|Answers to your questions
By Scott M. Itzkowitz and Nathaniel J. Webb III
Bankruptcy is a legal procedure established by the United States government whereby, as of the date of the filing, all your dischargeable debts are discharged (you donít have to pay them) and any non-exempt property, if any, you own is turned over to the Bankruptcy court. In Bankruptcy a person burdened by debts he or she is unable to pay can eliminate or restructure his or her debts. In Article 1, Section 8, Clause 4 of The Constitution of the United States the Congress was given the power to establish "uniform laws on the subject of bankruptcies throughout the United States." There are a variety of different kinds of Bankruptcy. Bankruptcy laws are found in Title 11 of the United States Code. The different kinds of Bankruptcy are usually referred to according to which chapter of Title 11 describes it: Chapter 7 or Chapter 11.
Simply put, all that is required is that you cannot afford to pay your bills as they come due. Chapter 13 has three (3) additional requirements; first that the debtor have a regular source of income and second that the plan provide for payment to creditors of more than they would get in Chapter 7, and third that the debtor have less than $360,475.00 in unsecured debts and less than $1,081,400.00 in secured debts. Chapter 12 is similar to Chapter 13, except that the debtor must be a family farmer.
Basically there are four (4) different types of Bankruptcy, Chapter 7, Chapter 11, Chapter 12 and Chapter 13. After you describe your particular situation, your attorney will assist you in deciding which is best for you.
Chapter 7: Chapter 7 is also called "straight Bankruptcy." It is what most people think of when they think of Bankruptcy. In Chapter 7 all dischargeable debts are eliminated and a debtor keeps all exempt assets (In the vast majority of cases, all of the debtorís assets are exempt and therefore are kept by the debtor. In the rare instance that a debtor had non-exempt assets they would be sold by the court and the proceeds divided among his or her creditors.
Chapter 11: Chapter 11 is a reorganization type Bankruptcy for debtors with more than $360,475.00 in unsecured debts. In Chapter 11 your creditors may have the right to vote on your plan to reorganize or to propose an alternative plan. Very few consumers have reason to file under Chapter 11, it is generally reserved for large companies or corporations. Detailed discussion of Chapter 11 is beyond the scope of this article.
Chapter 12: Chapter 12 is a reorganization type bankruptcy for family farmers. If you are a farmer this may be the best type bankruptcy for you. Often family farmers can reorganize there debt (and eliminate some) and continue to farm on their own land.
Chapter 13: Chapter 13 is a reorganization type bankruptcy for ordinary consumers with less than $360,475.00 in unsecured debts and less than $1,081,400.00 in secured debts. In Chapter 13 a debtor files a plan of reorganization with the court. If the debtor's plan proposes to pay creditors more than they would have received in a Chapter 7 proceeding it will be approved. Often a Chapter 13 debtor is able to keep assets that would not be exempt in Chapter 7 and to discharge (eliminate) debts that would have remained after a Chapter 7.
Most debtors are able to keep all their property.
Under New Jersey law, a debtor has the choice of using the New Jersey exemptions or the Federal exemptions, the Federal exemptions are much more liberal and are generally the ones chosen by New Jersey debtors. Section 522 of the United States Bankruptcy Code sets out what property is exempt from being taken by creditors. Generally the following property which most debtors are concerned about is exempt:$20,200.00 worth of the total of: equity in a home used for the principal residence of the debtor or a dependent of the debtor; the debtor's interest in one automobile up to $3,225.00 (Value minus debt); household furniture, clothing and other household goods up to $10,775.00 total, but no more than $525.00 per item; jewelry of the debtor, up to $1,350.00; any other property which debtor claims exempt up to $1,075.00 plus up to $10,125.00 of the remainder of the household goods exemption; $2,025.00 worth of implements, professional books, or tools of the debtor's trade; up to $10,775.00 interest in a life insurance policy; professionally prescribed health aids; social security benefits; unemployment compensation; local public assistance benefit; a veteranís benefit; a disability, illness, or unemployment benefit; alimony, support, or separate maintenance, to the extent reasonably necessary to support the debtor or his dependents; a payment under a stock bonus, pension, profit-sharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary to support the debtor or his dependents with some rare exceptions; and property traceable to one of the following; a crime victimís reparation award; wrongful death payments if the debtor was a dependent of the deceased, to the extent reasonably necessary to support the debtor or his dependents; a life insurance contract payment, if the debtor was a dependent of the deceased, to the extent reasonably necessary to support the debtor or his dependents; up to $20,200.00 worth of payments for personal bodily injury, not including pain and suffering or pecuniary loss payments; a payment in compensation for the loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent to the extent reasonably necessary to support the debtor or his dependents. In a Joint Bankruptcy, husband and wife may each be able to claim exempt property, thereby doubling the amount of property claimed exempt.
Other property may be exempt. If you have a question ask your attorney. All property must be listed. If you have taxable property (real estate, automobiles, mobile homes or boats), you must bring in your tax assessments.
If you owe money to a secured creditor who has the right to repossess or foreclose on property, you must make arrangements to pay for the property in order to keep it. If your payments are up to date you may continue to make the monthly payment. If you are behind on your payments or the property is not worth as much as you owe on it, a Chapter 13 plan may be the way to go to keep your property. Chapter 13 is explained below.
