FAQ 1: What happens to creditors (people I owe money to) when I file bankruptcy?
A: Upon filing bankruptcy, all actions against you are “stayed” or halted while the bankruptcy is pending. That also means that creditors should stop contacting you after they receive notice from the court regarding this filing. If there is an immediate action pending against you, like a wage execution, bank levy or a foreclosure, then this office will contact the attorneys who are prosecuting those actions. After you file, your will receive a bankruptcy Case Number. Keep this number handy to provide to debt collectors who call you after you file. Creditors should not continue to contact you once they have been noticed of the bankruptcy.
FAQ 2: Who is the “Trustee”?
A: The Trustee is appointed by the United States Trustee’s office. Their job is to administer the bankruptcy case; make sure creditors get as much money as possible; run the first meeting of creditors (also called the “section 341 meeting”); collect and sell non-exempt property (in a Chapter 7 case) or collect and pay out money on a repayment plan (in a Chapter 13 case); obtain information from you and documents related to your bankruptcy. In the majority of bankruptcy cases, you will not see a judge (your attorney may), but your main contact with an “official” in the bankruptcy process will be the Trustee.
FAQ 3: Will I lose my house?
A: Just because you filed bankruptcy does not mean you lose all of your possessions, including your house. If you file a Chapter 13 bankruptcy, most likely you will be filing a Chapter 13 Plan that contemplates paying your normal monthly payment, and paying your arrearage over a three to five year time period.
If you are filing a Chapter 7 Bankruptcy, the Trustee does have the ability to sell your house under certain circumstances. However, if your house is underwater, the Trustee cannot sell your house as there is no equity. The Trustee’s job in liquidating assets is to pay unsecured creditors – therefore if the lien is more than the value of your house, the Trustee cannot sell it. If the value of your house is above the amount of the mortgage, then the answer depends on how much equity is in the house. Each debtor is currently allowed a statutory exemption on real property used as a primary residence. That amount is $21,625 per debtor. If the Trustee sells a possession, he must first satisfy the mortgage and the exemption before having any money to distribute to unsecured creditors.
In addition, as a general guideline, the Trustee will use a 10% value of the fair market value to determine the administrative costs for the sale of a house. Therefore, if a house has a fair market value of $100,000, and the mortgage is less than $100,000, the Trustee will not attempt to sell the house.
If a house has a fair market value of $125,000, and the mortgage was $100,000, the Trustee would not sell the house as the Debtor would have used his/her $21,625 exemption towards the house. $100,000 mortgage plus the $21,625 exemption equals $121,625 – this is just a few thousand dollars less than the mortgage. If we add the general guideline for expenses of 10% or $12,500 under this scenario, there is again nothing to distribute to unsecured creditors. Therefore, the trustee will not attempt to sell the house.
If the house has a a fair market value of $150,000, and again the mortgage is $100,000, the individual Debtor is entitled to his/her $21,625 exemption, and administrative costs are projected at $15,000 (totaling $136,625), there is $13,375 in equity. There is more of a likelihood under this scenario that the Trustee would sell the house. The more equity after exemptions and projected expenses, the more likelihood that a Trustee will attempt to sell a property.
Fair market value is the price a willing buyer will pay for an item. A Trustee may perform his own CMA and have a different opinion of the fair market value of your home. Each house is different, and the Trustee may have the right to attempt to sell your home. This is why CMAs/BPOs are essential to obtain at the beginning of a case to evaluate how best to protect your home.
DISCLAIMER: Each fact situation is different, and this illustration may not apply to your case.
FAQ 4: What are secured and unsecured debts?
A: A secured debt is one that has a lien on property. For example, a mortgage is a secured interest against a house. A purchase of a vehicle involves in title of the vehicle being in the name of the financing company until it is paid off. Sometimes furniture companies also retain an interest in the furniture and will threaten to repossess the furniture unless the debt is reaffirmed or the property surrendered.
FAQ 5: What does it to mean to surrender, reaffirm or redeem property?
