Small Business Debt and Bankruptcy

If you’re a small business owner in New Jersey facing financial difficulties, you may be wondering if filing for bankruptcy can help discharge your business debts. However, what many business owners don’t realize is that, in many cases, simply filing bankruptcy for the business may not be enough to eliminate those debts. Instead, you might need to file for personal bankruptcy.

This is because many small business owners personally guarantee their business debts. In this blog post, we’ll explore why this can put you at risk of being personally liable, why filing for personal bankruptcy may be necessary, and what you need to know if you’re facing this situation in New Jersey.

Understanding Personal Guarantees on Business Debt

When starting or running a small business, it’s common for business owners to take on loans, leases, or credit lines to help cover operating expenses, purchase inventory, or finance equipment. However, for small businesses, lenders often require the business owner to sign a personal guarantee. This means that you, as the business owner, are personally responsible for repaying the debt if your business cannot.

What Is a Personal Guarantee?

A personal guarantee is a legally binding agreement in which you agree to be personally liable for the debts of your business. If the business defaults on its payments, creditors can pursue your personal assets, such as your home, bank accounts, or other property, to satisfy the debt.

Why a Business Bankruptcy May Not Be Enough

If your business is struggling and unable to pay its debts, you might consider filing for Chapter 7 or Chapter 11 bankruptcy for the business. However, it’s important to understand that filing bankruptcy for your business does not automatically protect you from personal liability if you’ve personally guaranteed those debts.

In New Jersey, if your business files for bankruptcy but you’ve signed personal guarantees, creditors can still sue you individually in state court to collect what is owed. This is why, in many cases, business owners find that they need to file for personal bankruptcy to fully discharge their obligations.

When to Consider Personal Bankruptcy

If your business debts are threatening your personal finances, filing for personal bankruptcy under Chapter 7 or Chapter 13 may be the best option. Here’s how these two types of bankruptcy work:

Chapter 7 Bankruptcy (Liquidation)

Best for individuals with significant unsecured debts and limited income.
If you qualify, Chapter 7 allows you to discharge most unsecured debts, including credit card debt, personal loans, and even business debts that were personally guaranteed.
The process typically takes a few months and may require the liquidation of certain non-exempt assets to pay off creditors.

Chapter 13 Bankruptcy (Repayment Plan)

Suitable for individuals with a steady income who want to reorganize their debts.
Instead of liquidating assets, Chapter 13 allows you to create a repayment plan lasting 3 to 5 years to pay back a portion of your debts.
At the end of the repayment period, any remaining eligible debts are discharged, including personally guaranteed business debts.

What Happens If You Don’t File Personal Bankruptcy?

If your business closes or files for bankruptcy without addressing your personal liability, creditors can pursue you directly. This often leads to lawsuits in New Jersey state courts, where creditors can obtain judgments against you. With a judgment, creditors can take further collection actions, including:

Wage Garnishment: Deducting a portion of your income directly from your paycheck.
Bank Account Levies: Freezing your bank accounts and taking funds to pay the debt.
Property Liens: Placing a lien on your home or other real estate, which can complicate future sales or refinancing.

Filing for personal bankruptcy can put a stop to these actions by invoking the automatic stay, which halts all collection efforts while your bankruptcy case is pending.

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

The Elements of a Successful Consumer Bankruptcy Filing: A Complete Guide

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Filing for bankruptcy can be a complex process, but with careful preparation and the right guidance, it can provide the financial relief you need. If you’re considering filing for Chapter 7 or Chapter 13 bankruptcy, understanding the elements of a successful bankruptcy case can help you navigate the process with confidence. In this guide, we’ll explain what information you need to provide, what your bankruptcy attorney and trustee will require, and how all this information is formulated into your bankruptcy filing with the court.

1. Initial Consultation with a Bankruptcy Attorney

Before filing for bankruptcy, the first step is to consult with a qualified bankruptcy attorney. During this initial meeting, your attorney will assess your financial situation to determine whether bankruptcy is the best option for you and, if so, whether Chapter 7 or Chapter 13 is the most suitable type of filing.

Information Your Bankruptcy Attorney Needs

To give you the best advice and start preparing your case, your attorney will need detailed information, including:

Personal Identification: Your Social Security number, driver’s license, and proof of residency.
Financial Documents: Recent pay stubs, tax returns (usually for the last two years), bank statements, and profit and loss statements if you’re self-employed.
List of Debts: A comprehensive list of all your debts, including credit cards, medical bills, student loans, mortgages, auto loans, personal loans, and any other outstanding liabilities.
Assets and Property Information: Details about your property, including real estate, vehicles, savings accounts, retirement accounts, valuable personal belongings (like jewelry or collectibles), and any other significant assets.
Monthly Budget: A breakdown of your income and expenses, including rent or mortgage payments, utilities, groceries, healthcare costs, and any other regular expenses.
Legal Documents: Copies of lawsuits, judgments, garnishments, foreclosure notices, or repossession letters if applicable.

This information helps your attorney determine whether you qualify for Chapter 7 or Chapter 13 bankruptcy and whether any of your assets can be protected through exemptions.

2. Completing the Means Test (for Chapter 7 Filers)

If you’re filing for Chapter 7 bankruptcy, you must pass the means test to prove that your income is low enough to qualify. The means test compares your income to the median income for your household size in your state. If your income is below the state median, you may qualify for Chapter 7; if it’s above, you may need to explore Chapter 13 or another debt relief option.

