New Jersey Bankruptcy Blog

Protecting a car through bankruptcy

A car loan, like a mortgage, is also a secured debt. However, car loans are treated much differently than mortgages by the Bankruptcy Code. There are a number of reasons for this, not the least of which is that a car depreciates in value from the moment it is driven off a lot, whereas homes tend to appreciate in value. Additionally, real estate, on which a mortgage is placed, is “unique” and has always been treated differently than personal property under the law. This does not mean that a person who files bankruptcy will lose or have to surrender his or her car. In fact, in the vast majority of cases, debtors are able to retain their cars.

In a Chapter 7 filing, debtors must file a “Notice of Intention” with regard to their secured debts. This form lets the secured creditor know what the debtor intends to do with the property on which there is a secured debt. For example, a debtor could decide to surrender the property and no longer pay the creditor anything. If, instead, the debtor decides to keep a car on which there is a lien, he must “reaffirm” the debt. In the simplest terms, a reaffirmation agreement operates as a new post-petition contract with the lender. Because the reaffirmation agreement is post-petition, rather than pre-petition, the debt represented by the reaffirmation agreement is not discharged. If the debtor later defaults on his payments, the creditor can not only repossess the vehicle, but can also proceed to sue the debtor personally.

Reaffirmation agreements can be a real benefit to the Chapter 7 debtor. If enough time passed from when the car was purchased to when the bankruptcy petition is filed, the debtor can reaffirm for the fair market value of the vehicle, rather than the amount owed, if the amount owed is higher. For example, if the car has a value of $5,000.00, but the debtor still owes $10,000.00 pursuant to his pre-petition financing, he can reaffirm for $5,000.00 only, lowering his monthly payments substantially. As this is a remedy unavailable outside of bankruptcy, it is very important to let your lawyer know when you purchased any vehicle on which you have a car payment, so that he may negotiate the best terms for you.
Reaffirmation agreements also help Chapter 7 debtors reestablish credit after the completion of their bankruptcy. Unlike other discharged debt, a reaffirmed debt on a car will be listed on one’s credit report as “paid as agreed”, so each payment can help a discharged debtor prove his or her worthiness to be extended credit in the future.

Chapter 13 debtors are also able to protect their cars through the Plan they file with the court. If a debtor is in arrears – behind on their payments – they can pay the arrears through the plan, and make their current payments outside of the plan, directly to the lender. For example, if a debtor’s monthly payment is $500.00 per month and he is 3 months late, the $1500.00 he owes to the lender can be “cured” through the plan – basically, spread out over 36 to 60 months, while he proceeds to pay the regular $500.00 payment directly to the lender. The Chapter 13 debtor can also reduce the total principal that is due the lender, in the same way that a Chapter 7 debtor can, by “cramming down” the amount which needs to be paid to the fair market value of the vehicle if it is less than the amount owed, and enough time has passed since the vehicle was purchased.

With all of the above, it is important to note that the Bankruptcy Code allows only a certain amount of equity value in a vehicle to be “exempted” by debtors. The necessity of owning a vehicle in order to commute to work and live one’s daily life is understood and addressed by the Code and the court. The desire to own a luxury vehicle, however, is not. A debtor with a Rolls Royce will have a hard time justifying retaining that vehicle when it could either be sold by the trustee to obtain significant funds for the unsecured creditors or when the payments previously made on that vehicle could instead be made to the unsecured creditors through a Chapter 13 plan.

Because the timing of the filing of the petition is crucial to a determination of whether a loan can be “crammed down” and because, in Chapter 7, a Notice of Intention must be timely filed, it is important that debtors communicate clearly with their attorney about their wishes regarding their cars. Additionally, it is important that any Reaffirmation agreement be reviewed, and negotiated if appropriate, by a competent attorney to make sure that the debtor is not only able to retain his vehicle, but can do so under the best possible terms allowed by the Bankruptcy Code.

Robert Manchel,NJ.bankruptcy practitioner, will explain your bankruptcy options regarding your auto.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Lien “Avoidance”

One of the important ways that a bankruptcy filing protects a debtor is by giving him the ability to “avoid” judicial liens against his property, a process which cannot be accessed outside of bankruptcy. This process works as follows:
As noted above, a debt owed to an unsecured creditor is discharged through bankruptcy. When the debt is unsecured, that unsecured creditor has no claim upon the real estate or other property of the debtor. If, however, the unsecured creditor files a lawsuit and obtains a judgment and lien against that debtor prior to a bankruptcy filing, that judgment is a lien upon the debtor’s property. All liens against a debtor’s property survive the bankruptcy – unless they are successfully “avoided”.

