Which Type of Bankruptcy is Best to File in Pennsylvania or New Jersey?
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, which is also called “ordinary bankruptcy,” “straight bankruptcy,” or “liquidation bankruptcy,” is the most common type of bankruptcy case. According to statistics, Chapter 7 accounts for approximately two thirds of all consumer bankruptcy filings.
Chapter 7 allows the person filing, who is called the “debtor,” to discharge unsecured debts, or debts that are not secured by collateral. This includes debts from credit card bills, medical bills, utility bills, and most personal loans.
If you file for Chapter 7, you may be able to keep your car, your home, and other possessions by using bankruptcy exemptions. Debtors in Pennsylvania and New Jersey may choose between federal exemptions and state exemptions, which can protect certain assets depending on your amount of equity in those items. While most debtors choose the federal exemptions, which provide a greater level of asset protection, there are some cases where it is appropriate for debtors to use the Pennsylvania or New Jersey exemptions.
A court-appointed official called the “trustee,” who is assigned to each Chapter 7 case, has the authority to sell the debtor’s non-exempt assets and distribute the proceeds to the debtor’s creditors. However, in the majority of cases, exemptions can protect most or all of the debtor’s property.
Chapter 7 bankruptcy can have a few advantages for debtors. Not only is the Chapter 7 process faster than other types of bankruptcy, there is also no requirement to make monthly payments to a bankruptcy trustee. The process can also provide swift and significant debt relief, allowing for a fresh start.
A Chapter 7 bankruptcy may be appropriate for you under the following circumstances:
- You have primarily unsecured consumer debts.
- You have either limited equity in your home, you are a renter, or your home is owned as husband and wife and the unsecured debt is primarily in only one party’s name.
- You have a moderate or modest income.
- You have little or no money left after paying your necessary living expenses.
- You do not have significant liquid assets.
There are many advantages to a Chapter 7 bankruptcy as compared to other types of bankruptcy. In a Chapter 7, there are no monthly payments to be made. In addition, a Chapter 7 bankruptcy is less costly than a Chapter 13 bankruptcy, and you will receive a Chapter 7 discharge at the end of the process which only takes approximately three to five months from the filing date. Also, if you decide to file a Chapter 7 bankruptcy, you will in most cases immediately stop making payments to all unsecured creditors and will be under the protection of the bankruptcy law. The filing of a bankruptcy, whether it is a Chapter 7, 11 or 13, produces an Automatic Stay which immediately stops all action on the part of creditors. Even though there were significant changes in the bankruptcy laws effective October 17, 2005, most individuals who would have considered filing a Chapter 7 bankruptcy under the old law would still qualify under the post-October 17, 2005 changes.
Chapter 7 Bankruptcy Income levels in New Jersey and Pennsylvania
It’s based on the median incomes for the states. So, there’s a presumption if you’re above a certain income that you don’t qualify for Chapter 7, but that’s not absolute because they do give credits for certain things, such as mortgage payments for child support. So, for example, a household of one in Pennsylvania, your approximate income is up to $45,000 to still qualify for a Chapter 7. New Jersey’s higher. It’s approximately 60,000 because it’s statewide; it’s not based on where you live in the state.
For example, a family of four in Pennsylvania, the median income allowed is a little over 80,000 and then in New Jersey it’s a little over 100,000. It goes to 102,000. Again, you can still qualify, potentially, for Chapter 7 with incomes above those levels, if you have certain credits, which you’re entitled to, such as a car payment or child support or a mortgage payment.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy permits individuals to keep all of their property while making a monthly payment to creditors out of their future earnings or income. A repayment plan, also known as a Chapter 13 Plan, must be approved by the Court. In most cases, a majority of unsecured debt is discharged, and payments are made on arrearages on secured loans such as mortgages, car loans, or tax debts. A written Plan is created providing anywhere from 36 to 60 months payments to the Trustee who then distributes the payment to creditors per the Plan. At the end of the Plan, you will receive a discharge from the Bankruptcy Court. Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy is ideal for any individual who is behind on secured payments and is unable to bring the accounts current without the filing of the petition. Unlike attempting to negotiate with a secured creditor outside of bankruptcy, the Chapter 13 Plan forces the creditor to accept payment on the arrearages over either a 36 or 60 month period of time. A Chapter 13 bankruptcy may also be appropriate in a case where your monthly income is significantly in excess of your monthly living expenses (excluding payments to unsecured creditors such as credit card payments). Like a Chapter 7 bankruptcy, a Chapter 13 provides an automatic stay which will prevent all creditors from taking any further action once the case has been filed. Likewise, if you fikle a Chapter 13 bankruptcy, pursuant to the Automatic Stay, all creditors will cease communication with you.