The means test involves:

Calculating Average Monthly Income: Reviewing your income over the past six months to determine if it falls below the threshold.
Accounting for Allowable Expenses: Deducting certain allowable expenses from your income, such as rent, utilities, healthcare, and transportation, to determine your disposable income.

Your bankruptcy attorney will guide you through this process and help you gather the necessary documentation.

3. Preparing the Bankruptcy Petition

Once your attorney has collected all the necessary information, they will prepare your bankruptcy petition. This document is the core of your bankruptcy case and includes the following schedules:

Schedule A/B (Assets): A detailed list of all your assets.
Schedule C (Exemptions): Identifying the property you’re allowed to keep under state or federal exemption laws.
Schedule D (Secured Debts): Listing any debts secured by collateral, such as mortgages and car loans.
Schedule E/F (Unsecured Debts): Detailing unsecured debts, like credit cards, medical bills, and personal loans.
Schedule I (Income) and Schedule J (Expenses): Outlining your monthly income and living expenses.

Once completed, your attorney will file the petition with the Bankruptcy Court. This officially initiates your bankruptcy case and triggers the automatic stay, which halts collection actions, wage garnishments, and creditor harassment.

4. The Role of the Bankruptcy Trustee

After your case is filed, the court will assign a bankruptcy trustee to oversee your case. The trustee’s job is to review your bankruptcy petition, ensure it’s accurate, and determine if there are any assets available to distribute to creditors.

What Information Does the Trustee Need?

The trustee will request the following documents:

Proof of Income: Recent pay stubs, tax returns, and bank statements to verify your financial situation.
Proof of Assets: Documentation for any significant assets, like property deeds, car titles, or retirement account statements.

The trustee will review these documents before your 341 Meeting of Creditors, which is a mandatory part of the bankruptcy process.

5. The 341 Meeting of Creditors

About 30 to 45 days after you file for bankruptcy, you’ll attend a 341 Meeting of Creditors. This is a relatively informal meeting where the trustee and any creditors who choose to attend can ask you questions about your finances and bankruptcy filing.

What to Expect During the Meeting

The trustee will ask you questions under oath to confirm the accuracy of your petition.
Creditors may ask questions, though they rarely attend in consumer bankruptcy cases.
The meeting usually lasts about 10 to 15 minutes.

It’s crucial to bring all requested documents and answer questions honestly. Your attorney will attend this meeting with you to provide support and ensure everything goes smoothly.

6. Debtor Education Course

After the 341 meeting, you must complete a debtor education course before receiving a discharge of your debts. This course is designed to teach you about budgeting, credit management, and financial planning to help you avoid future financial difficulties. Once completed, you’ll receive a certificate that must be filed with the court.

7. Receiving Your Bankruptcy Discharge

If everything goes smoothly, and the trustee finds no issues with your case, you’ll receive a discharge order from the court. This typically happens:

Chapter 7: Within 3 to 4 months after filing.
Chapter 13: After successfully completing your repayment plan, which lasts 3 to 5 years.

The discharge order officially wipes out your eligible debts, giving you a fresh financial start.

Key Takeaways for a Successful Bankruptcy Filing

Provide Complete and Accurate Information: The success of your bankruptcy case relies on transparency. Be honest and thorough when providing information to your attorney and trustee.
Respond Promptly to Requests: Whether it’s your attorney or the trustee asking for documents, responding promptly helps keep your case on track.
Complete Required Courses: Fulfilling the credit counseling and debtor education requirements is essential to avoid delays or dismissal of your case.
Stay Organized: Keeping all your financial documents organized will make the process smoother and less stressful.

Conclusion

Filing for bankruptcy is a significant financial decision, but with careful preparation, it can offer the relief you need to rebuild your financial future. By understanding what’s involved in the process, from gathering information for your attorney to cooperating with the trustee and fulfilling court requirements, you can set yourself up for a successful bankruptcy filing.

If you’re considering bankruptcy, consult with a qualified attorney who can guide you through every step, ensuring that your case proceeds smoothly and results in the debt relief you’re seeking.

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

Understanding Mandatory Credit Counseling and Debtor Education in Chapter 7 and Chapter 13 Bankruptcy

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When considering bankruptcy as a solution to overwhelming debt, it’s essential to understand the required steps before and after filing. One of the critical components of the bankruptcy process is the completion of mandatory credit counseling and debtor education courses. These courses are designed to ensure that individuals fully understand their financial situation, explore alternatives to bankruptcy, and gain the skills needed to manage finances effectively post-bankruptcy.

This blog post will explain what these courses entail, why they are required, and how they differ for Chapter 7 and Chapter 13 bankruptcy.

What Is Credit Counseling?

Credit counseling is a mandatory step that must be completed before filing for bankruptcy, whether under Chapter 7 or Chapter 13. This requirement was established by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which aimed to reduce the number of bankruptcy filings and encourage financial education.

Purpose of Credit Counseling

The main purpose of the credit counseling session is to help you assess your financial situation and explore whether there are viable alternatives to bankruptcy. During this session, a certified credit counselor will review your income, expenses, debts, and assets. The counselor may suggest options like debt management plans, debt consolidation, or negotiation with creditors as alternatives to bankruptcy.

