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Essex County Bankruptcy Law Blog

Second mortgage may not be canceled in Chapter 7 bankruptcy

New Jersey homeowners may need to be aware that the U.S. Supreme Court recently ruled that a second mortgage on the filer's residence may not be considered an unsecured debt and be discharged in a Chapter 7 bankruptcy. Even if the value of the home is less than the first mortgage, the second lien will not automatically be stripped. The case originated after Bank of America insisted that the second lien of a Chapter 7 filer remain intact, even if the bank will not receive any proceeds from the sale of the home.

The filer claimed that since the home was severely underwater, the second mortgage should be treated as an unsecured debt. Unsecured debts are routinely discharged in a Chapter 7 bankruptcy while priority is given to creditors with secured debts, which means that they are backed by collateral such as a home or vehicle. The court unanimously agreed with Bank of America that the lien should continue to be considered a secured debt, which means that the homeowner would remain liable for the balance after the bankruptcy.

A letter can stop harassing phone calls from creditors

When New Jersey residents get behind on their bills, it can be overwhelming. Creditors and debt collectors begin calling, which only adds to the stress and frustration people who are having trouble with their finances are already feeling. Under the Fair Debt Collection Practices Act, writing a letter to each company will stop harassing phone calls from creditors. However, before taking that step, consumers should verify the details of the debt they supposedly owe to each creditor.

Debt collectors do not always have the correct information regarding a consumer's debt. In addition, some debt collection calls are actually scams. During the first call, a consumer should obtain the full name and address of the debt collector and the original creditor and the account number for the debt they are attempting to collect. The consumer has the right to request a written validation of the debt.

Bankruptcy can be complicated

Bankruptcy can be a complicated and paper intensive process. What some people may not realize is that the paperwork requirements begin before the petition is even filed. Every filer -- regardless of whether filing Chapter 7 or Chapter 13 -- must complete a credit counseling course within 180 days of the filing of the petition. The U.S. Bankruptcy Court must approve all credit counseling services, and a list of approved services for New Jersey residents is maintained by the court.

If the course is not completed, the court may dismiss the bankruptcy before it even begins. The course will examine your financial situation, discuss alternatives to bankruptcy and discuss a personal budget. The sessions can be conducted in person, online or over the telephone.

Not having enough medical insurance could lead to bankruptcy

Between the monthly premiums and the out-of-pocket expenses that accompany medical insurance, many New Jersey residents are finding that having medical insurance does not seem to be saving them any money. Individuals who contract illnesses or are injured in accidents often end up with an overwhelming amount of medical debt. This situation could lead to the need to file bankruptcy.

There seems to be a delicate balance between being able to afford the premiums and being able to pay the out-of-pocket costs associated with using the coverage. Many New Jersey residents can only afford to pay a certain amount in monthly premiums, which limits the type of health care coverage they can obtain. This often means that the deductibles are higher and patients will owe more in medical bills -- especially for a protracted illness or lengthy recovery from an accident.

Woman found a way to stop harassing phone calls from creditors

It is most likely a safe bet that no New Jersey consumer is fond of debt collectors. The practices used by debt collection agencies and other creditors bend -- if not break -- the limits placed on them under the Fair Debt and Collection Practices Act (FDCPA). One woman from the Midwest managed to find a way to stop harassing phone calls from creditors attempting to collect a debt from her that she did not even owe.

She filed a lawsuit against a debt collection agency called Portfolio Recovery Associates LLC for malicious prosecution. Even though she repeatedly told the company that she was not the person who owed the debt, a lawsuit was filed against her. The original lawsuit went on for approximately 15 months before it was dismissed. However, the company threatened to re-file at a later date.

Legislators look to stop foreclosure actions from taking so long

Here in New Jersey, foreclosure proceedings can take nearly three years to complete on average. This means that homeowners may be kept in limbo for several years -- from the day the lender's notice of intention is filed through the completion of the sheriff's sale. Legislators have decided to attempt to stop foreclosure actions from taking so long to complete.

The bill is not meant to replace the New Jersey Fair Foreclosure Act but to supplement it instead. If the proposed legislation becomes law, it will reduce the normal foreclosure process to approximately five months. In addition, if the homeowner does not contest the foreclosure, the home may go directly to auction.

Basics of a Chapter 7 discharge

When a New Jersey resident receives a discharge in bankruptcy, he or she is no longer liable for the debts affected. Further, the creditors to which those particular debts were owed may not attempt to collect them from the individual. However, certain financial obligations cannot be discharged in a Chapter 7 bankruptcy, and under certain circumstances, a discharge can be denied.

Fortunately, 99 percent of the time, a filer will be granted a discharge in a Chapter 7. Unfortunately, a discharge can be denied if the court determines that financial records are inadequate or a satisfactory explanation is not given for lost assets. In addition, an order denying a discharge can be entered if the filer commits perjury or fails to obey a lawful order of the court. Hiding, destroying or transferring assets could also result in the denial of a discharge. For many ordinary filers, however, a discharge is most often denied because the required financial management course was not completed.

Filing for Chapter 7 bankruptcy does not need to be a last resort

Conventional wisdom tells New Jersey residents that they are obligated to struggle in order to pay off their debts, regardless of how overwhelming their financial situations are for them. People are often discouraged from filing bankruptcy out of a false sense of moral obligation to faceless corporations. In fact, filing for Chapter 7 bankruptcy does not need to be a last resort, it can be the first step toward a better financial future.

The Internet offers a plethora of advice on how to pay off debt. New Jersey residents are encouraged to spend less and put more money toward paying off bills. However, this advice does not take into consideration the fact that many people are already stretching every dollar they have just to keep a roof over their heads and food on their tables. No amount of advice regarding paying off debts is going to work under these conditions.

Even if medical billing errors are fixed, bankruptcy may be best

Any New Jersey resident who has been to the doctor lately is painfully aware of the fact that the cost of health care is on the rise. To make matters worse, it is estimated that nearly 49 percent of medical bills sent to patients contain errors. Even if these errors are corrected, patients could still owe a substantial amount to doctors, hospitals and other medical providers, which still makes bankruptcy a viable option for many people to use to eliminate this type of debt.

Medical bills often contain charges for services that were not performed and tests that were not done. Moreover, some charges are duplications and should not be on the bill either. New Jersey patients can dispute the charges, but a resolution may not come for months. During that time, the disputed balance could end up on a person's credit report showing as past due.

Feds stop harassing phone calls from creditors who violate laws

The Fair Debt Collection Practices Act requires creditors to adhere to certain guidelines when it comes to collecting consumer debts. Unfortunately, as many New Jersey residents have experienced, not all companies follow these guidelines when dealing with consumers. When it is discovered that debt collectors are using unscrupulous tactics to collect debts, certain agencies within the federal government often step in to stop harassing phone calls from creditors.

Recently, the Consumer Financial Protection Bureau and the Federal Trade Commission announced the settlement of claims against Green Tree Servicing LLC, a company accused of using abusive and illegal tactics in its attempts to collect debts. The company allegedly failed to honor agreements between consumers and former loan services that modified their loans. Further, it was claimed that the company was not exactly truthful about the amounts consumers owed.