Tag Archives: Chapter 7

Be sure you file bankruptcy at the right time

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Sometimes the timing of your bankruptcy filing hardly matters, but other times it’s huge. The two examples in this post should convince you that you do not want to be rushed to file because a creditor got a judgment against you is now garnishing your wages. Since the timing of your bankruptcy filing can be a strategic decision, you should preserve the ability to file bankruptcy at a time that’s best for you.

1. Choosing between Chapter 7 and 13:  Being able to file a Chapter 7 generally requires you to pass the means test. This test largely turns on a very special definition of “income.” For many people, means test income can change every month. So you may not qualify to file a Chapter 7 one month but maybe you can the next month. Being able to delay filing means being able to file when you are likelier to pass the means test and not be forced into a Chapter 13. Chapter 7 cases are usually shorter and normally cost less than Chapter 13 cases.

2. Discharging debts:  Getting certain debts discharged can be more difficult if you incurred them within a certain amount of time before your bankruptcy case was filed. Delaying the filing of your case makes it less likely that the dischargeability of one of these debts would be successfully challenged. If a creditor is successful in challenging the dischargeability of a debt, you would still owe the debt, possibly along with the creditor’s costs and attorney fees and your attorney’s fees.

If you get sued, what do you do to avoid getting a judgment against you, so that you’re not rushed into filing bankruptcy at a bad time? See a bankruptcy attorney as soon as possible. The earlier you get advice, the more options you will have.

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Stopping the foreclosure of your home through bankruptcy

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Both Chapter 7 and Chapter 13 can help you save your home. But how does a bankruptcy stop foreclosure?

You have undoubtedly heard that the filing of a bankruptcy stops a foreclosure. You may have also heard that Chapter 13—the repayment version of bankruptcy—can be a good tool for saving your home in the long run. Both of these are true, but are only the beginning of the story. This post tells you more about how bankruptcy stops a foreclosure.

The “automatic stay” is the part of the federal bankruptcy law which immediately blocks a foreclosure from happening. The very act of filing your case “operates as a stay,” as a court order stopping “any act to… enforce [any lien] against any property of the debtor…  .”

But what if your bankruptcy case is filed and the mortgage lender or its agent can’t be reached in time so that the foreclosure sale still occurs? Or if there’s some miscommunication between the lender and its agent or attorney, with the same result? Or if the lender just goes ahead and forecloses anyway?

As long as your bankruptcy is filed at the court BEFORE the foreclosure sale, then that sale is not legally valid, whether it occurred by mistake or intentionally. (This filing “at the court” is usually actually done electronically from my office, with a date and time-stamped record proving when the court filing took place.)

IF a sale happens by mistake after the filing of your bankruptcy, lenders are usually very cooperative in legally undoing the foreclosure sale and its documentation. If your lender would fail to undo such a sale after becoming aware of your bankruptcy filing, it would be in ongoing violation of the automatic stay, exposing itself to significant financial penalties. That would be rare.

Does it matter whether your case is a Chapter 7 or Chapter 13 one for purposes of the automatic stay?

No, the automatic stay is the same under both chapters, and would have the same immediate effect.

On the other hand, how long the protection of the automatic stay lasts can depend on which chapter you file. That’s because even though you get the same automatic stay, the other tools each chapter provides for protecting your home are very different. So your mortgage lender or servicer may very well react quite differently depending on the chapter you file, as well as on what you propose to do about your home and your mortgage within that chapter.

Variable income and the Chapter 7 means test

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In qualifying for a Chapter 7 bankruptcy, means testing is not an issue for people whose pay is below the median for their state and family size, but for those whose income is more, it can be a problem.

The means test is like a big IRS form with spaces for plugging in certain numbers and checking off boxes. If you’ve filed for bankruptcy in years past, you may not have seen it. The form was introduced as a result of the new bankruptcy legislation that Congress passed in 2005, which created more hoops for individual bankruptcy filers to jump through.

It has two main parts: The first determines whether your earnings are above or below median. The second is for those who are above median – it lets you take *certain* deductions from your income in an attempt to lower it to the point where you can qualify for a Chapter 7.

Obviously, it’s preferable not to have to fill out the second part of the Chapter 7 means test.

Those whose earnings vary during the year might be in a better position with regard to the means test than those with steady over-median earnings. Examples of people with variable pay over the course of a typical year include teachers, college professors, those who work solely or primarily on commission, and those who periodically claim unemployment insurance benefits because of temporary jobs or seasonal employment.