The Process of Credit Counseling

Finding an Approved Agency: You must complete the counseling session through an agency approved by the U.S. Trustee Program. A list of approved agencies can be found on the U.S. Trustee Program’s website.
Session Format: Credit counseling can be completed online, over the phone, or in person. The session typically lasts 60 to 90 minutes.
Outcome: At the end of the session, the counselor will provide a certificate of completion, which is valid for 180 days. This certificate must be filed with your bankruptcy petition as proof that you’ve completed the required counseling.

What Is Debtor Education?

Debtor education, also known as a personal financial management course, is required after you file for bankruptcy but before your debts can be discharged. This course is mandatory for both Chapter 7 and Chapter 13 bankruptcy filers.

Purpose of Debtor Education

The debtor education course is designed to help you build better financial habits and avoid future financial problems. It covers topics such as budgeting, money management, using credit wisely, and saving for emergencies. The goal is to equip you with the tools and knowledge needed to manage your finances responsibly after bankruptcy.

The Process of Debtor Education

Choosing an Approved Provider: Like the credit counseling session, the debtor education course must be completed through an approved provider. The U.S. Trustee Program’s website lists these approved providers.
Course Format: The debtor education course can be taken online, by phone, or in person and typically lasts about two hours.
Certificate of Completion: After finishing the course, you’ll receive a certificate of completion. This certificate must be filed with the court before your bankruptcy case is closed. If you fail to submit the certificate, your case could be dismissed without your debts being discharged.

Differences Between Chapter 7 and Chapter 13 Requirements

While the credit counseling and debtor education requirements are generally the same for Chapter 7 and Chapter 13 bankruptcy, there are a few differences in timing and context:

Timing of the Debtor Education Course

Chapter 7: You must complete the debtor education course after filing for bankruptcy but before the court grants a discharge of your debts. Typically, the course should be completed within 60 days of the first meeting of creditors (also known as the 341 meeting).
Chapter 13: Because Chapter 13 involves a repayment plan that lasts three to five years, the debtor education course can be completed at any time after filing, but it must be done before making the final payment under your plan.

Context of the Courses

Chapter 7: In Chapter 7, where most of your debts are discharged without repayment, the focus is often on understanding how to rebuild credit and manage finances with a fresh start.
Chapter 13: In Chapter 13, since you are repaying your debts over time, the education often emphasizes budgeting and sticking to a long-term financial plan.

Why These Courses Are Important

Credit counseling and debtor education are not just bureaucratic steps; they play a vital role in the bankruptcy process. These courses are designed to:

Ensure Informed Decision-Making: Credit counseling helps ensure that bankruptcy is the right choice for you by exploring all other possible alternatives.
Promote Financial Responsibility: The debtor education course provides you with practical tools and knowledge to help prevent future financial problems and ensure long-term financial health.
Legal Compliance: Completing these courses is mandatory. Failure to do so can result in your bankruptcy petition being denied or your case being dismissed without a discharge of your debts.

Conclusion

Navigating the bankruptcy process can be complex, but understanding the mandatory credit counseling and debtor education requirements can help you prepare for what lies ahead. These courses are designed to support you in making informed decisions about your financial future and equip you with the knowledge to manage your finances better post-bankruptcy.

If you’re considering filing for Chapter 7 or Chapter 13 bankruptcy, make sure to complete these courses with an approved provider and keep track of the certificates required by the court. By doing so, you’ll not only comply with legal requirements but also set yourself on a path to financial recovery.

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

Understanding the New Jersey Courts’ Debt Collection System: A Guide for Consumers

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If you’re facing debt collection in New Jersey, understanding how the state’s courts handle these cases is crucial. The debt collection process can be intimidating, but knowing your rights and the legal procedures involved can help you navigate the situation more confidently.

Overview of the Debt Collection Process in New Jersey

When you owe a debt and fail to make payments, creditors may take legal action to recover the money. In New Jersey, this process typically begins with the creditor filing a lawsuit in the appropriate court. Here’s a step-by-step overview of how the debt collection system works in New Jersey courts:

1. Filing a Complaint

The debt collection process starts when a creditor, or a debt collection agency acting on behalf of the creditor, files a complaint with the court. The complaint outlines the amount owed, the reason for the debt, and the legal basis for the claim. The creditor may also include any interest or fees that have accrued.

In New Jersey, most debt collection cases are handled in the Special Civil Part of the Superior Court if the amount owed is less than $20,000. For larger amounts, the case may be filed in the Law Division of the Superior Court.

2. Receiving a Summons

Once the complaint is filed, the court issues a summons, which is a legal document notifying you that a lawsuit has been initiated against you. The summons will include important information such as the date by which you must respond to the complaint, the court where the case has been filed, and the details of the creditor’s claim.

3. Responding to the Complaint

After receiving the summons, you typically have 35 days to file an answer with the court. In your answer, you can admit or deny the allegations in the complaint, and you may also assert any defenses you have. Common defenses include disputes over the amount owed, identity theft, or the debt being beyond the statute of limitations.

Failing to respond to the complaint within the given timeframe can result in a default judgment against you. This means the court automatically rules in favor of the creditor, allowing them to pursue further collection actions.

4. Default Judgment

If you do not respond to the summons, the creditor may request a default judgment from the court. A default judgment gives the creditor the legal right to collect the debt through various means, including wage garnishment, bank account levies, and property liens.

5. Attending Court Hearings

If you file an answer disputing the debt, the case may proceed to a pre-trial conference or a court hearing. During the hearing, both you and the creditor will have the opportunity to present evidence and arguments. The judge will then decide whether the debt is valid and, if so, how much you owe.

