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Essex County Bankruptcy Law Blog

Secured debt versus unsecured debt in the bankruptcy process

Many, if not most, New Jersey residents have debt of some kind. You may be one of the many people who carry a normal amount of debt, only to find yourself slowly losing control of your financial situation after an emergency or unexpected circumstance. If you are currently dealing with a debt balance that is taking over your life, you have options.

Making the choice to file for bankruptcy is a serious decision, but it could be the right choice for you. If you are eligible, this process can allow you to discharge certain types of debt and emerge from bankruptcy protection with a strong financial future in sight. Before you decide to file, it can be useful to understand how bankruptcy deals with different types of debt.

Common bankruptcy myths should not be a deterrent to debt relief

Various recent surveys found that approximately 50 percent of U.S. citizens have savings accounts containing less than $1000 and that an unforeseen emergency expenditure of just $400 would be almost impossible to pay. With so many people in dire financial straits, it is no wonder that many in New Jersey and across the country turn to bankruptcy. Yet despite the financial relief that bankruptcy can offer, some individuals hesitate to take advantage. This may be due to some common – and false – myths about the bankruptcy process.

Many people fear that bankruptcy will mean the loss of all of their belongings. While Chapter 7 bankruptcy – generally considered the quicker and easier type – does mean a trustee will sell some assets to distribute the profits to creditors, there are items that are exempt, and an attorney can offer insight. With Chapter 13 bankruptcy, debts are reorganized into a manageable payment plan, often protecting against the loss of a home or vehicle.

What is a means test?

If you are struggling financially but are unsure if you qualify for relief through legal means, there is a test you can take to figure it out. It is called a means test. This is something that is available to all New Jersey residents who are considering bankruptcy as a way to resolve their monetary struggles.

Rebuilding credit after the debt relief of bankruptcy

New Jersey residents struggling with out-of-control debt may be considering bankruptcy. While Chapter 7 and Chapter 13 offer debt relief via different methods, there are ways with each to begin working toward financial stability almost immediately after a petition has been accepted. An attorney can help offer insight into any legal restrictions related to applying for credit after a declaration of bankruptcy, but generally, it is up to a lender to determine who qualifies for what particular types of loans or credit card.

While Chapter 7 bankruptcies are typically discharged within about three months, Chapter 13 repayment plans may take up to five years to be completed. During that time, it is not unusual for filers to need to apply for a new line of credit or credit card before their bankruptcies are fully discharged. Applicants are advised to be cautious, however. While it is wise to begin attempting to rebuild credit following bankruptcy, cards with high interest rates or built-in fees – likely the only types initially available to bankruptcy filers – may end up causing the same debt problems as before if not carefully managed.

Putting an end to creditor harassment in New Jersey

For residents of New Jersey struggling under the weight of insurmountable debt, every day can be a hassle. Particularly in instances where an individual lives under the constant strain of creditor harassment, the situation may feel hopeless. No matter how bleak, though, the good news is that there are options for tackling credit card debt and there are limits to what a creditor or collector can legally do or say when they call.

The Fair Debt Collection Practices Act explicitly forbids deceptive or abusive behavior. Regardless of how much money the caller is attempting to collect, there are a number of prohibited practices. First and foremost is harassment. Creditors are not allowed to swear or threaten the person they are calling, either physically or with threats of arrest. Debt collectors are also not permitted to lie; they cannot pretend to be someone they are not – like a lawyer or a police officer – and they cannot claim legal expertise, telling the person that he or she has committed a crime or claiming that certain papers are or are not legally binding documents if the opposite is true.

Chapter 13 bankruptcy offers debt relief to New Jersey residents

For New Jersey residents who are facing insurmountable debt but have incomes that make them ineligible for Chapter 7 bankruptcy, Chapter 13 may provide just the debt relief for which they are hoping. Chapter 13 bankruptcy, sometimes referred to as reorganization bankruptcy, reorganizes debts to allow the consumer to pay just a portion of the outstanding debts. Also known as a "wage earner's plan," Chapter 13 also allows the filer to keep assets, so it may be a great option for those worried about losing property or nonexempt assets.