For example, consider a debtor with a $100,000.00 house and a $90,000.00 mortgage. He has $10,000.00 in equity in his home. If he also owes a credit card lender $10,000.00 and that lender gets a judgment lien against him for that amount, that judgment becomes a lien on the real estate, secondary to the mortgage. Now the debtor has no remaining equity. If the debtor then sold his home for its $100,000.00 value, he would have to pay the mortgage as well as the judgment lien from the proceeds and so would receive nothing at the sale.

If that same debtor filed for bankruptcy prior to the sale of his home, he could file a Motion with the Bankruptcy Court to “avoid” the credit card company’s lien. He is able to do this in order to protect the exemptions which Section 522 of the Bankruptcy Code gives debtors in their property. If a judicial lien – such as one obtained through a lawsuit – impairs one of the exemptions provided by the Bankruptcy Code, a debtor has the right to have that lien avoided – or lifted. Since the debtor is provided an exemption in his real estate, the lien “impairs” that exemption and it can be avoided. Once the lien is avoided, the debt is now simply an unsecured debt; the lien created by the judgment no longer exists. After having the lien avoided, if the debtor later sold his property for its $100,000.00 value, he would receive the $10,000.00 in equity.

In order to make sure that any liens that can be avoided are addressed, it is important that every debtor give their attorney all possible information concerning any lawsuits which have been filed against him. Often, however, due to stress and other factors, a debtor may not be aware of a lien. A bankruptcy attorney may perform a search of court records as well as the debtor’s credit reports to uncover any judicial liens that would be subject to lien avoidance. The attorney may then file a motion with the court, notify the creditor to allow them to answer the motion, and obtain an order from the Bankruptcy Court avoiding the lien. This order is then presented in the state court where the lien is recorded so that the lien is stricken.

Since liens survive a bankruptcy filing, if the avoidance motion is not timely filed, a debtor may find he is forced to pay a previously unsecured creditor even after his discharge. In certain instances, if the debtor is discharged without the Avoidance Motion being filed, he can request that his case be re-opened to allow for the filing of the motion.

You may contact Robert Manchel, the bankruptcy expert in New Jersey, at 1 (866) 503-5655, to discuss whether you can eliminate judicial liens.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

One of the most common questions posed to me by potential Chapter 7 bankruptcy clients is, “Can I keep my vehicle after filing Chapter 7 bankruptcy?” The answer to this question, like most legal questions is, “it depends”. As a New Jersey bankruptcy attorney, it is my job to counsel clients on whether or not they can retain their car should they decide to file for Chapter 7 bankruptcy. When consulting with a client, I ask the potential filer the following questions:
Is the fair market value of the vehicle greater than the loan balance?

If you have equity in your vehicle it may be at risk for potential sale by the Chapter 7 trustee. Chapter 7 bankruptcy is designed to “wipe out” your unsecured debts; but there is a catch. If you own property in excess of the Bankruptcy Code’s exemptions, the bankruptcy trustee may sell some of it, with the proceeds going to your creditors. Bankruptcy law allows a filer to keep a certain amount of property away from those creditors. These laws are known as exemptions. In the state of New Jersey, a filer is allowed to have up to $3,450.00 of equity in a vehicle without losing it. If the vehicle has equity in excess of the exemption amount, the trustee may allow you to buy out the equity, and if that is not possible, the vehicle will be sold to pay creditors.

However, even if you have no lien on the vehicle, or are unable to exempt the full amount of the vehicle, the trustee may still abandon it (decide not to sell) if it is not worth much. This happens if the costs associated with selling the property and the trustee’s fee may mean that after the sale, there is little left for creditors. For example, if your vehicle has equity in the amount of $4,000, the trustee will probably let you keep it even though the value is in excess of the exemption amount, because there likely won’t be anything left over after the cost of selling it.
Is the fair market value of the vehicle less than the loan balance?
Many potential filers are “upside down” on their car notes, meaning that the fair market value of the vehicle is far less than the balance of the loan. In situations like these, you do not have to worry about the trustee attempting to sell the vehicle. However, if you wish to retain the vehicle, you must continue making regular payments to your finance company. This leads into the final and sometimes most difficult question to answer.Can you afford to continue making your car payments?

If you are unable to afford your monthly payment or if you just do not want the vehicle anymore, it can be surrendered. Surrendering a vehicle means you give it back to the creditor and the remaining debt is discharged. You can simply walk away from the vehicle owing nothing. If you can afford to make the payment and want to keep the vehicle, then you can reaffirm the debt. By signing a reaffirmation agreement, you are agreeing to still be responsible for the entire loan amount after the Chapter 7 bankruptcy is discharged. This means that should you default on payments after the case is discharged, the creditor can repossess the car and you will be held responsible for the remaining balance.

