by Darren M. Baldo
Bankruptcy is a very complicated area of the law. You can find hundreds of pages of text that detail the rules and exceptions for each chapter of bankruptcy, whether Chapter 7 or 13. Most bankruptcies have common elements and questions. Some of the more frequently asked questions and the answers are summarized below.
1. What is Chapter 7? A liquidation of your assets to pay your debts and to discharge the remainder of your unpaid debts, with many exceptions (see below). In order to be eligible for Chapter 7, either (A) your debts must be primarily non-consumer (business), or (B) if your debts are consumer debts, then you must pass the "means test" income limits test. The median income per household in New Jersey is now $59,060 (1 person); $70,680 (2 person); $85,573 (3 person); $101,106 (4 person).
2. What Debts Are NOT Dischargeable? Child support, alimony, income taxes less than 3 years old, DWI fines, wrongful death judgments, bad check fines, personal injury awards for willful acts, secured debt (up to value of asset), criminal fines or student loans (except for undue hardship).
3. What is Chapter 13? A payment plan to pay your debts while keeping your assets. In order to be eligible for Chapter 13, however, your unsecured debt cannot exceed $360,475 and your secured debt cannot exceed $1,081,400.
4. Will I lose my HOME? If you file Chapter 13 and you pay your mortgage and taxes, then you probably won’t lose your home. There is a risk, however, that, if you cannot keep up with the payments under the plan, the trustee or creditor may file a motion to convert your case to a Chapter 7. If you file Chapter 7 or your case is converted to Chapter 7, then you may lose your home depending upon whether your home has sufficient equity (value less debt). If your home has equity, then the trustee may want to sell it to pay the proceeds to unsecured creditors and get paid a trustee’s fee for doing so. If you file for bankruptcy prior to the sheriff’s sale in a foreclosure, you can keep your home based upon the above rules. However, if you file for bankruptcy after the sheriff’s sale of your home, then bankruptcy will not help you keep your home.
5. Can I discharge my back TAXES? If you owe property taxes, then there is an automatic lien on that real property so a discharge will not help. If, however, you owe income taxes, then you will not be able to discharge any income tax debts in a Chapter 7 unless (A) the taxes are at least three years past due, (B) tax returns were filed at least two years ago, and (C) the assessment of tax is at least 240 days old.
6. How does the Chapter 13 payment plan work? Generally, you must pay the amount of your non-exempt assets to your unsecured creditors over at least 36 months. The trustee and the court take into account and many times permit modifications based upon circumstances involving affordability of a payment plan. If you make more money than the median income, then your payment plan will be for 60 months. If you complete your payment plan, the excess unpaid unsecured debts are discharged.
7. What do I need to do to file? The process begins with the filing of a petition with the court and the schedules of income, expenses, assets and debts and payment of the filing fee. Print out your credit report, which summarizes your current debs. Get a valuation of your home and other real estate. Provide proof of all income for the past 60 days minimum. Take the 2 required courses: (A) credit counseling, and (B) financial management.
Darren M. Baldo, Esq., CPA, LL.M. is an attorney focusing on bankruptcy, collections, business law, contracts, wills, trusts, estates, employment law and taxation. Visit www.dbaldolaw.com for more information or call 609-799-0090 for a free consultation.