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Learn About Bankruptcy
What is bankruptcy?
Bankruptcy is a federal court process enlisted to eliminate or repay the debts of consumers or businesses under the protection of the bankruptcy court.
What is the difference between Chapter 7 and Chapter 13?
Chapter 7 is also called Liquidation Bankruptcy. Except for specific nondischargeable debts (such as child support and alimony, student loans, debts for personal injury or death caused by your intoxicated driving, recent income tax debts, and fines and penalties imposed for violating the law) Chapter 7 bankruptcy monitors the liquidation of other assets after which the proceeds are used to pay off creditors.
Chapter 13 is commonly called Reorganization Bankruptcy. A plan is filed with the court which proposes how you will repay your creditors. There will be a portion of the debts repaid in full, others will be dismissed or only partially repaid.
Can filing for bankruptcy stop a foreclosure or repossession?
Yes, Chapter 13 bankruptcy plans can arrange for car and mortgage payments in the reorganization, and the creditor is expected to accept these payments in lieu of foreclosure or repossession.
How can I re-establish my credit after filing bankruptcy?
Secured credit cards (in which the debtor deposits funds with the credit card issuer) can be obtained to begin the process of rebuilding credit. Most of our clients are surprised at how relatively easy it is for them to re-establish good credit after a bankruptcy. Although a bankruptcy is not something positive on your credit report, many times it actually improves our client's credit because all debt has been wiped clean and many creditors will consider you a lower risk after a bankruptcy.
How long is the bankruptcy process?
Typically, a Chapter 7 bankruptcy case takes about four months, while a Chapter 13 filing, because it involves long term repayments, can run as much as five years.
Those are the basic questions we are asked, for the real information junkies you can read on for a more in depth discussion. However, if you have been reading this far you should call us so that we can answer all questions as they relate to your specific situation. 732-681-6800
Can a husband file bankruptcy without his wife filing, or must both spouses file?
Either spouse can file on his or her own. It is not required that they both file.
What is this going to do to my credit reputation?
This is probably the most commonly asked question. Bankruptcy can be reported for 10 years after which time it must come off the credit report. On the other hand, consider that most people who ask us this question have a credit reputation that is already heavily damaged. If you have repossessions or judgments on your record, and you are heavily in debt, do you think that you can obtain a bank loan if you don't file bankruptcy? Also keep in mind that credit is not your friend. Credit is the reason people end up filing for bankruptcy. Credit means debt.
I am current on all my payments. I have never been late on a payment. How can bankruptcy be appropriate for me?
I have many clients that are drowning in debt , but they appear to be "making it" because they have depleted their savings, then they have transferred the debt from one credit card to another (people really do pay their MasterCard bill with Visa) always in search of temporary low interest rates and pre-approved credit cards. Ask yourself what your total monthly credit card and loan debt is. Then ask yourself if you have enough income left over each month after paying normal living expenses to pay the minimum payment on all that debt. If you can't, then you are traveling backwards, even though you haven't defaulted on a loan - yet. The handwriting, however, is on the wall and it is only a matter of time until the house of cards collapses.
I am an honest person and I cannot stand the thought of not paying my debts, it's like cheating to me. How can I live with that?
Bankruptcy does not change your moral obligation to repay your debts, it only changes your creditors' abilities to use the legal process to force you to pay them. If you feel obligated to pay your debts, the law welcomes you to voluntarily pay your debts even after bankruptcy has forgiven them. And, if you pay a little bit towards a debt that has been legally forgiven in bankruptcy, that will not re-ignite the old debt, it remains extinguished. You would be free to pay any of your old creditors, in whatever order you wanted, however much you wanted, and when you wanted to do so. You could, for example, pay Visa $5 one month and then skip three years before paying again. You could pay back your friends and relatives before you get to the big banks.
Should I File for Bankruptcy Protection?
Bankruptcy - Do Not Feel Guilty
Bankruptcy is about starting over fresh. It is about getting back in control of your financial future. Do not feel any shame for considering bankruptcy. In today's economy, many people, from all walks of life, are in your situation. We have clients who were making $200,000 plus last year and live in $600,000 dollar homes. Then again, we have an 18 year old who started out in life with $35,000.00 in debt (thanks MC/Visa/Amex) due to "free" credit cards. Who gives an 18 year old a $5,000.00 credit line? Credit card companies.