6. Judgment and Collection

If the court rules in favor of the creditor, a judgment will be entered against you. This judgment is a formal decision stating that you owe the debt. The creditor can then use this judgment to collect the debt through various methods:

Wage Garnishment: The creditor can obtain a court order to deduct a portion of your wages directly from your paycheck.
Bank Account Levy: The creditor can freeze and seize funds from your bank account up to the amount of the judgment.
Property Liens: The creditor can place a lien on your real estate, which means they have a legal claim against your property. This can prevent you from selling the property until the debt is paid.

7. Satisfaction of Judgment

Once the debt is paid in full, the creditor must file a Satisfaction of Judgment with the court. This document officially acknowledges that the debt has been settled. It’s important to ensure that this document is filed to clear the judgment from your record.

8. Options for Contesting a Judgment

If a judgment is entered against you, you still have options. You can file a motion to vacate the judgment if you believe it was entered in error or if you have new evidence. However, this must be done promptly, and you may need to provide a valid reason for not responding to the original complaint.

9. Statute of Limitations on Debt Collection

In New Jersey, the statute of limitations for most debt collection cases is six years from the date of the last payment or when the debt became due. If a creditor files a lawsuit after this period, you can raise the statute of limitations as a defense, which may result in the case being dismissed.

10. Understanding Your Rights

New Jersey’s debt collection laws provide several protections for consumers. For example, the New Jersey Consumer Fraud Act prohibits deceptive practices by debt collectors, and the Fair Debt Collection Practices Act (FDCPA) offers protections against harassment and unfair collection methods.

Final Thoughts

Facing a debt collection lawsuit in New Jersey can be stressful, but understanding the process and your rights can help you take the necessary steps to protect yourself. If you’re unsure about how to proceed, consulting with a qualified attorney who specializes in debt collection cases can provide you with the guidance you need.

By being informed and proactive, you can better navigate the debt collection system in New Jersey’s courts and work towards resolving your financial challenges.

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

Understanding the Role of the Bankruptcy Trustee in Chapter 7 and Chapter 13 Cases

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When filing for bankruptcy under Chapter 7 or Chapter 13, one of the key figures in your case will be the bankruptcy trustee. The trustee plays a crucial role in managing the process, ensuring that everything is done according to the law and that creditors are treated fairly. For anyone considering bankruptcy, understanding the trustee’s responsibilities is essential.

Who Is the Bankruptcy Trustee?

A bankruptcy trustee is an independent party appointed by the bankruptcy court to oversee your case. Trustees are often attorneys or accountants who specialize in bankruptcy law. They are not your legal representative but rather act as a neutral administrator to manage the bankruptcy process.

The trustee’s primary duty is to ensure that your case proceeds smoothly and that creditors receive as much repayment as possible, depending on the type of bankruptcy you file.

The Role of the Trustee in Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of non-exempt assets to pay off your debts. Here’s how the trustee’s role comes into play:

1. Reviewing Your Petition and Schedules

After you file for Chapter 7 bankruptcy, the trustee will review your bankruptcy petition, schedules, and other required documents. This includes examining your list of assets, liabilities, income, and expenses. The trustee will check for accuracy and completeness, looking for any discrepancies or omissions.

2. Conducting the 341 Meeting of Creditors

The trustee will arrange and preside over the 341 Meeting of Creditors. This meeting gives your creditors the opportunity to ask you questions about your finances and bankruptcy filing. The trustee will also ask you questions to verify the information in your petition and to determine if there are any assets available to liquidate.

3. Identifying and Liquidating Non-Exempt Assets

One of the trustee’s key responsibilities in Chapter 7 is identifying any non-exempt assets you own. Exempt assets are those that you can keep, such as a certain amount of equity in your home or car. Non-exempt assets, on the other hand, can be sold to pay off your creditors. The trustee will oversee the liquidation of these assets and distribute the proceeds to your creditors.

4. Objecting to Exemptions or Discharge

The trustee may object to the exemptions you’ve claimed if they believe they are improperly claimed or exceed the allowable limits. Additionally, if the trustee suspects fraud or dishonesty, they can object to the discharge of your debts, potentially preventing you from wiping out certain debts.

5. Distributing Funds to Creditors

After liquidating non-exempt assets, the trustee will distribute the funds to your creditors in a specific order of priority, with secured creditors typically being paid first.

The Role of the Trustee in Chapter 13 Bankruptcy

Chapter 13 bankruptcy, often referred to as a reorganization bankruptcy, involves creating a repayment plan to pay off your debts over three to five years. The trustee’s role in Chapter 13 differs from Chapter 7, focusing more on managing your repayment plan.

1. Reviewing Your Repayment Plan

After you file your Chapter 13 petition, you must propose a repayment plan. The trustee will review this plan to ensure it complies with bankruptcy laws and that it reasonably reflects your ability to pay. The plan must show that you will use your disposable income to pay off debts over the course of the plan.

2. Conducting the 341 Meeting of Creditors

Similar to Chapter 7, the trustee will oversee the 341 Meeting of Creditors in a Chapter 13 case. The trustee and your creditors will have the opportunity to ask questions about your finances and the proposed repayment plan.

3. Objecting to the Repayment Plan

If the trustee believes your repayment plan is insufficient, unrealistic, or doesn’t comply with legal requirements, they may object to it. Common reasons for objections include underreporting income, failing to account for non-exempt assets, or proposing payments that are too low to meet your obligations.

