New Jersey Bankruptcy Law Blog

More older Americans going to bankruptcy court over medical bills

Bankruptcy was once rare among older adults, but now people 65 and older account for 12% of personal bankruptcies compared to just 2% in 1991. Medical debts produce much of the financial hardship among older people in New Jersey as they grapple with dwindling incomes and depleted savings. Among those 65 and older who filed for bankruptcy, 60% of them cited high medical bills as their reason for seeking a discharge or reorganization of debts.

The bankruptcy trend among older adults was made clear in a report researched and written by a law professor. According to the report, the number of people age 55 to 64 seeking bankruptcy protection increased 66% from 1991 to 2016. People 65 to 74 experienced an enormous 204% increase in bankruptcies during the same period.

Understanding how extended bouts with debt could affect your life

It may come as no surprise that dealing with the trials of financial strain can be a stressful and intimidating experience. Unfortunately, debt can come in various forms and fashions, each of which could have a lingering impact on your life and leave you in search of advice on the available options for relief.

If you begin to experience prolonged periods of monetary hardship, you may be feeling somewhat reluctant about choosing a path for relief due to the possible consequences involved. However, when it comes to seeking relief, time may be of the essence as issues with debt could impact your future in numerous ways.

Homeowners look to bankruptcy for escape from debt

New Jersey homeowners facing financial difficulties could find themselves suffering even greater losses as a result of a tax break that expired. Since 2008, people who had their mortgage debt forgiven through a foreclosure or short sale could claim an exemption from being taxed on the forgiven debt. They could exclude up to $2 million in forgiven mortgage debt from their taxable income. However, this exemption, like other temporary tax breaks, expired at the end of 2017 and has not been extended. Therefore, a homeowner who was unable to pay the mortgage until ending the situation with a foreclosure or short sale may be taxed on the amount of the forgiven debt.

Of course, most people who claimed this tax break were already going through severe financial hardship. Some experts note that personal bankruptcy could be an option to avoid the additional debt, so long as homeowners file for Chapter 7 before their taxes are assessed for the year. Once a tax debt is already in place, it is more challenging to discharge it through the bankruptcy process. Bankruptcy does not address just one insurmountable debt; people would also seek debt relief from their medical bills, credit card debts and car loans through this process.

Debt collectors and old debt

People living in New Jersey and around the country are sometimes contacted by debt collectors regarding very old accounts. In many cases, this kind of contact is legal, but it does not mean that the debt is valid or that the debtor is at risk of a lawsuit or other adverse actions.

When it comes to debt, people sometimes confuse debt collection activity with the length of time negative information can remain on credit reports. In the United States, negative information about most debts can remain on a credit report for seven years. However, a debt remains valid even after information about it is no longer included in a credit report. This means that the original creditor, or collection agency, can continue trying to collect the debt.

The cost of filing for bankruptcy

New Jersey residents and others who are thinking about filing for bankruptcy should know that it can cost up to $4,000 or more to do so. Filing fees and attorney fees represent the bulk of that cost, and individuals will also likely need to pay for credit counseling and debtor education courses. Individuals who are filing for Chapter 7 bankruptcy will pay a $335 filing fee while those who are filing for Chapter 13 bankruptcy will pay $310.

Those who wish to switch from a Chapter 13 proceeding to a Chapter 7 proceeding will need to pay $25. In a liquidation proceeding, the filing fee may be waived or paid in installments. However, the fee must be paid upfront for those who are filing for Chapter 13 bankruptcy protection. Attorneys usually charge at least $1,000 to represent debtors in Chapter 7 proceedings, and they can charge up to $3,500 or more in a Chapter 13 case.

Overwhelming debts could qualify people for bankruptcy

Unforeseen events, like a medical crisis or job loss, sometimes overwhelm debtors in New Jersey and leave them unable to pay bills. Poor spending habits might result in crippling debt. Regardless of the reasons behind financial troubles, bankruptcy law sometimes enables people to discharge or reorganize their debts and start fresh.

When thinking about filing for bankruptcy, debtors often worry about the long-term effects on their credit score and credit report. A bankruptcy will appear on a credit report for seven to 10 years. Credit scores also decline. A Chapter 7 bankruptcy filing might reduce a credit score by 200 points. After the initial drop, however, credit scores can recover.

Bankruptcy filings among consumers 65 and older

A great many residents in New Jersey remember the recession and the impact it had on their lives all too well. From losing 401K savings to seeing a home's equity plunge well below the amount owed to a lender and more, consumers everywhere struggled to make their way through. Many people turned to the bankruptcy courts for help to get a fresh start.

According to MarketWatch, in September of 2010, there were 1.53 million new consumer bankruptcy filings made all across the United States. This certainly reflected the times and no doubt many people were grateful to have this option available to them. As the nation's economy rebounded and many individuals found themselves get back on a better financial footing, it may be expected that the number of bankruptcy filings may drop.

Has sudden job loss left you with financial problems?

When you first got your job, you may have envisioned yourself creating a career and moving up the ranks of the New Jersey company until you reached the highest position possible. You likely hoped that your drive and ambition would help you excel and achieve those goals. Unfortunately, despite your best efforts, a sudden event derailed those goals.

When your boss called you into his or her office, you may have hoped that the time had come for you to receive a promotion. Instead, you received the disheartening news that the company was letting you go. You may have never planned for such an outcome, and now, you understandably feel lost.

Does bankruptcy stop bill collector calls?

Bill collectors and collection agencies in general tend to be aggressive and persistent. There are not very many good ways to stop them in New Jersey, but filing for bankruptcy could help. In fact, there are certain benefits associated with bankruptcy that could stop a variety of collection or repossession actions against you.

Please remember that this is only one aspect of whether bankruptcy is right for your situation. Also, this article does not differentiate between Chapter 13 and Chapter 7 bankruptcy, another important decision you would want to be informed about.

How do I qualify for Chapter 13 bankruptcy?

You may be considering filing for Chapter 7 or Chapter 13 bankruptcy if you are struggling with your finances. While both options may provide some relief from your debt and give you a better financial future, it is important to note the ways in which these bankruptcy types differ. Chapter 7 bankruptcy gives New Jersey residents a “clean slate” from most of their debt, while Chapter 13 bankruptcy involves a repayment plan.

There are also qualifying factors that you should know about. Chapter 7 bankruptcy is typically for people who are unable to repay their debt. Having your debt discharged can be a great relief, but you may lose certain assets, which would be liquidated to satisfy creditors before the remainder of your debt is discharged. Therefore, if you wish to keep your home and other assets, and if you have a steady source of income, Chapter 13 may be the better option.

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