Bankruptcy Is Not Your Fault
Take control, feel no shame. Dotcom went bust. The telecommunications industry has gone South. Thousands have been laid off. This is not your fault. You cannot control the economy, you cannot control pie in the sky investors, and you cannot control voodoo accountants at multinational corporations (Enron), but you can take control back by contacting a bankruptcy lawyer. Since you were 4 years old, marketing companies have been trying to get you to buy into neighbor Jones' dream. If you didn't have the cash, "charge it."
The Credit Card/Debt Trap
Credit card companies have been begging you to charge up at 23% (some 24.99%) for years. How many "account balance" transfer offers have your received. How many new extensions of credit. Here's the trap, after you have established a decent payment history with a credit card company, they up the credit limit. "Congratulations," they say. Now that you have more credit, you spend it. They will keep upping that credit limit until you can barely make the minimum payment. Now they own you. Make the minimum payment on your Mastercard or Visa and you will be paying that debt for 35 years or more. Don't feel any shame about taking back control. The only thing the credit card companies have to fear is the United States Bankruptcy Code and a bankruptcy lawyer. That is why they lobbied Congress to the tune of $25,000,000.00 to get the bankruptcy laws changed to PROTECT THEM from you. Fortunately, their efforts in 2001 failed.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is about liquidating all nonsecured debts. Chapter 7 Consumer Liquidation Bankruptcy applies when the monthly payment on all personal overhead (rent/car payment/utilities/groceries) exceeds your take home income. You will keep your home and your car under the current state of the law.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is about forcing creditors to negotiate with you subject to a bankruptcy trustee's approval. Chapter 13 Bankruptcy forces creditors to settle up for dimes on the dollar. Once again, you take control and you set forth a Chapter 13 Bankruptcy plan that you can work with. Chapter 13 Consumer Bankruptcy applies when your income exceeds your monthly personal overhead to some extent such that you are able repay some portion of the debt back. Once again, however, recognize Chapter 13 Consumer Bankruptcy is about putting you back in control.
Credit Card Debt Management and Consolidation Services
Credit card counseling and debt management services - we don't buy it. Numerous clients have come to us after using a debt management company. Recognize that these so called "nonprofit" organizations are funded by the credit card companies - are they on your side? No. Further, some counseling services require you to give them your paycheck. They take their fee, pay the credit card companies a payment, and then give you a monthly stipend. Don't do this. Take control. Don't lose control of your financial future. Know what else - if you breach your contract with a debt management company, you loose all the benefits you have gained - penalties and interest all gets put back. Did you contract with a credit counseling service to protect your credit. They are right there on your credit report as Debt Consolidation Service or Credit Management. A negative entry that tells creditors that you are a bad credit risk. Consumer bankruptcy and consumer bankruptcy attorneys and lawyers are about empowering you. Don't let someone else control you.
Getting Credit After Bankruptcy
You will get credit following your bankruptcy. Some clients have been very concerned about the state of their credit after filing bankruptcy. It is a fact, a bankruptcy entry will appear on your credit report for 10 years following the discharge. This does not mean that you will not get a credit card, buy a home, or car for 10 years. Far from it, creditors want you to borrow. Shortly after your bankruptcy discharge, we can almost promise that you will receive a credit card offer. Probably from Providian. The fact is, you no longer have the majority of your debt; you have an ability to repay (income is freed up), and you can't declare bankruptcy (Chapter 7) again for six years. Further, the probability of a consumer declaring bankruptcy a second time in their lifetime is low (does happen but not often).
Chapter 7 or Chapter 13? The choice of chapter depends on many factors individual to your situation, and is one of the most important reasons to get good legal advice before filing. Which chapter is best depends on the nature of your debt and the nature and value of your assets.
In general, the choice of chapter is not yours to make but is governed by the "means test." If your monthly overhead (mortgage or rent + insurance + taxes, etc.) exceeds your monthly net income, then you qualify for a Chapter 7 Bankruptcy. If your monthly net income exceeds your monthly overhead, then you qualify for a Chapter 13 Bankruptcy.
Chapter 7 is the most frequently selected kind of bankruptcy for individuals. The debtor receives a discharge of most unsecured debts within several months of filing the case. If the debtor's income appears high enough to permit some repayment of debt, the trustee or the court may move to dismiss the case for "substantial abuse". The theory is that to permit someone with the ability to repay to file Chapter 7 and avoid repayment abuses the bankruptcy system. This is termed "substantial abuse" - catch phrase with the U.S. Congress.