4. Collecting and Distributing Payments

In Chapter 13, you make regular payments to the trustee according to your repayment plan. The trustee then distributes these payments to your creditors. This continues throughout the duration of your Chapter 13 plan, typically three to five years.

5. Ensuring Compliance with the Plan

The trustee monitors your compliance with the repayment plan. If you miss payments or fail to adhere to the plan’s terms, the trustee can take action, which may include seeking to have your case dismissed.

Why the Trustee’s Role Matters to You

Understanding the trustee’s role is crucial because they are a key figure in the outcome of your bankruptcy case. The trustee ensures that your case proceeds according to the law and that creditors are treated fairly. Their actions directly impact whether your debts are discharged in Chapter 7 or how your repayment plan is structured and executed in Chapter 13.

Preparing for the Trustee’s Involvement

To navigate the bankruptcy process successfully, it’s important to work cooperatively with the trustee. Be honest and thorough when preparing your bankruptcy petition, and make sure all documentation is complete and accurate. If the trustee requests additional information, respond promptly to avoid delays or complications in your case.

Conclusion

The bankruptcy trustee plays an essential role in both Chapter 7 and Chapter 13 bankruptcy cases. From reviewing your documents to overseeing the liquidation of assets or the repayment plan, the trustee’s responsibilities are integral to the process. By understanding what the trustee does, you can better prepare for their involvement and increase your chances of a smooth and successful bankruptcy filing. If you’re considering filing for bankruptcy, consulting with a qualified bankruptcy attorney can provide valuable guidance and help you navigate the complexities of your case.

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

Can I File for Bankruptcy Again? Understanding the Rules and Timing

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Filing for bankruptcy can be a lifeline for those overwhelmed by debt. But what if you’ve already gone through the process once and find yourself in financial trouble again? Can you file for bankruptcy a second time? The short answer is yes, but there are specific rules and waiting periods you need to understand.

Filing for Bankruptcy More Than Once: Is It Possible?

Yes, you can file for bankruptcy more than once. The U.S. Bankruptcy Code allows individuals to file multiple bankruptcies throughout their lifetime. However, there are important restrictions and time limits between filings, depending on the type of bankruptcy you filed previously and the type you plan to file next.

How Long Do I Have to Wait to File Bankruptcy Again?

The waiting period between bankruptcy filings depends on the chapters under which you filed and plan to file. Here’s a breakdown:

1. Chapter 7 to Chapter 7

Waiting Period: 8 years from the date of the first filing.
If you previously filed for Chapter 7 bankruptcy and received a discharge, you must wait eight years before you can file for Chapter 7 again. This extended period is designed to prevent abuse of the bankruptcy system.

2. Chapter 7 to Chapter 13

Waiting Period: 4 years from the date of the first filing.
If you initially filed for Chapter 7 and received a discharge, you can file for Chapter 13 bankruptcy after four years. Filing for Chapter 13 after a Chapter 7 discharge is sometimes referred to as a “Chapter 20” bankruptcy. While you won’t be able to discharge your debts in Chapter 13, you can use it to catch up on missed mortgage or car payments.

3. Chapter 13 to Chapter 13

Waiting Period: 2 years from the date of the first filing.
If your previous bankruptcy was a Chapter 13, you must wait at least two years before filing for Chapter 13 again. Since Chapter 13 plans typically last three to five years, this means you can file again almost immediately after your previous case is discharged.

4. Chapter 13 to Chapter 7

Waiting Period: 6 years from the date of the first filing.
If you previously filed for Chapter 13 and received a discharge, you must wait six years before filing for Chapter 7. However, there are exceptions. If you paid back 100% of your unsecured debts or 70% with a good-faith effort, you may be able to file Chapter 7 earlier.

Why Are There Waiting Periods?

The waiting periods between bankruptcy filings exist to ensure that bankruptcy is used as a last resort and not as a regular financial strategy. These rules are meant to encourage individuals to work toward financial stability rather than relying on multiple bankruptcies. Multiple bankruptcies in a relatively short period of time may be considered a form of bankruptcy abuse.

What If I Didn’t Receive a Discharge?

If your previous bankruptcy case was dismissed or you didn’t receive a discharge for some reason (e.g., you didn’t complete the required paperwork, or the court denied your discharge due to fraud), the waiting periods mentioned above don’t apply. You may be able to file again immediately, but the outcome of your case will depend on the reasons for the dismissal or denial.

Considerations Before Filing for Bankruptcy Again

Before deciding to file for bankruptcy again, consider these important factors:

Impact on Credit: Multiple bankruptcies will significantly impact your credit score, which may make it more difficult to obtain loans, mortgages, or credit cards in the future.
Legal and Filing Fees: Filing for bankruptcy multiple times can be costly. Make sure you understand the financial implications, including attorney fees and court costs.
Alternatives to Bankruptcy: Explore other debt relief options, such as debt consolidation, negotiation with creditors, or financial counseling, before resorting to bankruptcy again.

Final Thoughts

Filing for bankruptcy more than once is possible, but it’s important to understand the rules and waiting periods that apply. Bankruptcy can provide relief, but it’s not a decision to be taken lightly. If you’re considering filing again, consult with a bankruptcy attorney to discuss your options and develop a plan that’s right for your financial situation.

By understanding the timing and implications, you can make an informed decision that helps you regain control of your financial future.