If you are worried about keeping your vehicle after a Chapter 7 bankruptcy, speak to attorney Robert Manchel to discuss your situation. As an experienced New Jersey bankruptcy practitioner , I can explain the options of surrender, reaffirmation, and redemption in greater detail. I will be able to help you plan on how to keep your vehicle well before your Chapter 7 case is filed.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Chapter 7 debtor

In a chapter 7 bankruptcy case, the entire process lasts about 5 months from the filing, until discharge. Typically, it is unusual for a trustee to sell a debtor’s property. Therefore, generally, the debtor may keep their real estate and personal property through the bankruptcy procedure. The only issue is whether or not the secured creditor will take the property, such as a mortgage company or auto finance company.

A chapter 7 discharge, eliminates the creditor’s right to pursue the debtor for money damages. However, if a debtor is in default with their mortgage, the mortgage company may file a foreclosure action to take the house. If the debtor is in arrears with their auto payment, the finance company may repossess the auto. .

A chapter 7 debtor may change their initial intention of surrendering their real estate to keeping their real estate and vise verse. However, the debtor must resolve the default issues directly with the mortgage company. In other words, if the debtor is in default, he may resolve the mortgage issues by curing the arrears or by working out a loan modification. The matters may be resolved after the debtor receives his bankruptcy discharge. However, when the house is sold at sheriff’s sale, the debtor’s right to resolve the mortgage issues are terminated, as the mortgage company takes ownership of the property.

Typically, a debtor may change his intention regarding his decision as to whether to surrender or keep the vehicle. In most situations, if the debtor is current with the finance payments, he may keep the auto. If the debtor is not current, the finance company will repossess the auto. This information does not consider reaffirmation agreements.

Chapter 13 debtor

A chapter 13 debtor is required to make monthly payments to a trustee for a period of 36 to 60 months. The plan period must be for no less than 36 months, unless the debtor is paying all creditors 100% in less time. If the household income of the debtor is in excess of the average income of a household of that size in New Jersey, some judges will require that you make monthly payments for a period of 60 months. The monthly payments must be no less than all of the debtor’s disposable income.

Some debt, such as certain taxes and child support arrears, must be paid through the monthly trustee payments, under any and all circumstances. However, there are other creditors who are paid voluntarily, through the plan, such as mortgage and auto arrears. A debtor may save their house or auto by paying the arrears through the monthly payments. A debtor may change their mind at any time during the chapter 13 plan and surrender their house or auto, due to loss of income, or other circumstances.

If the debtor changes his mind, he may file a modified plan, which will likely result in modified monthly payments. However, as said, the monthly payments, must continue to be no less than the debtors’ monthly disposable income. If the debtor no longer has monthly disposable income, the debtor may possibly qualify and convert to a chapter 7 bankruptcy.

Please call Robert Manchel, NJ. bankruptcy expert, at 1 (866) 503-5655, to discuss your bankruptcy options.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

In general, upon the filing of the bankruptcy case, all of the debtor’s property is included in the bankruptcy estate. In a chapter 7, the debtor can keep all property that has low equity or value. Although unusual, if the debtor owns property with substantial value that exceeds the amount of the allowable exemptions, the trustee may be permitted to sell the property. In the event that the debtor owns property with substantial value, the debtor may wish to keep the property by filing a chapter 13 case, and making a monthly payment to the trustee that is commensurate with the property value.

There is certain property that is not included in the bankruptcy estate, no mater the value. “Employee Retirement Income Security Act” (ERISA) qualified retirement plans, such as an: IRA; SEP; employee pension plan, 401k and 403b, are the type of property that is not included in the bankruptcy estate. This means that no matter the value of the retirement plan, the debtor may continue to hold the funds in the account, which will not be included as the debtor’s property.

In chapter 7 and 13 cases, the court requires the debtor to complete two analysis’ to determine the debtor’s monthly disposable income. One analysis is called the Means Test or Current Monthly Income Test and the second test is a comparison of the debtor’s projected income on schedule I, and their monthly expenses on schedule J. In a chapter 7, the debtor may not have any monthly disposable income. In a chapter 13, the debtor must make monthly payments to the trustee, that are no less than the debtor’s monthly disposable income.

