<h2>New Jersey Lawyer Explains How A Second Property Is Handled In A Chapter 7 Case</h2>
Keeping a second house in a New Jersey chapter 7 case is much different than keeping a second house in a chapter 13. In a chapter 7, no monthly payments are required. Therefore, the court and trustee are not concerned about the debtor paying all of their disposable income into a chapter 13 plan. The bankruptcy laws simply focus on the chapter 7 criteria.
As stated simply and concisely, there are three criteria of a chapter 7. 1) The value of the debtor(s) assets, after reducing any secured debt, may not be substantial. 2) The debtor’s gross household income for the six months prior to the bankruptcy filing must be less than the average income of a New Jersey Household of the same size. Or, in the alternative, the debtor(s) have substantial, but reasonable and necessary monthly expenses that exceed the average monthly net income for the six months prior to the filing. 3) The debtor(s) projected future monthly net household income is less than the debtor’s household’s projected future monthly necessary and reasonable expenses. In other words, the debtors cannot have any disposable income, after payment of their necessary and reasonable expenses that are needed to live.
The debtor must include all reasonable and necessary expenses that are required to live, including, but not limited to the following: mortgage on the house the debtor resides: food; clothing; utilities; auto finance payment; auto insurance payment. The debtor may not use an unnecessary monthly payment on a second luxury beach house as a legitimate, necessary and reasonable expense. In other words, the bankruptcy criterion requires the debtor to be in the red without the monthly beach house mortgage payment.
There is an exception to this rule, if the debtor’s beach house has a net monthly profit, In other words, if the debtor is earning a monthly profit from rent, after the expenses from the house, the debtor must include the rental income, minus the house expenses. Under this scenario, the rental income is deemed a profitable business.
If the beach house does not have a substantial value and the debtor meets all of the other chapter 7 criteria, the bankruptcy laws do not allow the court and/or the trustee to take the house. In other words, under this scenario, the debtor may keep the house through the New Jersey bankruptcy. However, based on this scenario, the debtor has insufficient income to make the necessary house payments to keep the house. Therefore, unless the debtor can somehow determine how to keep the house, the house will be lost through foreclosure, but not through the bankruptcy.
Robert Manchel, the NJ. bankruptcy practitioner may be contacted at 866 503 5644.