Chapter 7 Bankruptcy

NJ. Lawyer Explains The Chapter 7 Process

The most prevalent type of bankruptcy filing in New Jersey are Chapter 7, Chapter 13 and Chapter 11. People  refer each bankruptcy type as “chapters” because the bankruptcy code reflects the law of each chapter, in the actual chapter number of the code.  In other words, chapter 13 laws are located in chapter 13 of the bankruptcy code, which is after chapter 12 of the code.
Chapter 7 is referred to as a liquidation bankruptcy, which is intended to discharge (eliminate) certain debt. An individual person and/or a partnership, or any other corporate type entity may file for chapter 7 bankruptcy protection. Typically, individuals file for chapter 7 protection to eliminate unsecured debt, such as credit card debt and personal loans. People can also discharge (eliminate) secured loans, such as auto loans. However, if you want to  keep the collateral, such as an auto, one must continue making the monthly payments.
The chapter 7process will be complete approximately four months after the filing. When considering whether to file for bankruptcy protection, one should seek the counseling of an experienced bankruptcy lawyer. A lawyer will determine if one meets the criteria. Also, an attorney will counsel a person about the consequences of any pre-filing transfers, earned income, receipts of money  and asset values that are problematic. Maybe the debtor should wait to file, in order to save assets, or meet the criteria.
Prior to filing the bankruptcy petition with the court, each debtor must complete pre-filing credit counseling, which consists of answering questions and discussing their financial situation with a court approved counseling agent. The counseling may be completed online. The counseling takes about one and one half hours. After the counseling, the agency emails the debtor a certificate reflecting that the credit counseling is complete.
A bankruptcy petition must be completed and filed with the court, together with the counseling certificate. The petition must include household income, expenses, list of creditors and assets. One must also provide various information about property transfers and finances. After the petition is completed , the debtor must review and sign the petition. Experienced bankruptcy lawyers file the petition from their bankruptcy software. However, the petition may be filed with the clerk of court, by submitting paper documents.
A chapter 7 trustee and judge is assigned to each filed case. A trustee’s job is to determine if any property may be sold due to a substantial asset value that may not be fully exempt. Additionally, the trustee advises the judge of his recommendation as to whether a debtor should be granted a discharge of debt. The case is complete when the order of discharge is entered. However, due to atypical circumstances, the order of discharge may be delayed.
The trustee reviews the bankruptcy petition and the documents hereinafter stated: last three years of income tax returns; any and all of the debtor and spouse’s pay stubs, covering the six months prior to the filing; statements of all investments; valuation of real estate; mortgage payoff statement; child support orders; all bank statements for the six months prior to the filing; and, possibly other related documents. Lawyers typically ask for such documents prior to preparing the petition.
After the petition is filed, the court will automatically schedule a 341(a) Creditors’ Meeting before the trustee. The hearing is not in a courtroom and no judge may attend the hearing. The debtor and her attorney attend the hearing, which is located in a classroom setting. The appearance of any creditor is very unusual. Typically, the only creditors  having personal issues with the debtor, such as an ex-spouse, appear at the hearing. The trustee will ask the debtor a series of questions about their finances, assets and the information contained on the petition and above referenced documents. Typically, the judge will enter an order discharging debt in about two and one half months after the hearing.
Please note that a person may file a Reaffirmation Agreement with the court regarding their auto financing. This is explained in another part of this website. Also, although very unusual, if the there is an irresolvable issue regarding a creditor, the debtor may need to handle such matters in court. Additionally, if there are funds to distribute to creditors, which is also unusual, the trustee must provide the court with an accounting, that must obtain the court’s approval. However, under the ladder scenario, the order of discharge will not be delayed.
Contact Attorney Robert Manchel at 866 503 5644.

New Jersey Bankruptcy Lawyer Explains which specific type of debt may not be discharged in Chapter 7.