Typically, a chapter 7 debtor may use as a legitimate expense any monthly payments for a required (involuntary) pension contribution and payments regarding a pension loan. However, if the pension contribution is not required, the monthly payment, cannot be deducted and used as an expense. However, a chapter 13 debtor may use as an expense, voluntary or non voluntary contribution payments for a pension and payments for a pension loan. Typically, a New Jersey State or local government employee is required (involuntary) to contribute to his pension and an employee of a private company is not required to contribute to his pension.

Please contact the NJ. consumer bankruptcy attorney, Robert Manchel, at 1 (866) 503-5655, for questions about how bankruptcy deals with retirement plans.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

In general, bankruptcy deals with debt that was incurred prior to the filing. In a chapter 7, the bankruptcy filing, has no effect on debt that was incurred after the filing. This means that if the debtor finances a car or uses a credit card after the filing, the creditor may pursue the debtor for the collection of the debt.

A debtor has the option of converting their chapter 13 case to a chapter 7. In the event that a debtor incurs debt after the filing of a chapter 13 and prior to the conversion, the debt is treated as though it was incurred prior the chapter 13 filing. This means if the debt is typically dischargeable in a 7, than the debt will be discharged.

Any debt incurred by a chapter 13 debtor during the bankruptcy plan, has the right to wait until the completion of the case to pursue the debtor for any default or funds due to the creditor. However, certain chapter 13 creditors who lent funds to the debtor, after the filing, have the right to receive payment by the trustee, through the bankruptcy plan.

If a chapter 13 debtor incurs tax debt after the filing, the taxing entity may require the debtor to pay the debt during the balance of the trustee payment plan. Also, if the chapter 13 debtor incurs domestic support debt after the filing, the court will require that the debtor cure this debt, prior to receiving a discharge.

In a New Jersey chapter 13 bankruptcy case, if the debtor incurs a consumer debt that is necessary for the debtors performance under the plan, such as auto financing, the creditor may file a claim. The claim must be handled and paid, in compliance with the manner in which claims of that type are normally paid. Please note that if a chapter 13 debtor wishes to borrow money, she must first request approval from the trustee or court.

If a debtor incurs a debt, in a chapter 13, that is not necessary for performance of the plan, and not for an after filing tax liability, and not for a domestic support obligation, the debtor and the creditor must agree to include the creditor’s claim in the bankruptcy case, in order to be paid by the trustee.

You may wish to contact the experienced New Jersey Chapter 7 and Chapter 13 Bankruptcy Lawyer, Robert Manchel at 1.866.503.5655.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Prior to the filing of any bankruptcy case, an individual must obtain debt / credit briefing, within 180 days prior to the filing. The briefing or counseling session is a specific kind of counseling that is tailored for bankruptcy. The briefing must be provided by an agency that has been approved by the Federal Court of the District in which the person is filing for bankruptcy protection. At present, there are about 67 approved agencies, by the State of New Jersey.

After the briefing, the agency will provide a certification indicating the agency’s name, the counselor’s name, and the name of the individual(s) who completed the counseling. This certification must be filed with the court, together with the bankruptcy petition. The court allows a very limited excuse for non-compliance, due to exigent circumstances.

At the commencement of the counseling, the counselor must be notified that the purpose of the briefing is for bankruptcy. This should not be confused with debt consolidation counseling, which is an attempt to reduce one’s debt or monthly debt payments.

The Agency should offer the briefing by telephone and internet and permit both spouses to obtain the briefing together, at the same time. The entire session should last about one to two hours.

The counseling consists of the following. The counselor asks for detailed financial information, the individual’s household income, expenses, and liabilities. The representative may complete a budget and explain how an individual could reduce their expenses. Also, the counselor should provide information as to where one can find coupons and businesses, where a consumer may save money.

Please call Robert Manchel, aNJ. bankruptcy practitioner, at 1 (866) 503-5655, to discuss bankruptcy.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Many clients ask if they can keep certain creditors out of the bankruptcy case, such as debt owed to a friend or relative. The simple answer is no. All creditors must be included in the case.

A personal loan that is due to a friend is unsecured, which is the same classification as credit card debt. The bankruptcy code requires that all unsecured creditor be treated equally. Therefore, if a chapter 13 debtor is paying a monthly trustee payment, which includes $100.00 that is to be paid towards unsecured debt, the monthly amount distributed to unsecured creditors must be distributed pro-rata to all unsecured creditors. Also, this means that the debtor cannot make payments directly to the friend or relative that is not included with the trustee payment.