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

Understanding Federal Bankruptcy Exemptions for Chapter 7 and Chapter 13 Filings in New Jersey

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Filing for bankruptcy can be a complex and daunting process. If you are considering either Chapter 7 or Chapter 13 bankruptcy in New Jersey, it is essential to understand how federal bankruptcy exemptions work. These exemptions play a crucial role in determining which assets you can keep and how your debts will be handled. This blog post will guide you through the step-by-step process of using federal bankruptcy exemptions when filing for either Chapter 7 or Chapter 13 bankruptcy in New Jersey.

What Are Federal Bankruptcy Exemptions?

Federal bankruptcy exemptions are specific laws that protect certain assets from being seized by creditors during bankruptcy proceedings. These exemptions are designed to help individuals retain essential property, allowing them to maintain a basic standard of living while they work through their financial difficulties.

Choosing Between Federal and State Exemptions

In New Jersey, you have the option to choose between federal bankruptcy exemptions and state-specific exemptions. It’s important to note that you cannot mix and match; you must select one set of exemptions entirely. Here’s a brief overview of how to decide:

Federal Exemptions: Generally more favorable for protecting certain types of personal property, retirement accounts, and wildcard exemptions that can be applied to any property.
State Exemptions: May offer protection for specific personal property or other assets; generally, the Federal bankruptcy exemptions are more generous than the New Jersey state exemptions. Most people choose the Federal exemptions.

Since the focus here is on federal exemptions, let’s dive into the specifics of how they apply to Chapter 7 and Chapter 13 bankruptcies in New Jersey.

Filing for Chapter 7 Bankruptcy in New Jersey

Step 1: Determine Eligibility

Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” requires you to pass a means test. This test compares your income to the median income for a household of your size in New Jersey. If your income is below the median, you are eligible to file for Chapter 7.

Step 2: List All Assets and Debts

You must provide a comprehensive list of all your assets and debts. This includes real estate, personal property, bank accounts, and any other financial interests.

Step 3: Apply Federal Exemptions

Federal bankruptcy exemptions are crucial in Chapter 7 filings because they determine which assets you can keep. Key federal exemptions include:

Homestead Exemption: Up to $27,900 of equity in your primary residence.
Motor Vehicle Exemption: Up to $4,450 of equity in one vehicle.
Household Goods and Furnishings: Up to $700 per item, not exceeding $14,875 in total.
Jewelry: Up to $1,875.
Wildcard Exemption: Up to $1,475 plus up to $13,950 of any unused portion of the homestead exemption, applicable to any property.
Retirement Accounts: Exempt up to $1,512,350 in IRAs and Roth IRAs. Other tax-exempt retirement accounts are fully exempt.

The dollar amounts listed above change regularly. Please consult a bankruptcy attorney to discuss whether the items you own may be exempt.

Step 4: Liquidation of Non-Exempt Assets

Any assets that are not covered by federal exemptions may be sold by the bankruptcy trustee to pay off your creditors. However, the exemptions typically allow most filers to retain essential property.

Step 5: Discharge of Debts

Once the non-exempt assets are liquidated, the remaining qualifying debts will be discharged, giving you a fresh financial start.

Filing for Chapter 13 Bankruptcy in New Jersey

Step 1: Determine Eligibility

Chapter 13 bankruptcy, or “reorganization bankruptcy,” is designed for individuals with a regular income who can repay some or all of their debts over a three to five-year period. There are no technical income requirements like in Chapter 7, but your secured and unsecured debts must be below certain limits. In most circumstances, you must be able to afford a regular monthly payment throughout a three to five-year Chapter 13 case.

Step 2: Develop a Repayment Plan

You will propose a repayment plan detailing how you intend to pay off your debts over the plan period. This plan must be approved by the bankruptcy court.

Step 3: Apply Federal Exemptions

Federal exemptions in Chapter 13 bankruptcy serve to protect your assets from being liquidated to pay creditors. As in Chapter 7, the exemptions determine what property you can keep while making payments under your repayment plan. The same federal exemptions apply:

Homestead Exemption: Protects equity in your home.
Motor Vehicle Exemption: Protects equity in your vehicle.
Household Goods and Furnishings: Protects essential household items.
Wildcard Exemption: Offers additional protection for other property.
Retirement Accounts: Ensures your retirement savings remain intact.

Step 4: Court Approval of Repayment Plan

The bankruptcy court will review your Chapter 13 repayment plan, ensuring it is feasible and meets the requirements of the bankruptcy code. Once approved, you will begin making payments to a bankruptcy trustee, who will distribute the funds to your creditors.

Step 5: Completion of Repayment Plan and Discharge

After successfully completing your Chapter 13 repayment plan, any remaining qualifying debts will be discharged. This discharge releases you from personal liability for the discharged debts, marking the end of your bankruptcy case.

Conclusion

Navigating federal bankruptcy exemptions is a critical part of the bankruptcy process, whether you are filing for Chapter 7 or Chapter 13 in New Jersey. By understanding how these exemptions work, you can better protect your assets and make informed decisions about your financial future. If you are considering bankruptcy, consulting with a knowledgeable bankruptcy attorney can provide valuable guidance tailored to your specific situation.

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

The History of Consumer Bankruptcy in the United States: A Path to Financial Fresh Starts

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Bankruptcy is often perceived with a sense of dread and stigma, but understanding its history reveals that it has long been a lifeline for those drowning in debt. Consumer bankruptcy in the United States has evolved significantly since its inception, offering individuals a structured way to manage overwhelming financial burdens and, ultimately, reclaim their economic lives.