A: If you have property that has a lien on it, such as a car, you will be asked to state your intention to surrender, reaffirm or redeem the property. Surrendering the property means that you will not keep the property and will voluntarily relinquish it to the lien holder. Reaffirm means to reaffirm the debt. In most cases, you will be resuming payments at their regular rate. Some cases, our office can negotiate a lower interest rate on your behalf. Redeeming property is a rare occasion. This happens when the fair market value of the property is less than the loan amount/lien. For example, a vehicle is valued at $5,000, yet the loan is $10,000. Upon sufficient proof and court approval, the property can be purchased / redeemed for the fair market value in a one-time lump sum payment.
FAQ 6: What are priority debts?
A: We just talked about secured and unsecured debts, a third type of debt called “priority” debts are generally debts that are non-dischargeable, and must be paid off by the Trustee before paying off unsecured debts. Examples are unpaid wages, spousal or child support, and taxes.
FAQ 7: What possessions can I keep?
A: The federal bankruptcy statute provides generous exemptions for people filing bankruptcy. New Jersey also has a list of exemptions available, but most New Jersey practitioners choose the federal exemptions over state exemptions unless there are extraordinary circumstances. An exemption is a dollar amount that the Trustee would have to pay to the Debtor should the Trustee find that there was equity in a property to pay creditors after a sale.
The following is a non-exhaustive list of federal exemptions:
– $21,625 for real property used as a residence.
– $3,450 for one motor vehicle.
– $11,525 for household furnishings and wearing apparel.
– $1,450 for jewelry.
– $2,175 for professional books, or tools of the trade.
– $11,525 for cash value of life insurance.
– $21,625 for a personal bodily injury
The following items are generally fully exempt:
– Professionally prescribed health aids.
– qualified pension plans, 401ks, IRAs.
– a social security benefits.
– unemployment compensation.
– local public assistance benefit.
– a veterans’ benefit.
– a disability benefit.
– alimony, support, or separate maintenance.
FAQ 8: I haven’t filed yet, should I continue to use my credit cards?
A: NO. Stop using your credit cards and take no cash advances from any credit companies. The current rule is that use of a credit card for luxury items 90 days before your bankruptcy filing, and a cash advance 70 days before your bankruptcy filing is a presumption that the debt is not dischargeable. There is a possibility that a creditor can pursue a person who made purchases or took cash advances even outside of this time period.
FAQ 9: What kinds of debts can NOT be discharged?
A: Here is a non-exhaustive list of debts that are not dischargeable: many taxes; debts as a result of fraud or obtained under false pretenses; domestic support obligations; willful or malicious injury to others; fines payable to the government; student loans; death or personal injury claims by reason of intoxication; post-petition condo association dues; and any other debts incurred after the date your petition was filed.
FAQ 10: Do I have to list every debt?
A: Yes. You are legally obligated to list every debt. If you have a favorite credit card that you want to keep, don’t bother. As soon as your credit card companies discover that you have filed for bankruptcy, e.g., if they run a credit report and find that you have filed a bankruptcy, many companies will simply just cancel your credit without notice.
If you owe a family member and do not want to list them, you have to. After the bankruptcy is over, you can choose to pay back anyone you feel an obligation to. (You cannot pick and choose who to pay back before the bankruptcy). It makes sense to put those debts to friends and family on the petition even if you intend to pay them back. In the case that they would be entitled to receive a payment under a Chapter 13 plan or from a Chapter 7 asset distribution, your friend or family would received a payment. Doesn’t it make sense to pay your friends and family as much as possible inside the bankruptcy in order to reduce the amount you would pay them under your moral obligation after the bankruptcy?
FAQ 11: Who will find out about my bankruptcy?
A: Any court document is a public record. But bankruptcy records are not published in any papers. The people that get notice of your bankruptcy are your creditors. Under normal circumstances, no one will know of your bankruptcy filing.
FAQ 12: What about my credit, and what will happen to it?
Q: What will happen to my credit?
A: If your credit is not already shot, your credit score will be further reduced.
Q: Will I able to get credit after the bankruptcy?
A: Yes. Different companies have different policies regarding extending credit. It is not unheard of to receive an offer for a credit card shortly after your case closes.
Q: Should I get another credit card after my bankruptcy?
A: Yes. You will need to start restoring your credit. Judicious and limited use of a credit card is part of that process.
Q: How long will the bankruptcy be on my credit report
A: A Bankruptcy can last on your credit report for ten (10) years.