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Essex County Bankruptcy Law Blog

How to complete credit counseling after bankruptcy

Now that you have decided to file for bankruptcy in New Jersey, there are certain requirements that must be met before you can receive a discharge. One of these requirements is credit counseling. This may sound complicated, but, fortunately, the procss can be made easy with help from a bankruptcy law firm.

Credit counseling is in two parts. The first part must be completed prior to filing for bankruptcy. The credit counseling course informs potential debtors about all of the debt relief options from which an individual can choose. The certificate received after completing the course is filed with the court.

How does the automatic stay help someone who filed bankruptcy?

When a New Jersey resident files for bankruptcy, something called an automatic stay is instituted. This means that as soon as the person filing for bankruptcy receives a case number, all creditor activity to collect a debt is required to stop.

Notification of creditors is made pursuant to court order. This is one of the biggest advantages to filing since it gives the filer breathing room to make some decisions regarding his or her finances without harassing phone calls from creditors or the risk of immediate eviction from a home -- whether owned or rented.

The automatic stay will also stop any garnishment attached to a paycheck (child support is a notable exception). Harassing phone calls from creditors must also stop. Vehicles and other personal property cannot be repossessed. Any levies on bank accounts must also stop.

What does bankruptcy mean for New Jersey consumers?

Simply put, bankruptcy is the federal court procedure designed to assist individuals and businesses with eliminating debt and paying creditors. New Jersey residents file two types of bankruptcy most often. The first is liquidation (Chapter 7), and the second is reorganization (Chapter 13).

In Chapter 7 bankruptcy, some of an individual's assets may be sold to pay his or her debts. Fortunately, an individual might be surprised that he or she does get to keep certain property that will not be sold. The major benefit of a Chapter 7 is that any debts that do not secure a piece of collateral -- such as a credit card debt -- are erased. The filer also gets to choose whether to keep property that is secured by a loan. There are some debts that cannot be discharged, however, such as taxes, alimony and child support.

There are numerous benefits to filing for Chapter 13 bankruptcy

Since the United States Bankruptcy Code changed, not as many New Jersey residents qualify to file for Chapter 7 bankruptcy because they have disposable income, which is the money an individual has left after paying for necessities such as shelter, food and health care -- just to name a few. As an alternative, these individuals may file for Chapter 13 bankruptcy, which is a reorganization of a person's debts through a payment plan overseen by a trustee who works for the bankruptcy court. The benefits to filing a Chapter 13 bankruptcy are numerous.

The trustee in a Chapter 13 filing has some latitude when it comes to the amount of an individual's payments. It can take up to five years to complete a repayment plan, but in the end, creditors are not allowed to request that the filer repay any remaining balance on the account. In addition, secured property can be surrendered if the filer no longer wants to make payments on it. On the other hand, any property an individual makes payments on can be kept during the course of the bankruptcy.

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.