Chapter 13 is not for everyone. Most debtors file under Chapter 7. The requirements for a Chapter 13 plan to be approved by the court are that the debtor cannot pay his debts as they come due and the plan proposes to pay creditors more than they would get in a Chapter 7 proceeding. When a debtor's plan is accepted he or she will make payments by payroll deduction to the trustee appointed by the court. The trustee will pay the creditors as the plan directs.
There are circumstances when Chapter 13 will help a debtor. They include:
NON-EXEMPT PROPERTY When a debtor has more property than he or she can claim exempt (such as a house or car that is paid for, or mostly paid for), he or she can propose a plan that will pay at least the value of the non-exempt assets entitling the debtor to keep all the property. This is especially true when the debtor has more than $20,200.00 equity in his house.
SECURED DEBTS If you owe more money on a car or furniture than it is worth, a Chapter 13 plan may make it possible to keep the property and pay the fair market value of that property (as of the time of filing) to the creditor in the Chapter 13 plan. If the property is worth at least what is owed on it or you have fallen behind on the payments, a Chapter 13 plan can either provide for the payment of the debt in full, or catch up the back payments with the debtor paying the future payments as they come due.
CO-DEBTORS Chapter 13 plans can provide more protection for your co-debtors (cosigners and joint debtors) than Chapter 7.
PAST OR FUTURE BANKRUPTCY If you previously filed under Chapter 7 you cannot file Chapter 7 again until after 6 years have passed. If you previously filed under Chapter 13 and your plan paid 70% of your debts, you may file Chapter 7 or 13 before 6 years have passed.
On the first day of the month beginning after the filing of the Chapter 13 Plan, the debtor must make his or her first plan payment. FAILURE TO MAKE THE FIRST PLAN PAYMENT ON TIME WILL RESULT IN THE CASE BEING DISMISSED. When a debtor's plan is accepted, he or she will be required by the court to make plan payments to the trustee appointed by the court. The trustee will pay the creditors as the plan directs. WHEN A DEBTOR IS KEEPING A HOUSE OR CAR, BUT CATCHING UP THE LATE PAYMENTS IN A CHAPTER 13 PLAN, HE OR SHE MUST MAKE THE REGULAR PAYMENTS ON THE HOUSE OR CAR STARTING WITH THE FIRST PAYMENT DUE AFTER THE FILING OF THE CHAPTER 13.
No. The Bankruptcy code divides debts into three main categories: Secured debts (debts for which the creditor has the right to take and sell collateral if the debt is not paid on time, such as car or home loans); Priority debts (debts that are legally entitled to priority treatment in the Bankruptcy Code, such as taxes); and General unsecured debts (debts for which there is no collateral and which are not entitled to special treatment, such as loans, credit cards and medical bills, this is the everything else category).
In a Chapter 7 Bankruptcy secured creditors can be dealt with in a variety of ways. The debt can be discharged without further payment if the property is returned to the creditor. The debt can be reaffirmed (an agreement to pay the debt after Bankruptcy) and you can keep the property. The property may be redeemed by paying the creditor the current fair market value of the property, which is in many cases much less than what is currently owed. The lien may be avoidable or void in Bankruptcy; such as non-purchase money lien on household goods granted to a finance company. If you have a debt for which there is collateral and you do not pay the debt or make some arrangement for it in your Bankruptcy, the creditor could wait until after the Bankruptcy Case is over and sue for the return of the property.
In a Chapter 13 Bankruptcy there is the additional option to pay the secured creditor inside the Chapter 13 Payment Plan.
There is a special rule for mortgages on a debtors principal place of residence; a mortgage lender cannot receive less than the full amount due under the mortgage agreement if the debtor intends to keep the house.
Certain debts are not dischargeable in Bankruptcy including: (1) Educational loans which are guaranteed by any governmental agency; (2) Taxes, generally, are not dischargeable (unless tax returns were filed on time or within an extension period granted by the Internal Revenue Service and are more than three years old.); (3) Fines and court costs resulting from punishment for criminal or traffic matters; (4) Money owed to a victim in a traffic accident in which the debtor was driving drunk; (5) Child or spousal support, and alimony are not dischargeable; and (6) debts that were incurred as a result of fraud, larceny, embezzlement or under similar circumstances
If you have cosigners, they will continue to be liable for the debt even though your bankruptcy will discharge your liability on the debt.
If you discharge debts owed to Public Utilities, such as GPU, PSE&G or Bell Atlantic, you may have to pay a deposit for future service.
If a debt is not listed or is not properly listed, your liability to pay it may not be discharged.
The following are some important things to remember during a Bankruptcy case:
1. Notify your attorney of any change of address or telephone number.
2. Do not voluntarily allow any person other than the Bankruptcy Court to repossess your property without first speaking with your attorney.
3. Do not sign any new loan or credit papers without first talking with your attorney.
4. Do not charge anything to your credit cards or revolving credit accounts.
5. If you remember a creditor, any property, or some income, you accidentally forgot to list, immediately notify your attorney. Intentional failure to list a debt or property could be interpreted as fraud and could result in the loss of the property not listed, non-dischargibility of the specific debt, or, in a bad enough case, dismissal of your Bankruptcy without discharging any of your debts. Additionally, the FBI could be called in to investigate Bankruptcy Fraud.
6. Do not sell or give away any property during (or just before) your Bankruptcy.
7. If a creditor calls, do not talk to him, refer him to your attorney.
8. If you receive any letters, warrants, bills, garnishments or other attempts to collect a debt after filing Bankruptcy, bring them to your attorney.
Attorney at Law
2007 Scott Itzkowitz, Attorney at Law