Many people credit their variable income for getting them into debt trouble to begin with, since they aren’t always able to afford their monthly payments steadily throughout the year.

How can earnings that vary over the year possibly be to your benefit? Because the means test only includes the earnings you received during the 6 months before your bankruptcy filing. If that prior 6 months encompasses a part of the year during which your income was lower, you have a better chance at your pay being below the median and qualifying for a Chapter 7.

So when considering the question of when you should file, think about filing soon after a period of lower income.

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Will I be able to keep anything when I file for bankruptcy?

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Can you keep your property through a Chapter 7 bankruptcy? The short answer to this question is: Maybe. It depends on your situation.

This is what something called “exemptions” are for. The way I explain it to clients is this: When you file for bankruptcy, something called the “bankruptcy estate” is created, kind of like the estate that is created when someone dies. Everything in the that estate temporarily comes under the Chapter 7 trustee‘s control. The trustee can sell estate assets to pay off your creditors. If something is NOT in the bankruptcy estate, it will not come under the trustee’s control.

How do you keep your stuff out of the bankruptcy estate? You list all it in your filing. Then you cite to the statutes allowing you to exempt each item from the estate. The laws allowing you to keep property out of the bankruptcy estate are generally called “exemptions”.

Does that mean you can exempt anything from the bankruptcy estate, no matter how expensive the it is? NO. Unfortunately not. Exemptions are limited. And they vary greatly by state.

How are exemptions limited? Generally, they are limited by type of property and by amount. For example, you might find that the statute that applies to jewelry might be limited in amount to $1500. This means you could exempt only $1500 worth of jewelry from your bankruptcy estate (that’s just an example – I made it up, so don’t rely on that statement for jewelry!). Limitations like this can make it difficult (and sometimes impossible) to exempt very valuable items like real estate, newer cars, or valuable collectors’ items.

How do you value your items? Generally speaking, you value your property by determining its resale value – how much could you get for it at a garage sale or on an auction website?

How do I exempt items that I don’t want to list in my papers? You don’t. Unlisted property is not exempted.

The bottom line is that you need to speak to a bankruptcy attorney in the state where you live to find out what the exemptions limitations are. And don’t make the mistake of transferring property to someone else just to keep it out of the bankruptcy estate.

If you are in New Jersey and need a bankruptcy attorney for a potential Chapter 7, please call Jennifer Weil at 201-676-0722 for a free telephone consultation or email me at jweil@jenlawyer.com.

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New Jersey household median income levels rising soon

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Two small test tubes in a test tube rack.
Image via Wikipedia

The picture over there on the right? Those are test tubes. I couldn’t resist – you’ll get it in a minute. Read on.

On November 1, 2009, the Census Bureau median family income for a one-person household in New Jersey goes up from $57,120 to $60,026. What does this mean to you? It could mean a lot, if you are planning to file a Chapter 7 bankruptcy in New Jersey.

Part of what you need to do to qualify for a Chapter 7 bankruptcy is pass the means test. If your income is below the median income for your household size, you pass the means test. If your income is more than the median, you may still be able to pass the means test by deducting certain allowed expenses from your income. The means test form is similar to an IRS form in that it tells you what numbers to put on which lines and allows for specific deductions.

So what about the median income going up in New Jersey? When the median income levels for your state go up, that might make it easier for you to qualify for a Chapter 7, depending on your income and on how much money you have left over at the end of every month.

But the median income is not going up for every state. For example, the median income for a single-person household in New York will actually go down a bit, making it just a bit more difficult for certain New Yorkers to qualify for a Chapter 7. The difference is not huge, though, and consumer bankruptcy attorneys in New York will probably just need to guide their clients in finding a little bit more in expenses to fit onto the means test.

And median income levels in New Jersey will not be going up the same amount for all household sizes. For a single-person household, the rise will be $2906; for a two-person household, it will go up $2147; for a three-person household, it will go up only $673; and for a four-person household, median income will only rise by $227 per year.

For each additional person above four, you will still add $6900 to the total median income for a four-person household, which is no more than you would add prior to November 1, 2009.

So if you are one of those one-person households needing a Chapter 7 in New Jersey who was a bit over the median income before, you might want to look into filing on or after November 1, 2009.

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