In a typical NJ. chapter 7 bankruptcy case, the debtor intends to discharge certain debt. A chapter 7 bankruptcy discharge means that the debtor is no longer personally liable and/or responsible to pay the debt. In other words, after a discharge, the creditor may never attempt to collect the money from the debtor. An exception to discharge means that a specific type of debt is not discharged and/or eliminated. If a debt is not discharged, the creditor may continue to pursue the debtor for the debt, after the completion of the bankruptcy case.

There are bankruptcy code sections that relate to the ”nondischargeability” of the whole case, including all debt. Under those code sections, if the debtor meets the criteria, he will be unable to proceed with his case and obtain any no discharge of any debt. 11 U.S.C. § 727 is the code section that prohibits a discharge of any debt under a chapter 7 bankruptcy case. However, this blog deals with the exceptions to the discharge of one debt and one creditor. Consequently, the debtor may obtain a discharge of all other debts.

If the creditor has a certain type of lien on property, the company, may possibly be permitted to pursue an action to take the collateral. Unsecured debt, such as credit card debt, does not involve any collateral and/or a lien on property. In a typical New Jersey chapter 7 bankruptcy case, the petition is filed to eliminate unsecured debt.  The bankruptcy code provides a list of debts that are specifically “excepted” from a discharge

11 U.S.C, section 523 lists the types of debt that are “excepted” from discharge. Some of the sections of 523 include debt that is automatically “excepted” from discharge if certain criteria are met. There are other portions of section 523 that are only “excepted” from discharge, if the creditor proves certain facts, in court. The ladder scenario requires the creditor to file the appropriate court documents, pursue the process and prevail in court.

The following is a list of code sections that except debt from discharge without requiring the creditor to take any additional legal or court action.

11 U.S.C, section 523, (a)(1)(A) and (B) indicates the specific taxes that are “excepted” from discharge, based on specific criteria;

11 U.S.C, section 523, (a)(3)(A) and (B) excepts from discharge the debt owed to a creditor that was not properly listed on the petition and notified in sufficient time to file a proof of claim, in connection to an asset case;

11 U.S.C, section 523, (a)(5) reflects domestic support obligations are not dischargeable. Domestic Support Obligations are typically child support, alimony payments and other maintenance payments;

11 U.S.C, section 523, (a)(7)(A)(B) covers the types of fines, penalties and taxes that are due to a governmental unit. This subsection also includes the requirement to pay back certain funds to a governmental unit;

11 U.S.C, section 523, (a)(8)(A)(B) includes the inability to discharge student loans;

11 U.S.C, section 523, (a)(9) pertains to debt arising from the death or injury of a person caused by driving while unlawfully intoxicated;

11 U.S.C, section 523, (a)(10) is the debt from a creditor that was or should have been listed in a prior case, wherein the debtor was denied or waived his discharge.

11 U.S.C, section 523, (a)(13) is a debt regarding payment of restitution under Title 18 of the U.S. Code

11 U.S.C, section 523, (a)(14) is tax owed to the U.S. that is “nondischargeable”.

11 U.S.C, section 523, (a)(14)(A) is a tax owed to a governmental unit other than the US;

11 U.S.C, section 523, (a)(14)(B) is a debt that was incurred for fines or penalties in connection with a federal election law violation;

11 U.S.C, section 523, (a)(15) reflects a debt that is due to a spouse, former spouse or child in certain circumstances that is not deemed a Domestic Support Obligation;

11 U.S.C, section 523, (a)(16) is a debt that will be due to a membership association, condominium association, homeowners association and a cooperative corporation, under certain circumstances.

11 U.S.C, section 523, (a)(17) is a fee, cost, and expense that is imposed  on a prisoner under specific situations.

11 U.S.C, section 523, (a)(18) (A) (B) pertains to a loan made against a specific retirement fund, such as a 401(k) and IRA, under the Employee Retirement Income Security Act of 1974. 

Although additional legal action, by a garden state, chapter 7 bankruptcy attorney, is typically not required, regarding the above list, one should obtain a court order, confirming that a certain debt is dischargeable. Such action should prevent future issues.