Early Roots: Colonial and Post-Revolutionary Periods

The concept of bankruptcy has deep historical roots, tracing back to English common law, which influenced the American legal system. In colonial America, debtors faced severe penalties, including imprisonment. Debtor’s prisons were common, and there was little distinction between the inability to pay and outright fraud.

The Bankruptcy Act of 1800

The first official bankruptcy law in the United States was the Bankruptcy Act of 1800. This law was heavily punitive and aimed at merchants and traders rather than the average consumer. It allowed creditors to initiate bankruptcy proceedings against debtors, but it was not designed to offer relief or a fresh start. Due to its unpopularity and the harsh treatment of debtors, it was repealed in 1803.

The Bankruptcy Act of 1841

Recognizing the need for more humane treatment of debtors, the Bankruptcy Act of 1841 introduced voluntary bankruptcy, allowing individuals to file for bankruptcy themselves. This marked a significant shift toward debtor relief, but the act was short-lived, repealed in 1843 due to creditor opposition.

The Bankruptcy Act of 1867

In the aftermath of the Civil War, the Bankruptcy Act of 1867 was enacted to address the economic turmoil. This act reintroduced voluntary bankruptcy and provided more comprehensive coverage, including provisions for both individuals and businesses. However, it was criticized for being too lenient on debtors and was repealed in 1878.

The Bankruptcy Act of 1898

The Bankruptcy Act of 1898 was a watershed moment in American bankruptcy law. It established a more balanced approach, incorporating both creditor and debtor protections. This act made bankruptcy a more accessible option for individuals and set the stage for modern bankruptcy law. It introduced the concept of discharge, allowing debtors to be released from certain debts after liquidating their assets.

The Great Depression and the Chandler Act of 1938

The economic devastation of the Great Depression highlighted the need for further reforms. The Chandler Act of 1938 amended the Bankruptcy Act of 1898, introducing new chapters that allowed for reorganization rather than liquidation. This provided a framework for individuals and businesses to restructure their debts and continue operations, reflecting a more rehabilitative approach.

The Bankruptcy Reform Act of 1978

The Bankruptcy Reform Act of 1978 was a comprehensive overhaul of the bankruptcy system. It created the modern Bankruptcy Code, which is still in use today with various amendments. This act introduced Chapter 7 (liquidation) and Chapter 13 (reorganization for individuals), providing clear pathways for debt relief. It also established the United States Trustee Program to oversee the administration of bankruptcy cases and ensure compliance with legal procedures.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)

In response to concerns about abuse of the bankruptcy system, Congress passed the BAPCPA in 2005. This act imposed stricter eligibility requirements for Chapter 7 bankruptcy, including the means test, which assesses an individual’s income relative to their state median. BAPCPA also mandated credit counseling and debtor education, aiming to reduce repeat filings and encourage financial responsibility.

Modern Era: Bankruptcy as a Financial Tool

Today, bankruptcy is recognized as a legitimate financial tool that provides a fresh start for individuals overwhelmed by debt. The stigma surrounding bankruptcy has diminished as more people understand its role in economic recovery. Chapter 7 and Chapter 13 bankruptcy offer structured solutions, allowing individuals to either discharge their debts or create manageable repayment plans.

Why Bankruptcy Can Be a Positive Force

Debt Relief: Bankruptcy can eliminate most unsecured debts, providing immediate relief from financial pressures.
Automatic Stay: Filing for bankruptcy triggers an automatic stay, halting collection actions, foreclosures, and garnishments, giving debtors breathing room.
Fresh Start: By discharging debts or restructuring them, bankruptcy enables individuals to rebuild their financial lives without the burden of past obligations.
Financial Education: Modern bankruptcy law includes provisions for credit counseling and debtor education, equipping individuals with the tools to manage their finances better.
Legal Protection: Bankruptcy laws protect debtors from unfair treatment by creditors, ensuring a fair and orderly process.

Conclusion

The history of consumer bankruptcy in the United States reflects an ongoing effort to balance the interests of debtors and creditors while providing a humane and structured means of debt relief. From its punitive beginnings to the rehabilitative approach of modern bankruptcy law, the evolution of bankruptcy underscores its importance as a positive force in economic lives. By understanding this history, individuals can appreciate the vital role bankruptcy plays in offering a fresh start and a pathway to financial stability.

Schedule a free telephone appointment to discuss your unique debt situation with attorney Jennifer Weil at my Setmore page.

Understanding Bankruptcy Options: Why Chapter 7 May Not Be Available for High-Income Earners in New Jersey and the Viable Alternative of Chapter 13

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Filing for bankruptcy is a significant decision that many individuals facing financial difficulties consider. In New Jersey, like in other states, the type of bankruptcy one can file depends on several factors, including income level. If you are a consumer with a gross income above the median income for your state and household size, you might be ineligible to file for Chapter 7 bankruptcy. Instead, Chapter 13 bankruptcy could be a more suitable option. This post will explore why higher-income earners might not qualify for Chapter 7 and how Chapter 13 serves as an alternative.

Understanding Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” allows individuals to discharge most of their unsecured debts. This means debts like credit card balances, medical bills, and personal loans can be wiped out. However, to qualify for Chapter 7, you must pass the “means test,” which evaluates your income, expenses, and overall financial situation.

