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Essex County Bankruptcy Law Blog

You do not have to go it alone when filing for bankruptcy

Being overwhelmed by debt can cause a great deal of stress, fear and anxiety. Those feelings may be alleviated by making the decision that filing for bankruptcy in New Jersey is your best option. However, the process is paper intensive and complex, which may only bring back those emotions. Fortunately, you do not have to go through the process alone.

Attorneys who have chosen to help individuals and families who are struggling under a mountain of debt can make the process less stressful. The first question many people have is whether they should file a Chapter 7 (liquidation) or Chapter 13 (reorganization) petition, which are the most common consumer bankruptcy alternatives. The best option for you will depend upon an examination of your financial situation.

Filing for bankruptcy while on Social Security

The days of retiring debt free are long gone for many of New Jersey's elderly residents. Now, many worry that their Social Security benefits will be garnished in order to pay their debts. Those benefits may be safe from some creditors, but not all. Filing for bankruptcy could help.

Private creditors and debt collectors may not be able to reach Social Security benefits due to protections given to recipients under federal law. The benefits need to be deposited into a bank account for this to work, however. Fortunately, the majority of people receiving benefits have direct deposit. For those who still receive a paper check, the funds could be in jeopardy.

Some debts are treated differently in a Chapter 13 bankruptcy

When a New Jersey resident files for bankruptcy, the first step is to determine under which Chapter to file. This decision is often less about the individual's preference since income level often drives that choice. If a person's income is above a certain level, he or she will need to file a Chapter 13 bankruptcy, and certain debts are treated differently in such a filing than in a Chapter 7 petition.

In a Chapter 13, a filer is often able to keep his or her home so long as payments outlined in a court-approved repayment plan are kept current. The same is true for car loans. Some debts, however-- such as child support, student loans and alimony (called support debts) -- are generally not discharged in either type of personal bankruptcy.

Overwhelmed by debt? Filing for bankruptcy may be the answer

New Jersey's economic landscape remains in a state of flux -- mostly thanks to Super Storm Sandy and the crash of the housing market. Hard working residents struggle every day just to keep their heads above water. Filing for either Chapter 7 or Chapter 13 bankruptcy may be the best option for many of these individuals.

Whether a New Jersey resident files Chapter 7 or Chapter 13 -- which are the most common types of personal bankruptcy filings -- is not necessarily up to the filer. A "means test" is performed to determine which type of bankruptcy for which an individual may be qualified. The income thresholds vary from state to state, based on several factors.

There is life after bankruptcy for New Jersey residents

Some New Jersey residents avoid filing for bankruptcy because they believe that it will completely destroy their credit. However, continuing to struggle with overwhelming debt that they are unable to pay will only make matters worse. There is life after bankruptcy, and any existing credit damage can be repaired more quickly than many might think.

More than likely, if a person is considering bankruptcy, his or her credit has already sustained significant damage. Filing for bankruptcy will have an effect on an individual's credit, but it also stops the downward spiral of debt. From this point, the filer can begin to rebuild credit, which will -- in turn -- increase that person's credit score.

Student loans could cause lots of Americans to file bankruptcy

To be clear, student loans are nearly impossible to discharge in a bankruptcy. However, the ability to repay them could be hampered by other debts a New Jersey resident incurs. Therefore, having those debts discharged in a bankruptcy could free up the necessary income to make the payments.

The most recent numbers indicate that the total amount of student loan debt outstanding in the United States is approximately $1.27 trillion, which eclipses credit card debt and motor vehicle loans by millions of dollars. There also does not seem to be an end in sight. According to one source, another $3,055.19 is added to that already astronomical amount every second.

Making the decision regarding what type of bankruptcy to file

New Jersey residents who are struggling with financial problems may decide to file bankruptcy. Before filing, however, it may be beneficial to understand what to expect regarding the process and the fate of certain assets and debts. This information could help in determining what type of bankruptcy to file along with when it would be most advantageous.

Individuals generally file one of two types of bankruptcy: Chapter 7 (liquidation) and Chapter 13 (reorganization). Which type will work best for a New Jersey resident depends on several factors such as owning a home, income and types of debts. It may also depend on whether a homeowner wants to keep certain assets or will surrender them during the bankruptcy.

Debt collectors can be used to prepare for bankruptcy

New Jersey residents who are having financial issues do not need the added stress that debt collectors induce through harassing phone calls and letters. However, if someone is preparing to file for bankruptcy, debt collectors can be a valuable source of information. The Fair Debt Collection Practices Act (FDCPA) requires that consumers be provided with certain information about their debts, and that information can help in preparing a Chapter 7 or Chapter 13 bankruptcy petition.

Debt collectors can include the original creditor, a company that purchases debts and attorneys. If someone attempting to collect a debt contacts a consumer, the person or entity making contact has five days to send a "validation letter" to the consumer. This letter must outline certain information about the debt including information about the original creditor.

Agreement will stop harassing phone calls from creditors

The Consumer Financial Protection Bureau (CFPB) accused Discover Financial Service's private student loan division of illegal debt collection practices. In New Jersey and elsewhere, the CFPB is the federal agency that helps stop harassing phone calls from creditors. The agency claimed that Discover "hounded" over 100,000 of its student loan borrowers by contacting them on their cell phones both early in the morning and late at night in violation of proscribed debt collection practices.

The company was also accused of overcharging those same customers. The CFPB also alleged that Discover did not adequately service its student loans. Most people recognize Discover as a credit card company that earns most of its revenue from that division. The company made an agreement with the CFPB to pay $18.5 million without admitting any fault.

Qualifying for a loan modification could increase debt problems

As many New Jersey homeowners continue to struggle to keep their homes, some are hanging their hopes on a loan modification. However, qualifying for this type of mortgage debt relief could actually make a homeowner's financial situation worse. This is because many loan modifications are not offered to borrowers until the situation is dire.

In many cases, lenders require a homeowner to be behind in their payments by at least 90 days before a loan modification will even be considered. This means that the individual's credit score will dramatically fall, which would most likely effect his or her ability to obtain credit in the future. It has been estimated that a mortgage loan that is 90 days past due reduces a person's credit score by as much as 100 points.