There is so much misinformation about bankruptcy on the internet. The first thing that people must realize is that there are several bankruptcies available to help people who are in debt.
When most consumers think of bankruptcy, they are talking about a chapter 7 liquidation where you walk away from your debt and don’t pay any of your unsecured creditors back. However, there is also chapter 13 which is a reorganization for individuals. Most people file for chapter 13 if they are behind on mortgage payments, auto payments, taxes or they are above the median income. In addition, there is chapter 11 which is usually for a business but can be used by individuals who do not qualify for Chapter 13, and Chapter 12 which is for farmers. These are just a few examples of the different types of bankruptcies available.
In order to qualify for bankruptcy in New Jersey, you must have lived in New Jersey for the greater period of the last 180 days or you have principal assets, such as real estate, in New Jersey.
In determining what chapter this couple should file, the first thing to do is to see if they qualify for Chapter 7 where they can walk away and get a fresh start from their credit card debts.
Before anything, it is imperative to check and see if they have filed Chapter 7 in the last eight years and received a discharge. If they have, they are barred from filing another Chapter 7 and usually will file a Chapter 13 unless they can wait out the time to qualify for another Chapter 7 filing.
The next step is to check the means test. Even with the pandemic over the last eight months, the median income has increased again which shows the income of NJ wage earners has increased this year. Now if you live alone, you will qualify under the means test if you earn $71,064 averaged over the last 6 months. For a family of two, the number is now $87,432; for a family of three it is $111,046 and a family of four can earn $132,708. For each additional member of a family, you add $9000. Thus, if this couple had three dependants, they would qualify for Chapter 7 even if they earned $141,708 averaged out over the last 6 months.
However, there is a lot more to determine before just proceeding with a chapter 7 filing. If the couple owns real estate and is behind on their mortgage, it is not advisable to put them in Chapter 7 since only Chapter 13 allows them to reorganize. Please note if they are under the median income, they may be able to do a chapter 13 plan to pay back the mortgage arrears, taxes, or auto arrears and wipe out their other unsecured debt.
In addition, it is always essential that the lawyer analyze what property the clients own. If clients own property that is not exempt or protected, a chapter 7 trustee can sell the property. If your clients have a home with too much equity or too much personal property or savings that is not exempt, it is imperative to put them in Chapter 13 so they will not lose their property. They will have to pay a chapter 13 trustee the value of the non-exempt property over the life of the plan.
For example, if you own a home that is worth $50,000 with no mortgage, you can subtract $5000 cost of sale plus the $25,150 exemption, then you would have five years to pay back $19850 and discharge all your other unsecured debt.
Finally, the last piece of the puzzle is to analyze your clients’ income and expenses. Even if you are under the median income and have no non-exempt assets, the US Trustee can file a Motion To Dismiss for abuse if the debtors earn too much money and can afford to pay back their creditors. The Courts look at good faith and the totality of the circumstances.
Thus, regardless of what chapter you qualify for, the increased numbers for the means test make it a lot better for you to either qualify for Chapter 7 or pay less back to your unsecured creditors in a chapter 13 plan.
The whole purpose of the bankruptcy code is to help honest debtors, who through unforeseen circumstances, have gotten into a horrible financial situation and they need a fresh start. What can be more of an unforeseen circumstance than this horrible virus that has hit the entire world.
Since the courts are now open in New Jersey and creditors are now pursuing their state law remedies to get paid on credit cards and other unsecured debts and mortgage companies are moving foreclosures to judgments, you do not want to delay.
Even though sheriff sales are still not being scheduled it is better to use the bankruptcy process to help you now before foreclosures get out of control.
Things are hard enough now and you don’t want creditors to pursue you while everyone is struggling.
AGAIN, PLEASE NOTE WE ARE OPEN FOR BUSINESS TO HELP ANYBODY WHO IS IN FINANCIAL DISTRESS.
Steven N. Taieb, Esquire has been a south jersey bankruptcy attorney for 35 years and is board certified in consumer bankruptcy law by the American Board of Certification which is accredited by the American Bar Association.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.