Because of Autism Ms. Todd has not been able, for the vast majority of her life, to gain or hold a job, let alone fashion a career, and there is no chance that state of affairs will ever change.

Reading the opinion I got the feeling that if only some basic supports were available to disabled, working adults, Carol Todd might have lost her student loan discharge case. But the court was convinced of Ms. Todd’s inability to successfully hold employment, mainly because of her autism, which, ironically, is the same condition that gave her the ability to focus on topics of interest for long enough to help her earn 5 college degrees.

Most bankruptcy student loan discharge cases are like the first case, In re Brightful – the courts apply a harsh standard to the most difficult of circumstances, usually determining that the student loans in question are not dischargeable.

But Carol Todd’s case is an outlier because the judge was willing to focus on the long-term disabling aspects of autism/Asperger’s while at the same time discounting the debtor’s obvious abilities (a metaphor for how our working world as a whole often treats disabled adults).

Will other bankruptcy courts follow the judge’s lead in In re Todd? Is it possible that in the future more people with disabilities who are unable to successfully hold employment will be able to get their student loans discharged more easily? Only time will tell.

Image by PublicDomainPictures.

Debt settlement isn’t usually the best option


Looking at debt settlement to help rid yourself of credit card debt?

Credit cards are a huge problem in the U.S. A May 21st New York Times article reported that the Standard & Poor’s/Experian Consumer Credit Default Indices shows that the default rate on credit card loans recently climbed to its highest point, 9.14 percent, since the index first began in 2004.

So more people are no longer paying their credit card bills. What are those people who’ve stopped paying on their credit cards doing about their credit card debt?

Hopefully, they’re not paying a debt settlement company to try and “get out of debt.” There are a few cases where using a debt settlement company may be appropriate, but not many. Many debt settlement companies take large fees and tell you to stop paying on your credit card bills. They take monthly payments from you for a long time. Then they make offers to your credit card companies to settle your debts.

Sound like something you can do by yourself without paying the high fees? Yeah, there’s a reason for that – it is.

But many people who are taking the debt settlement route should consider bankruptcy instead. If you’re thinking about pursuing the debt settlement route, ask yourself, “why did I decide that bankruptcy wasn’t for me?” Was it fear? A belief that bankruptcy is too difficult?

You owe it to yourself – and your financial health – to first take the time to do some research. Look around online. The bankruptcy courts have their own websites with plenty of information for potential filers. It can’t hurt you to take the time to educate yourself. You need to know what the potential benefits of bankruptcy are before you commit to the high fees charged by a debt settlement company.

Photo by Alan Cleaver.

Credit scores: Not all that and a bag of chips

Without a doubt, one of the most frequent questions I get is about credit scores. The question is always some version of: Will a bankruptcy ruin my credit score forever?

Americans have an unhealthy obsession with bad credit, as though a credit score were an indicator of self worth. This obsession is unnecessary. You don’t need a good credit score to live a fulfilling and happy life. Even if you have bad credit, the sun will still come out tomorrow.

Do you want to work for a bank? Do you want to buy real estate someday? If so, you probably have legitimate reasons to be concerned with how your credit report looks to others. If not, stop worrying about your credit. It is not worth the energy you spend on thinking about it, believe me. But if it is a priority, there are ways you can rebuild credit.

And you’d think people who are on the verge of filing for bankruptcy must be starting out with good credit, considering all the energy they expend worrying about how it might ruin their credit scores. But you’d be wrong, for the most part. Sure, some people who file for bankruptcy early enough might still have a decent score, but honestly, most people who are serious about it already have bad credit.

If you are legitimately concerned with your credit, consider this: Those starting out with bad credit should look at how a bankruptcy can help begin to rebuild credit by providing a fresh start. Those starting out with good credit, but who have dischargeable debts they can’t pay, should be looking at how far down their credit score can go if they let their untenable debt situation continue its downward spiral.

Thinking about a bankruptcy in New Jersey? Call Jennifer Weil at 201-676-0722 for a free telephone consultation or email me at jweil@jenlawyer.com.

Photo by Pretty Poo Eater.

How long does a bankruptcy stay on your credit report?

Bankruptcy filers who would like to rebuild their credit are justifiably concerned about how long a bankruptcy can appear on their credit report.

The answer is that bankruptcy information can stay on your report for 10 years. Most other types of negative information can be reported for 7 years.

Usually, a Chapter 7 stays on a credit report for 10 years while a Chapter 13 stays on a report for 7 years.

The Federal Trade Commission has a website explaining how to get free copies of your credit reports from the 3 major credit reporting companies. You should check your reports on a regular basis to make sure they do not contain any false information.

It is still possible to build a positive credit report even with a bankruptcy on your record, so long as you act carefully and methodically. If you’ve ever received credit card offers before, you are likely to receive them again after your bankruptcy.

If your goal is to build good credit, it’s worth your while to consider the post-bankruptcy card offers that you receive with an eye toward building a record of consistently and fully repaying an open line of credit.

If you are in New Jersey and considering Chapter 7 bankruptcy, please call me for a free telephone consultation at 201-676-0722.