If your debt is mixed business and consumer it is important to know what the legal form of the business is. Corporations and partnerships can file Chapter 7 and Chapter 11; the choice depends on whether the business can be reorganized in Chapter 11 or will be liquidated in Chapter 7. Sole proprietorships are treated for bankruptcy purposes as just one kind of asset of the individual who owns them; thus the owner of a troubled business must file an individual bankruptcy, including all of his assets and liabilities, personal and business, to obtain bankruptcy court protection.
Chapter 13 is frequently a better choice if you have debts that are not dischargeable in Chapter 7; if you are in default on mortgages or car payments; if you have more property than can be exempted from creditors in Chapter 7; or if you owe taxes or other debts that are not dischargeable in Chapter 7. To be eligible for Chapter 13, you must have regular income and debts below a certain level. Debtors choose to file a repayment plan under Chapter 13...
- When they owe debts not dischargeable in Chapter 7 ( such as taxes, child support, fraud judgments)
- They have liens that are larger than the value of the assets securing the debt
- They have years of unfiled taxes
- They are behind on car or house payments
- Their assets are worth more than the available exemptions.
What debts can be discharged in bankruptcy?
The scope of the discharge is different in each chapter. The Bankruptcy Code makes the Chapter 13 discharge more encompassing, to encourage individuals to use Chapter 13 to repay a portion of their debts.
Put most simply, most unsecured debt is dischargeable. Most secured debt survives bankruptcy as a charge on the property to which it attaches unless a court order modifies the lien.
Consumer Credit Counseling?
If you are going to do debt consolidation, credit counseling, or are considering it, then do it under Chapter 13 of the United States Bankruptcy Code. You set the plan approved by the Court, and make payments pursuant to Federal Court Order that stops interest, stops late fees and stops telephone calls. Get the leverage of a Federal Court behind you.
We have had client after client go to the consumer credit counseling services only to find out (1) that the monthly payment was too high, (2) that credit card companies refused to lower interest rates, (3) that payments made were not accounted for or properly distributed to creditors. Frankly, the legitimate consumer credit counseling services are paid for and funded by the credit card companies - are they your friend? Other consumer credit counseling services, well, they just take your money.
Dangers of debt counseling
Be a savvy consumer of debt counseling or debt management programs. It is an unfortunate truth that not everyone offering to help you get control of your finances has your best interests (as opposed to their own) at heart.
Approach debt consolidation loans with skepticism
While a loan to consolidate all of your debt into a single obligation is appealing and may have a lower interest rate than the credit card interest rate, make sure that you can really repay that amount. Understand clearly the term, and interest rate on the loan.
It may be that even lowering the interest rate does not make your present debts manageable, it just postpones the day of reckoning.
Find out whether the loan will pay off over the life of the loan, or whether you will owe a "balloon" payment at the end. For most borrowers, balloon payments are just an invitation to another loan, and you never get free of this debt!
Home equity loans may put your home in jeopardy
If you can't pay your present unsecured debts, all your creditor can do is sue you and try to collect any judgment it gets. If you can't pay your home equity loan, you may lose your house in foreclosure.
Most states provide an exemption that protects a given amount of equity in your home and puts that equity beyond the reach of your creditors. If you voluntarily pledge that equity to a creditor, the exemption no longer protects your home.
Understand the program
If you participate in a program where a service negotiates with your creditors or makes payments on your debts for you, understand whether the service promises to lower the amount you owe or the interest rate you pay, or just promises to lower the payments you make every month, without significantly changing your obligation. Know what happens if a creditor won't negotiate.
Make sure the program deals with all your debt
Some debt counselors confine themselves to dealing with your unsecured commercial creditors, excluding your obligations for child support or unpaid taxes. In effect, they ignore the debts that won't go away, while channeling your money to creditors whose claims could be discharged in bankruptcy.
There are several debt management programs with modest cost to you, the client. Approach for- profit or fee- based services with caution and make sure that the service is worth what it costs.
Make sure that you don't worsen your situation by enlisting others to help with debt management. While it is comforting to have an ally in your struggle, make sure that their help has your best interest at heart.
Board Certifed Bankruptcy Representation
Offices Located in Wall, Newark, Iselin/Woodbridge and Hamilton/Trenton, New Jersey.
If You're In Debt, We Can Help!
The Cerbone Law Firm represents consumers and businesses that need debt relief and desire to either completely eliminate debt, or reorganize by lowering debt payments.
Competent, Aggressive & Compassionate Representation at reasonable rates. Payment Plans Available.
Mr. Cerbone is Board Certified Bus. Bankruptcy Attorney - American Board of Certification. For more information contact us at: 732-681-6800