A Chapter 13 bankruptcy filing, once approved, allows filers to repay a portion of their debts through a court-approved repayment plan that lasts either three or five years. After the plan has been completed, any remaining discharge-eligible debts are typically cleared away. In addition, if a medical emergency or other financial hardship – such as loss of employment – occurs that makes it impossible for the filer to complete the Chapter 13 repayment plan, there is the option to convert to a Chapter 7 bankruptcy. Or, the court may allow the filer to discharge the remaining debts due to hardship, or modify the repayment plan.

Tips to consider when filing for bankruptcy in New Jersey

For individuals struggling with insurmountable debt, they may be considering their options for finding relief. Whether filing for Chapter 7 or Chapter 13, personal bankruptcy is a decision that few residents of New Jersey take lightly. Bankruptcy provides protection for individuals who are so overwhelmed by debt that it has become unmanageable and impossible to repay. When this is the case, there are a few tips that may make the entire process more manageable.

One bright aspect is that individuals who have lost property such as a car, electronics or jewelry to repossession may be able to regain these items by filing for bankruptcy if fewer than 90 days have passed between the date of filing and the date of repossession. An important fact to remember, though, is that filing for bankruptcy does not ensure an individual will be able to keep his or her home. While a lawyer can offer advice on different methods to help keep the property, it may be dependent upon factors like having a second mortgage or a decrease in the house's value.

Some advantages of Chapter 13 bankruptcy in New Jersey

Residents of New Jersey struggling to pay their debts may not be aware that there are different types of bankruptcy. One type of bankruptcy filing, Chapter 13, is sometimes referred to as a wage earner's plan, and may offer hope for potential filers who did not meet the income eligibility requirements to file for Chapter 7 bankruptcy. Chapter 13 works as a debt reorganization plan, allowing individuals with a regular income to keep their property and assets and pay their debts over time.

Under Chapter 13 bankruptcy, filers propose a repayment plan to the court, usually over a time span of three to five years, depending upon income. As long as the secured and unsecured debts fall within the eligibility requirements, anyone is able to file for Chapter 13 relief, even if he or she is operating an unincorporated business or is self-employed. This provides the opportunity for filers to stop foreclosure proceedings and save their home. Of course, Chapter 13 filers must still make all mortgage payments on time during the Chapter 13 plan outline.

How Chapter 7 can help New Jersey residents with car loan debt

What happens when a New Jersey resident falls behind on car payments? Whether someone's car is voluntarily surrendered or is repossessed by the lender, there is still a chance that he or she will continue to be responsible for any excess on the outstanding loan. Situations like this are when filing for Chapter 7 bankruptcy may offer some relief. In fact, declaring personal bankruptcy may even help struggling individuals retain possession of their car in the first place.

When a car is repossessed, it is often auctioned off, with the sale price applied toward the remaining loan balance. Since a brand new car's value depreciates drastically after purchase, however, whatever amount the car is sold for usually does not cover the remaining loan balance. When this occurs, the consumer is still responsible for paying the leftover amount, known as a loan deficiency. Typically, though, if a person was unable to make car payments in the first place, he or she will still be unable to pay the loan deficiency amount.

Overwhelmed by New Jersey debt? Some benefits of Chapter 7

In New Jersey, trying to figure out whether personal bankruptcy is the right choice can obviously be a stressful decision. When an individual is feeling overwhelmed by mounting debts, however, filing for Chapter 7 can offer much-needed relief. Both in terms of lessening immediate stress and financial hassles in the short-term, and taking the first steps toward a more stable credit future in the long-term, Chapter 7 can offer a number of benefits.

The length of time it takes to complete the Chapter 7 process from filing to conclusion is almost always under six months, meaning that full debt relief is only a few months away. Additionally, most people are able to start applying for and receiving new credit lines to help work toward rebuilding their credit in only one to three years after filing. There are also lenders who focus specifically on lending options for people who find themselves in these situations.

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Goldman & Beslow, LLC is a Federal Debt Relief Agency by an Act of Congress. We have proudly assisted consumers seeking relief under the U.S. Bankruptcy Code for over 38 years.

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