Below is a list of debt that is “nondischareable”. However, typically, additional legal action must be pursued, in bankruptcy court, to prove certain required facts necessary to deem the debt “nondischargeable”:

11 U.S.C, section 523, (a)(1)(C) indicates that a tax in connection with fraud regarding the filing of a return is not dischargeable;

11 U.S.C, section 523, (a)(2)(A)(B) is a debt, property and/or service that was obtained or incurred by fraud;

11 U.S.C, section 523, (a)(2)(C)(i)(ii) is a consumer debt, for luxury goods, in excess of $675.00, which is incurred to one creditor, within ninety (90) days, prior to the bankruptcy filing. Additionally, cash advances in excess of $950.00 incurred to one creditor, within seventy (70) days prior to the bankruptcy filing, is non dischargeable;

11 U.S.C, section 523, (a)(4) is a debt incurred by committing fraud or misappropriation of funds, while in a fiduciary capacity regarding the handling of such funds;

11 U.S.C, section 523, (a)(6) pertains to debt caused by willful and malicious injury to a person, property or entity;

11 U.S.C, section 523, (a)(11) is debt incurred or caused by fraud or the misappropriation of funds, in certain circumstances, while in a fiduciary capacity, regarding a depository institution or insured credit union;

11 U.S.C, section 523, (a)(12) is debt incurred by malicious or reckless failure to maintain the required capital of a federal depository institution.

11 U.S.C, section 524, (c) pertains to a debt in which a debtor consents to exclude from discharge. Under these circumstances, the agreement must be filed with the court and the debtor must be provided with the correct disclosures;

11 U.S.C, section 524, (k) pertains to a Reaffirmation Agreement which is an agreement between the debtor and creditor that “excepts” a debt from discharge and requires the debtor to make payments to the creditor. This type of agreement typically relates to a debt that is secured by collateral, such as an automobile. 

Contact the Garden State bankruptcy lawyer, Robert Manchel at 866 503 5644 to discuss your questions.

NJ Bankruptcy Lawyer Explains What “Abandonment” Means Regarding A Chapter 7 Bankruptcy Case.

If a chapter 7 debtor owns real estate, the trustee must determine if he can sell or abandon his right to the property. The trustee will perform a liquidation analysis to determine if there is sufficient equity in the real estate that will allow her to sell the property. If the trustee determines that the real estate has no value or inconsequential value to the bankruptcy estate, she must notify the court of same. The trustee’s notice to the court that she is abandoning her right to the real estate, is called a, Notice Of Proposed Abandonment.
The trustee abandoning real estate is good for the debtor, not bad. This means that the trustee does not want anything to do with the property and she is abandoning her right to the property. This does not mean that the debtor must abandon the property. When the trustee abandons her right to the property, the property comes out of the bankruptcy estate and vests with the home owner(s).
What is the reason for such notice? The trustee is required to forward the proper notice to the court, with a copy to the debtor and all interested parties. Although extremely unusual, any party has a right to file an objection to the trustee’s right to abandon the real estate. If no objection is filed with the court upon a certain date, the abandonment takes effect, prior to the scheduled court date.
The details of a liquidation analysis is explained within this website in another blog. If the debtors’ allowable exemptions exceed the fair market value of the house, minus 10% cost of sale, minus all non-avoidable secured liens, the trustee may not sell the debtors’ house. The following is an example of a liquidation analysis, in connection with a married couple filing a joint chapter 7 case, in which both spouses own the real estate, where they reside.
fair market value of the house                                                                                 $310,000.00
(minus) the only mortgage payoff amount                                                           $240,000.00
balance                                                                                                                         $70,000.00
(minus allowable 10% cost of sale)(10% of $310,000.00)                                $31,000.00
balance                                                                                                                         $39,000.00
(minus the allowable exemptions- up to $23,675.00 for each spouse)          $39,000.00 ( could use up to $47,350.00 for both spouses)
balance                                                                                                                         $0.00
In the example above, the spouses could have applied $23,675.00 each, or up to $47,350.00, for both of them. Therefore in the above example, the trustee would not be permitted to sell the house and must abandon her interest in the house. Please note that the debtors and their attorneys should be aware of the liquidation analysis prior to the bankruptcy filing.
Please do not rely on this blog. You must contact your attorney to discuss this very important matter.
Contact Robert Manchel, at 866 503 5644,  to discuss how bankruptcy works.

