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Essex County Bankruptcy Law Blog

Unemployment rate could lead to more bankruptcy filings

The most recent data is showing that the number of people filing unemployment claims for the first time is down nationwide. However, here in New Jersey, that number rose an alarming 70 percent in one week. This influx of unemployed people in our state could cause a corresponding rise in bankruptcy filings over the next few months as it becomes more difficult for some people to pay their bills.

Between June 21 and June 28, 20,624 people in New Jersey filed for unemployment benefits for the first time. This is considered the largest increase in filings in the country. The previous week, that number was 12,045.

Bankruptcy protection may trump advice regarding debt relief

Credit card debt plagues a vast number of people around the country and here in New Jersey. At this point in our history, much of that debt was incurred during the recession when people used their credit cards to pay for the food they put on the table and the electricity that many used to cook it. There is a lot of advice available regarding how to reduce credit card debt, but it may not work for everyone. In many cases, bankruptcy might be a more useful option.

That is not to say that the advice is not good. It is simply not going to help everybody. For instance, people are advised to stop using their credit cards. For a lot of consumers facing these issues, that happened long ago. Many have also already eliminated luxuries from their budgets and cannot possibly stretch their budget any further.

Homes in which owners were unable to stop foreclosure sit empty

The overall number of foreclosure filings may be dropping, and the housing market may be rebounding, but the mess left by the crash of the real estate market is still being cleaned up. Thousands of homes in which the homeowners were unable to stop foreclosure are sitting empty. These so-called "Zombie Foreclosures" have increased an astounding 58 percent in New Jersey in the last year.

Since these homes are empty, they fall into disrepair on both the inside and the outside of the home. These homes have the effect of reducing the value of the properties around them. Further, they are a constant reminder of the chaos and devastation done to the housing market during the Great Recession. Not only have the owners of these homes and the neighborhoods been affected by zombie foreclosures, but the loss in property taxes has affected counties in New Jersey and across the country as well.

How a Chapter 13 bankruptcy differs from a Chapter 7 bankruptcy

Many New Jersey residents become overwhelmed by debt and decide to file for bankruptcy. However, knowing which form of bankruptcy to file can present a challenge. Significant differences exist between the two main chapters of bankruptcy filed by individuals -- Chapter 7 and Chapter 13.

Chapter 7 bankruptcy seems to be more well-known. This form of bankruptcy is usually easier and faster than a Chapter 13. However, it does not eliminate all debts and mostly centers on unsecured debt such as medical bills and credit card debt. However, it may not be the best way to deal with secured debts such as a mortgage.

How to stop harassing phone calls from creditors

Sometimes the first thing in the morning or the last thing at night that many New Jersey residents do is receive calls from creditors or debt collection agencies. Debt collectors can be relentless in their efforts to get individuals to pay. However, it is possible to stop harassing phone calls from creditors, and how that is done depends on each individual's financial circumstances.

If an individual has the means, it may be possible to broker a deal with a debt collector to reduce the debt for a lump sum payment. For many people, however, that is not an option. The next option would be to negotiate a payment plan that would repay less than the balance owed.

Some homeowners opt for bankruptcy after a short sale

On Dec. 31 of last year, the Mortgage Forgiveness Debt Relief Act, which made it possible for many homeowners to avoid paying taxes on debt forgiveness due to foreclosure or short sale, expired. Many are hopeful that Congress will renew the Act, which became law in 2007. Even though the law appears to have sufficient support, Congress has yet to make a determination regarding renewal of it. This has -- and may -- cause numerous homeowners in New Jersey and across the country to file for bankruptcy after a short sale of their homes.

In a short sale, a home is sold for less than the mortgage on the property. The lender must approve the transaction, and any balance on the loan is often forgiven. This sounds like a good deal until homeowners realize that, without the MFDRA in place, they could be on the hook for a large tax bill. This is because the IRS considers any amount forgiven by a lender as income and, therefore, taxable.

Many bankruptcy filings are due to medical debt

Anyone in New Jersey who has been to a doctor recently, paid an insurance premium or obtained a prescription understands the rising costs of medical care in the United States. In fact, many bankruptcy filings are due to medical debt -- either directly or indirectly. Patients who suffer from chronic conditions requiring monthly regimens of pills most likely feel as if there is no end in sight to their financial obligations.

To make matters worse, many insurance plans -- whether obtained through an employer or through the Affordable Care Act -- require an increasing amount of out-of-pocket payments from individuals. While costs for insurance premiums and medications increase, income is often not growing to compensate for the extra expense. Many people who need their medications to control chronic illnesses turn to credit cards to fill the void.

Stop harassing phone calls from creditors before they start

Financial advisers often recommend that college students here in New Jersey and around the country begin building their credit history by obtaining and using a credit card. Building a credit history may be important, but that goal could easily be sabotaged by misusing credit. It is possible, however, to stop harassing phone calls from creditors before they start.

College students who have no credit have the unique opportunity to start on the right foot. A credit card may be used to build credit, and paying off the balance each month will avoid high interest charges, late fees and credit blemishes. Paying the card off each month might also instill a habit of living within a person's means, which could financially benefit him or her in the future.

Anyone can end up in financial trouble and filing for bankruptcy

Financial troubles do not discriminate based on an individual's income level. Anyone from the average New Jersey resident to famous actors such as Mekhi Phifer can end up filing for bankruptcy. Granted, the average American will most likely not have $1.2 million in debt, but the burden created by any amount of debt can often feel as though it is insurmountable.

In Phifer's case, a large portion of his debt is owed to the IRS for unpaid taxes. Accounting and legal fees in the approximate amount of $50,000 are also listed on the former "ER" actor's Chapter 7 bankruptcy filing. Despite having more than $67,000 in assets, the actor and his wife of a little over a year are unable to meet their monthly obligations, which total around $11,574. The actor claims his income is only $7,545 per month.

Credit card bankruptcy is not always from bad financial choices

Thousands of New Jersey consumers find themselves in precarious financial situations through no fault of their own. Many people file bankruptcy due to a high amount of credit card debt that was incurred paying household bills. No matter what the cause, the family got into debt and needs help to get back on track.

Unemployment is one cause of many New Jersey consumers' financial troubles. A recent report indicates that a family in which one member was unemployed a minimum of two months within a three-year period had a greater risk of being in credit card debt than those who were not unemployed. During the same period, a large percentage of people were unable to secure full-time employment. Working only part-time stressed their finances regardless of how much they were able to budget.