The Means Test: A Gatekeeper for Chapter 7 Eligibility

The means test is designed to limit the availability of Chapter 7 bankruptcy to those who genuinely cannot repay their debts. Here’s how it works:

Median Income Comparison: First, your gross income is compared to the median income for your state and household size. If your gross income exceeds this median, you move to the next step of the means test.
Disposable Income Calculation: The next step involves calculating your disposable income by subtracting allowable living expenses and secured debt payments from your gross income. If your disposable income is above a certain threshold, you fail the means test and cannot file for Chapter 7 bankruptcy.

Why High-Income Earners Might Fail the Means Test

If your gross income is higher than the median income in New Jersey for your household size, it’s likely that you will not qualify for Chapter 7 bankruptcy. This is because the means test assumes that individuals with higher incomes have the financial capacity to repay at least a portion of their debts. Therefore, high-income earners are often steered towards Chapter 13 bankruptcy instead.

Chapter 13 Bankruptcy: A Structured Repayment Plan

For those who cannot qualify for Chapter 7, Chapter 13 bankruptcy offers a structured way to manage and repay debts. Here’s how Chapter 13 differs and why it might be a better option:

Repayment Plan: Unlike Chapter 7, Chapter 13 does not discharge all debts immediately. Instead, it involves creating a repayment plan that spans three to five years (5 years if your income is over median), allowing you to pay off your debts over time based on your disposable income.
Protection of Assets: Chapter 13 allows you to keep your property, as long as you adhere to the repayment plan. This can be particularly beneficial if you have significant assets or secured debts, such as a home mortgage or car loan, that you wish to retain.
Debt Consolidation: Under Chapter 13, your debts are consolidated into one monthly payment made to a bankruptcy trustee, who then distributes the funds to your creditors. This can simplify the repayment process and make it easier to manage your finances.

Advantages of Chapter 13 for High-Income Earners

For individuals with incomes above the state median, Chapter 13 offers several advantages:

Debt Management: Chapter 13 provides a manageable way to pay off debts without the pressure of immediate liquidation; it can protect you from the lawsuits of your creditors, unlike debt settlement.
Credit Impact: While bankruptcy will impact your credit, Chapter 13 may be seen as less severe than Chapter 7 since it involves repaying your creditors over time.
Legal Protection: Filing for Chapter 13 triggers an automatic stay, which halts all collection actions, including foreclosure, repossession, and wage garnishment, giving you time to reorganize your finances.

Conclusion

If you are a higher-income earner in New Jersey struggling with debt, understanding your bankruptcy options is crucial. While Chapter 7 might seem appealing due to its debt discharge feature, failing the means test because your income is above the median could disqualify you. However, Chapter 13 bankruptcy offers a viable alternative, providing a structured repayment plan that allows you to manage your debts effectively while protecting your assets. Consulting with a bankruptcy attorney can help you navigate the complexities of the bankruptcy process and choose the best option for your financial situation.

By exploring Chapter 13 as an alternative to Chapter 7, high-income earners can find relief from debt while maintaining a path toward financial stability. Schedule a free bankruptcy consultation with Jennifer Weil, a New Jersey bankruptcy attorney, to discuss your options.

Confused About Bankruptcy? The Means Test Explained (Especially for Chapter 7 and 13)

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Drowning in debt? You’re not alone. Many people explore bankruptcy as a way to get a fresh financial start. But before diving in, understanding the different types of bankruptcy and the mysterious “means test” is crucial. This blog post will explain what the means test is and how it applies to both Chapter 7 and Chapter 13 bankruptcy, the two most common types for individuals.

What is the Means Test?

Imagine the means test as a financial hurdle you might need to jump over to qualify for Chapter 7 bankruptcy. It’s a way for the court to assess your ability to repay a portion of your debts through a repayment plan. The test compares your average monthly income from the past 6 months to the median income for your household size in your state.

Why Does the Means Test Matter?

The means test plays a significant role in determining which Chapter of bankruptcy – 7 or 13 – is best suited for you. Here’s how it applies to each:

Chapter 7 Bankruptcy (Liquidation): This is often called a “fresh start” bankruptcy because it allows you to discharge most unsecured debts like credit cards, medical bills, and personal loans. The good news? You might not even need to take the means test!

Here’s the catch: If your income is above the median income for your household size in your state, you’ll likely have to take the means test. If the test shows you have enough disposable income (money left after essential expenses) to repay some debts, the court may steer you towards Chapter 13 instead.

Chapter 13 Bankruptcy (Repayment Plan): This Chapter allows you to create a manageable repayment plan (usually 3-5 years) to pay back your creditors a portion of what you owe. Here, the means test is less of a hurdle and more of a helpful tool. It ensures you have enough income to sustain a repayment plan while still covering living expenses.

The Bottom Line:

Chapter 7: If your income falls below the median or you have high debt with limited assets, Chapter 7 might be the way to go. However, you might need to pass the means test if your income is above the median.
Chapter 13: Choose Chapter 13 if you want to keep your assets (like your car or house) and have a steady income to contribute to a repayment plan. The means test helps ensure you can realistically stay on track with the plan.

Remember:

The means test is just one factor in determining your bankruptcy eligibility.
Speak with a qualified bankruptcy attorney to understand your options and navigate the complex legalities of bankruptcy.

Looking for More Information?

National Consumer Law Center: Means Test Information [invalid URL removed]
American Bankruptcy Institute: Chapter 7 vs. Chapter 13 [invalid URL removed]

By understanding the means test and the two main types of bankruptcy, you can make an informed decision about your financial future. Remember, you’re not alone in this journey!

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