A New Jersey lawyer Explains If Someone Appears At A Person’s House After Filing  For Chapter 7 Bankruptcy Protection.

The chapter 7 bankruptcy code is created to allow a person a fresh start. In theory, the fresh start permits a person to keep property that is necessary to live. However, if a person has property that has substantial value, the New Jersey chapter 7 bankruptcy trustee may be permitted to sell such property. Substantial value represents the amount available after subtracting the creditor’s lien payoff, if any, and the bankruptcy exemptions, from the fair market value. The property that a debtor is able to keep is based on bankruptcy exemptions. A person may keep all property that is completely exempt. I explain, in detail, how exemptions are applied in a New Jersey chapter 7 bankruptcy case.
In a chapter 7 case in New Jersey, the debtor must list all of their assets on the petition. All personal property is an asset, including, but not limited to, all furniture, appliances, etc. In over 23 years of experience, I have never filed a personal consumer bankruptcy case, where the trustee came to a debtor’s house to inspect anything. However, it may be possible for a trustee to inspect personal and/or real estate that he believes has substantial value, as explained above.  An example of a New Jersey bankruptcy filing where the trustee would inspect property, is a debtor that owed a valuable piece of art, painting or jewelry. However, under such circumstances, the debtor’s attorney should inform his client of the possible inspection, prior to the bankruptcy filing.
Some types of business bankruptcy cases are different than personal bankruptcy cases, in that the business assets are not exempt. This means that, it may be possible for the trustee to sell any business owned property for the benefit of the creditors, as the debtor may not be permitted to apply any exemptions against the equity value of any property. Please note that if the payoff amount due to a creditor, with a lien in property, is more than the value of the property, the the property has no value to the trustee. Consequently, the trustee would not sell such property. However, a trustee may be interested in inspecting any business property, under certain circumstances, with no liens attached to such property.
You may contact Robert Manchel at 866 503 5644 to discuss your NJ. bankruptcy law questions.

Bankruptcy Lawyer Explains When A Person May keep Financed Jewelry In A New Jersey Chapter 7 Case

An asset must be protected from the trustee and the financing creditor in a New Jersey chapter 7 bankruptcy case. It is unlikely that a chapter 7 trustee will sell the debtor’s jewelry.  A trustee may only sell an asset that is not totally exempt. I have explained how exemptions work in bankruptcy and when an asset is not totally exempt. Jewelry is an asset, which is generally 100% exempt. However, if the jewelry has substantial value, in excess of the financing payoff amount, it is possible that a trustee may sell the jewelry.
Additionally, a debtor must consider when and how the financing creditor may repossess the jewelry, assuming that the trustee will not sell the item. Typically, if a person obtains financing to buy jewelry, the financing creditor is granted a security interest in the jewelry.  The secured interest is granted by way of a “Purchase Money Security Interest”, which is special financing of property that is used to purchase a non-real estate asset. A security interest grants the financing creditor a lien in the jewelry.
In a chapter 7, in New Jersey, the secured debt and personal liability that is owed to the jewelry financing company is typically discharged. Discharged means that the debt is eliminated. However, the finance company’s lien is not effected by the bankruptcy discharge. This means that the finance company may not sue the debtor, for the money that is owed, after the bankruptcy case is discharged and completed. However, after the completion of the bankruptcy case, the finance company may pursue the repossession of the jewelry, if the payments are not current.
If a debtor falls behind with the payments, the finance company may file a state court civil action to obtain possession of the jewelry, but can never purse a civil action to collect any money that is due on the debt. The enforcement of their lien is called a “Replevin Action”, which is a state court civil lawsuit for a court order requiring the debtor to turnover the jewelry. Please note that the creditor may not pursue the “Replevin Action” if they believe that the lawsuit is not worth the attorney’s fees and costs. Also, a debtor may wish to voluntarily give back the piece of jewelry to the finance company.
You may contact Robert Manchel at 866 503 5644 for NJ. bankruptcy inquiries.

