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Essex County Bankruptcy Law Blog

What happens when a creditor comes calling after a bankruptcy?

One of the benefits of receiving a bankruptcy discharge is that a debtor no longer owes the debts that are wiped clean by the court. However, occasionally, a creditor will contact a New Jersey resident regarding a debt that was discharged in the bankruptcy. When this happens, it is often in violation of the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA).

For instance, in one reported case, a consumer had several debts that were in collections with the same company prior to filing for bankruptcy. The debts were subsequently discharged in bankruptcy. Approximately five months later, the collections company sent her a letter attempting to collect one of the debts that the filer no longer owed due to the bankruptcy.

Determining whether to file Chapter 7 or Chapter 13 bankruptcy

Overwhelming debt can either sneak up on a person or hit them like a ton of bricks, depending on the circumstances. Either way, the results are the same -- people are unable to pay their bills and creditors are harassing them. In order to obtain a financial fresh start, many New Jersey residents decide to file for bankruptcy. When that happens, they inevitably have numerous questions about where to begin.

The biggest question many people have is whether they should file Chapter 7 or Chapter 13, which are the most common types of bankruptcy individuals file. For some New Jersey residents, keeping their homes is a priority. Most Chapter 13 filers keep their homes, but only under certain circumstances do those who file under Chapter 7.

Certain tax debts can be discharged through Chapter 7

By the time a New Jersey resident has filed for bankruptcy protection, his or her debts have usually reached a level that is insurmountable. Those debts may include a mix of credit cards, loans, utility bills and even tax debt. Most people are aware that discharging tax debt during Chapter 7 bankruptcy is a difficult task, but few understand the requirements that must be met in order to attain that goal. The following information is offered in the hopes of educating consumers about their options during bankruptcy.

In order for income tax debt to be eligible for discharge, the debt must be from at least three years ago. The consumer must have filed a legitimate return for the tax year in question, and the applicable return must have been filed at least two years prior to seeking bankruptcy protection. In addition, at least 240 days must have passed since an IRS representative assessed the debt.

New Jersey foreclosures for delinquent mortgage debt declining

Since the housing market crashed and the recession began, New Jersey has been one of the hardest hit states for foreclosures. Since 2011, foreclosure filings in the state rose each year -- that is, until 2015, when they actually declined. Even so, the number of foreclosures being filed due to delinquent mortgage loan debt remains high.

Lenders were persuaded to postpone filing foreclosures in 2011 in the interest of homeowners' rights, so when filings resumed in 2012, they rose nearly 316 percent. In 2014, new filings increased 15 percent over 2013, which saw an increase of 75 percent over 2012. Even with the improvements made in 2015, there were still 35,733 borrowers against whom foreclosure proceedings were filed. However, researchers suspect that some of those filings are actually cases that were re-filed because the previous cases were dismissed for various reasons.

Bankruptcy can eliminate student loans for some filers

Millions of people around the country, including many here in New Jersey, carry student loan debt. In the aftermath of the recession and collapse of the housing market, many people find it increasingly difficult to make payments on their student loans and other debt. Filing for bankruptcy could eliminate most of an individual's debt, but most people are told that student loans cannot be discharged. That statement is not entirely true.

Not everyone can receive a discharge for student loans, but there are cases in which they may be discharged. Many private student loans can be discharged. Under certain circumstances, even federal student loans can be eliminated. Granted, the circumstances must be reviewed by the Bankruptcy Court, and the process requires a separate set of paperwork and hearing.

Consumers can stop harassing phone calls from creditors

New Jersey residents who are behind on their bills know what it is like to have creditors and collection agents calling. Many debt collectors will demand money immediately, using threats and continuous calls meant to harass and intimidate. However, consumers can stop harassing phone calls from creditors because many of the tactics they use violate federal law.

The Fair Debt Collection Practices Act (FDCPA) imposes limitations on creditors and collection agencies. Any consumer who receives a call from a debt collector is entitled to certain information. The caller must provide the name of the original creditor, advise the consumer that the debt can be disputed and offer written verification of the details of the debt. Other restrictions are also included in the FDCPA regarding when consumers may be contacted and who collection agents can contact.

Small business owners also file for Chapter 7 bankruptcy

Some New Jersey businesses are run by one individual doing business as the company. When the company is in financial trouble, the individual is often found liable for the company's debts. Many of these small business owners will file for Chapter 7 bankruptcy in an attempt to rectify their financial situations.

A woman running a tour company recently filed for bankruptcy protection after her business was named as a defendant in three civil complaints. All of the plaintiffs in those cases claim that they were due a refund from the woman's business that they never received. The individuals had booked trips, and when they were cancelled, they believed they were due a refund.

Property exemptions in Chapter 7 bankruptcy

Many New Jersey residents who are overwhelmed by debt want to file for bankruptcy liquidation. However, they might fear that they will have to surrender all of their property to pay their creditors. Fortunately, there are property exemptions for those who are eligible to file Chapter 7 bankruptcy. There are federal exemptions and state exemptions, and a filer may be able to choose between the two.

The main assets that most New Jersey residents are concerned about are their homes and automobiles. When it comes to a person's home, a homestead exemption exists that might protect it from being subject to liquidation. As long as the individual does not possess more than the allowed amount of equity in the home, it may be protected. The amount of equity can vary from state to state, but the federal exemption is approximately $20,000. The same principal is used for an individual's vehicle, but the allowed value is, obviously, much lower.

Dealing with debt collectors can lead to bankruptcy

Collecting debts is big business, and even though there are federal laws regulating the methods companies are allowed to use, lines are crossed, and it is the consumers who pay for it. In 2013, the Federal Trade Commission (FTC) received approximately 200,000 complaints regarding questionable tactics used by collection agencies. Those tactics have resulted in numerous consumers across the country -- and here in New Jersey -- filing for bankruptcy.

Some debt collectors have fraudulently obtained default judgments against consumers. Once a judgment is obtained, the company can garnish the consumer's wages, freeze bank accounts and pursue other legal collection remedies that are available to it through the court system. In some cases, people have been unable to get a job or a place to live because of tactics like these.

Stop wage garnishments attached to your paycheck

New Jersey readers might already know that wage garnishments are a tool often used by creditors to collect debts for which they have obtained a court judgment. A certain percentage of money is removed from each paycheck to cover the the debt. Of course, this process assumes that the person whose wages are being garnished actually owes the debt. When this happens, it may be possible to stop wage garnishments attached to your paycheck by paying the debt, making alternate arrangements with the creditor or filing for bankruptcy.

However, there are a growing number of people whose wages are being garnished for debts they never owed. For instance, a woman received a call telling her that she owed $2,600 plus interest, which made the total amount owed approximately $8,000, on a nine-year-old court judgment obtained by a collection service. She knew nothing about the debt and someone she did not know at a prior address accepted court papers.