A Chapter 13 bankruptcy may benefit you under the following circumstances:
- You are behind on your payments for property that you want to keep in a bankruptcy. For example, you are behind on your mortgage or car payments. In this instance, the arrearages may be put in the Plan so your original payment amount will stay the same. In certain circumstances, you may place your whole loan in the Plan and reduce the total amount repaid on a car loan. This is known as a cramdown, which is based upon a number of factors including the value of your car.
- If you have tax debts that are not dischargeable in a bankruptcy. Under limited circumstances, certain federal and state income taxes may be able to be discharged in a bankruptcy. However, in most cases, federal and state income taxes may need to be repaid, and a Chapter 13 allows you to repay the taxes over a 36 or 60 month period. In addition, most, if not all, of the penalty will be forgiven under the Plan.
- If you have significant credit card unsecured debt, such as credit cards or medical bills but your income is too high to qualify for a Chapter 7 bankruptcy. In that instance, often a Chapter 13 Plan will provide relief in that it will significantly reduce your payment to unsecured creditors.
- If you have non-exempt property that you want to keep. If, for example, the value of your home is significantly more than what your remaining mortgage or home equity loans total, or you have a significant amount of liquid assets, you would have to give up that property if you filed a Chapter 7 bankruptcy. However, in a Chapter 13 bankruptcy, you would be able to keep the property and pay back those unsecured creditors who filed Proof of Claims in the bankruptcy over a 36 to 60 month period, interest and penalty free. Remember, like a Chapter 7, a Chapter 3 bankruptcy will stop all mortgage foreclosure actions, utility shut-offs and any law suits or other legal action on the part of any creditors.
Remember, it is important to speak with a qualified professional prior to determining whether a Chapter 7 or a Chapter 13 bankruptcy is appropriate for you. At Young, Marr & Associates, no legal advice will be given except by a qualified bankruptcy attorney who can best assess your situation and determine the appropriate remedies available. You can contact one of our experienced attorneys to discuss whether a Chapter 7 or a Chapter 13 bankruptcy is right for you. This is a free consultation and legal advice will only be given by one of our experienced bankruptcy attorneys.
Stopping a Mortgage Foreclosure
Debt relief isn’t the only reason to consider filing for bankruptcy. Depending on the situation, it may be appropriate to declare bankruptcy as a method of delaying or even preventing foreclosure on your home.
Generally speaking, Chapter 13 is the preferred bankruptcy option for debtors concerned about foreclosure prevention. While Chapter 7 bankruptcy has several advantages over Chapter 13, such as its speed and simplicity, Chapter 13 typically offers greater protection against foreclosure. The reason is the reorganization plan featured in Chapter 13 bankruptcy.
When a debtor files Chapter 13, he or she enters an agreement, or reorganization plan, to repay certain debts over a period of three or five years, depending on what the bankruptcy court will authorize. The reorganization plan allows the debtor to catch up on missed or delinquent (late) mortgage payments, which are called “arrears” or “arrearages.” If you’re worried about foreclosure because you’ve fallen behind on your mortgage, Chapter 13 can give you time to cure the arrears and get current on your payments. Chapter 13 can also help you catch up with, reduce, or wipe out the debts that caused you to miss mortgage payments in the first place.
Chapter 7 can also provide some protection through a feature of bankruptcy called the “automatic stay,” which temporarily delays foreclosure proceedings (and other collection actions). However, Chapter 7 does not allow the debtor to cure arrearages.
Short Sales and Loan Modifications
If you’re a homeowner in Pennsylvania or New Jersey who is considering bankruptcy due to financial hardships, it may be appropriate to explore loan modifications, which can make it easier for you to manage your monthly payments. It may also be beneficial to consider a short sale, which may be able to stop foreclosure of your home.
A short sale may be the best approach for a homeowner who owes more than his or her property is worth. In a short sale, the borrower or “mortgagor” sells his or her property for less than the actual mortgage amount. However, the short sale must be authorized by the lender or “mortgagee” in order to proceed successfully, which can create obstacles for homeowners who lack legal representation. An experienced bankruptcy attorney can work to negotiate a short sale for you, and will protect your best interests and legal rights as a homeowner throughout the process.
Loan modifications, such as mortgage loan modifications, can also be helpful for homeowners who are experiencing financial difficulties. Depending on the situation and what the lender is willing to agree to, a mortgage modification can make your mortgage more affordable by lowering interest rates or extending the duration of the loan, resulting in smaller payments.
Which Type of Bankruptcy is Right for You?
Most debtors choose either Chapter 7 bankruptcy or Chapter 13 bankruptcy. Though exceedingly rare, there are also some cases where individual debtors file for Chapter 11, which is normally used by businesses.
It’s important to consult with a knowledgeable and experienced bankruptcy lawyer when determining which type of bankruptcy is best for your situation. The attorneys of Young, Marr, & Associates can help you make an informed and financially sound decision.