New Jersey Attorney Explains The Expenses That Are Used In A New Jersey Chapter 7 Bankruptcy Case

One criteria in a New Jersey chapter 7 bankruptcy case requires the debtor’s projected net household income to be less than the projected reasonable and necessary household expenses. If the income is more than the expenses, the debtor does not meet the chapter 7 criteria. If the debtor’s monthly household income is less than the monthly expenses, there are no disposable funds to pay to the creditors. An individual debtor that files without her spouse, must include her husband’s income in the calculations, if they are residing together in the same household. If the debtor does, in fact, have disposable income, each month, the debtor must pay back, at least, the amount of the disposable income to the creditors, in a chapter 13 case. Please note a New Jersey chapter 7 bankruptcy has additional criteria.
The general list of necessary household expenses is reflected below: rent; mortgage; real estate taxes; homeowners insurance; automobiile insurance; home maintenance; utilites;  electric; heat; natural gas; water; sewer; telephone; cell phone; internet; cable; housekeeping suplies; childcare; children’s educational costs; clothing; laundry; dry cleaning; personal care products and services; garbage collection; home maintenance; food; clothing; out of pocket health care and medications; dental; transportation; entertainment; alimony; support; possibly other necessary expenses; homeowners association; health Insurance; other insurance; car payments; possibly other installment payments; recreation; charitable contributions; renters insurance; life Insurance; payments for additional dependants.
The amount that is allowable for each expense is based on the following: number of household members: each individual’s personal situation; the bankruptcy code; the amount the trustee considers reasonable; the amount the presiding judge deems reasonable; IRS standards. The IRS provides a general guideline of the acceptable allowable amounts that are deemed reasonable for each expense. However, the amount may be increased based on the particular needs of each individual. For example, a household member that has diabetes, may require certain foods, that are more costly. A person that drives 100 miles one way to work each day, will incur more transportation costs than a person who works one block from their employment. Also, the number of household members effects the amount  that will be considered reasonable, such as food, etc. Also, the allowable monthly payments for certain expenses, such as entertainment, are typically standard for each trustee.
Allowable expenses do not include any payments to unsecured creditors, such as credit card debt and personal loan payments. This criteria seems to frustrate some clients. However, such expenses are not included because the unsecured debt will be eliminated if the debt is discharged. The court and trustee want to know how much disposable income will be available after their unsecured debt is discharged. In the event that the debtor has disposable income that may be paid to the creditors each month, the debtor does not meet the New Jersey chapter 7 criteria. In this scenario, the debtor will be required to pay the amount of the disposable income to the creditors, in a chapter 13 case.
The amount of the non filing spouse’s income may be reduced by the amount that such spouse pays each month to towards their credit cards and unsecured debt. The court allows for a deduction in this scenario because the non filing spouse’s debt will not be eliminated by the filing spouse’s bankruptcy filing. Also, such payments will reduce the amount that this spouse is able to contribute to the household.
A debtor cannot use funds for an expense that is frivolous and unnecessary. For example, a debtor cannot use a mortgage expense on a second beach house that is not earning the debtor any money. However, if the beach house results in a positive net cash flow, each month, the debtor may use the mortgage payment as an expense. A debtor could not use an auto payment on his Harley Davidson, that is not necessary for transportation to and from work. However, if the debtor requires the motorcycle for work purposes, the trustee will likely permit the payment.
Contact Manchel New Jersey Bankruptcy Law at 866 503 5644 to schedule an appointment.