Along this same theory, if a debtor is only having problems with their credit card debt and not their house, the house must be included as an asset and the mortgage company must be included as a secured creditor. However, the inclusion of the house and mortgage does not mean that the house will be taken by the bankruptcy trustee. Quite the contrary, it is extremely unusual for the court trustee to take someone’s property. However, if the debtor is behind with their mortgage payments and they are unable to cure the arrears, typically, the mortgage company will permitted to pursue their foreclosure action

The debtors must also include there auto as an asset and the auto finance company as a secured debt. It is very unusual that the court trustee will take the debtors’ auto. If the debtor is in arrears with their finance payments and cannot cure the arrears, typically, the finance company will be permitted to repossess the auto.

You may wish to contact theNew Jersey Bankruptcy Expert, Robert Manchel, at 1 (866) 503-5655, to discuss how creditors are treated in bankruptcy.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Chapter 13 Bankruptcy Hearings

There are two bankruptcy hearings in a New Jersey chapter 13 bankruptcy case. The first is called the Meeting of Creditors (MOC) or 341(a) hearing. The second is called the Confirmation Hearing.

The MOC is never held in a courtroom and a judge is not permitted to preside at the hearing. The MOC hearing is conducted in a Newark office building, in connection with Newark filed cases. This hearing is scheduled at the Robbinsville trustee’s office, in connection with the Trenton filed cases, and in a Camden or Northfield office building, for Camden filed cases.

The chapter 13 trustee or his/her counsel conducts the hearing and asks the debtor questions. Although permitted, it is very unusual for a creditor to appear and ask questions. The hearing lasts about 8 to 15 minutes. The hearing is recorded and the debtors must bring a photo id. and proof of their social security number. The questions pertain to the following: identity of the debtors; ensure accuracy and completeness of the petition; asset values; prior and future income and expenses.

The second hearing is called a Confirmation Hearing, which is always at the appropriate courthouse. The debtor need not appear at the hearing. Only the debtors’ attorney must appear at the hearing. However, creditors who object to the plan may appear. The purpose of the hearing is to ensure that the debtors’ monthly trustee payments are accurate, which typically requires a payment adjustment.

At the hearing, the trustee or his/her counsel review the following to determine the required amount of the monthly payments: debtors’ bankruptcy plan; creditors’ claims; type of debt; debtors’ asset values; and, debtors’ income and expenses. If the debtor or the objecting creditor does not agree with the trustee’s recommendation, any party can request a judge to resolve any issues.

Please contact the New Jersey Bankruptcy lawyer Robert Manchel, at 866.503.5655, for a free consultation and explanation as to how chapter 13 works.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

A New Jersey chapter 7 bankruptcy case requires only one hearing, which is called the Meeting of Creditors (MOC) or the 341(a) hearing.

The MOC is never held in a courtroom and the judge is never present. If your case is filed In Trenton, your MOC hearing is held in the courthouse, but not in a courtroom. If your case is filed in Newark, the MOC hearing is typically held in an office building in Newark. If your case is filed in Camden, your hearing is either held in an office building in Camden or Northfield.

The hearing is conducted by the trustee that is assigned to administer your case. Typically, the trustee sits at a desk facing all of the debtors. When the trustee calls the debtors’ name, the debtor must approach the desk and sit down facing the trustee. There is a recording device on the table that records all testimony. The debtors must show the trustee a photo drivers’ license and a social security card to provide proof of identity. There are alternative forms of identification that are acceptable. The debtors’ attorney should put the original signed bankruptcy petition on the table.

The hearing lasts about five to ten minutes depending on the complexity. Although the hearing is called a Meeting of Creditors, it is unusual for a creditor to appear and ask questions. The trustee is mainly interested in eliciting testimony regarding the debtors’ assets, income, expenses, and reason for the bankruptcy filing. The trustee must determine if the debtor has assets, with a substantial value that he may sell. Also, the trustee must ensure that the debtors’ household income is less than their monthly expenses. Furthermore, the trustee must ensure that the debtors’ financial hardship is legitimate.

Some of the questions that are asked at the Meeting of Creditors are as follows: Did you review your petition for accuracy prior to signing? Is the information in your petition correct? Do you need to change any information in your petition? Does your petition include all of your assets? When did you buy your house? How much did you pay for your house? How much is your house worth now, if you were to sell your house? Do you own stocks or bonds? Do you have a savings account? Can you sue someone for money, for any reason? What is the reason for filing bankruptcy? Are you working? Has your income changed from the time of the filing?

Please contact the NJ. Chapter 7 Bankruptcy Lawyer, Robert Manchel, at 1 (866) 503-5655, to discuss chapter 7 bankruptcy hearings.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.