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FAQ'S

Covered in this Article:

• Will bankruptcy wipe out all my debts?
• Will I have to go to court?
• What happens to property with liens on them? Are these debts also discharged?
• Can a debtor still file a chapter 7 if they own a house?
• What if the debtor fails to pay their mortgage payments due to circumstances beyond his control?
• What happens if the debtor forgot to list a creditor in their bankruptcy schedules?
• Can a debtor just list and discharge the “bad” debts, and keep the “good debts”?
• Can filing for bankruptcy help a person get his New Jersey driver’s license back?
• I have decided to file for bankruptcy, should I max out my credit card, and go on a spending spree before I file?
• Will I still owe taxes after I file for bankruptcy?
• What if a person committed fraud, would his debts still be discharged in bankruptcy?
• Can a debtor be discriminated against for filing bankruptcy?
• Which debts will I still owe after I file for bankruptcy?
• Will I still owe secured debts (mortgages, car loans) after bankruptcy?
• Can more than one creditor sue me at a time?
• Can my car be repossessed without any warning?
• The principal signor on a loan filed bankruptcy. Now the creditor is coming after the co-signor. Can they do that?
• When does a debtor have to stop using their credit cards if he wants to file for  for bankruptcy?

1. Will bankruptcy wipe out all my debts?

Yes, with some exceptions. Bankruptcy will not normally wipe out:

* Money owed for child support or alimony, fines, and some taxes;

* Debts not listed on your bankruptcy petition;

* Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;

* Debts resulting from “willful and malicious” harm;

* Student loans owed to a school or government body, except if the court decides that payment would be an undue hardship;

* Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

2. Will I have to go to court?

In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors.” In most cases this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. Occasionally, if complications should arise, or if you choose to dispute a debt, then you may have to appear before a judge at a hearing.  If you need to go to court, then you will receive notice of the court date and time from the court and/or from your attorney.

3. What is the “automatic stay” and why should I be concerned about it? What can a person do if there is a violation of the “automatic stay”?

The basic purpose of the stay is to protect the debtor and his property. The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization, or simply to be relieved of the financial pressures that drove him into bankruptcy.

If there is a violation of the automatic stay, then the debtor’s lawyer can seek sanctions against the creditor. Basically, the creditor must automatically stop all efforts to collect any debts. The bankruptcy lawyer can file a motion to obtain damages for the debtor is the automatic stay is violated. In most case, the bankruptcy court will only grant the debtor damages if the violation of the automatic stay is egregious, and the creditor was warned at least once.

4. What happens to property with liens filed on it? Are these debts also discharged?

Yes, but the lien remains, and it is still subject to seizure once the case is finished. However, the following may rules are very important:

* Certain liens (judgments, levies, non-purchase-money interests in household goods) can be eliminated entirely by asking the court to do so. There is an additional fee for this service. If you are interested in this service, let me know and I will quote such a fee.

* Other liens, like mortgages, motor vehicle encumbrances, and purchase money security in other goods cannot be eliminated. If you want to keep the mortgaged house, encumbered vehicle, or secured item, you may have to enter into an agreement to pay a part of the debt reaffirmation or the value of secured consumer debts redemption.

* If you believe any of these agreements or motions should be filed in your case, or if you want additional information, then please contact me. Remember, if you want to reaffirm a debt, avoid a lien, or redeem property, you must do so before the discharge order is signed.

Note: You can pay anybody you want after your discharge, however, few debtors do. It is important that you know the significance of your discharge order. If a debt is discharged, that creditor cannot force you to pay that particular debt. This means that the creditors cannot legally file an action against you for that debt, continue an action they had filed before the bankruptcy, send you collection letters or harass you in any other way. If this type of harassment occurs, then you may be able to sue the creditor.

If a debtor has moved out of their home with the intention of having the mortgage company take possession of it, and the mortgage company does not act to take title (change the name on the deed from your name to their name) for any reason, you still have legal responsibility to maintain your property so that it does not violate local, county, state or federal laws. A person can cannot let their property deteriorate to such an extent that it becomes a danger to the community.

5. Can a debtor still file a chapter 7 if he owns a house?

The answer is an absolute yes. You can file a case no matter what type of property you may own. A debtor can claim a very good portion of their equity under the homestead exemption. If the real estate is owned by two debtors, then two homestead exemptions can be claimed. Moreover, both debtors can also have their wild card exemptions applied to the equity in the home. In simple terms, an individual debtor can have about $20,000 worth of equity in their homes, and still qualify for a Chapter 7, and keep their homes. In a joint filing between spouses, the debtors can keep about $40,000 of equity in their homes. Another key point is that there is a cost of sale factor that is considered into assessing how much equity a debtor(s) has. Most trustees factor in a 10% cost of sale factor in determining that amount of equity that a debtor has.

A chapter 7 bankruptcy case for debtor who owns a home is more involved than a straight credit card Chapter 7. The legal fees are higher. Moreover, in many cases that trustee will require that the debtor(s) obtain a real estate appraisal of the home. Sometimes, a market analysis from a local real estate agent can be good enough for the trustee.  The debtor(s) will also have to produce their deed, mortgage statement, and copies of any liens to the trustee at the meeting of the creditor.  Sometimes, the debtors may even have more equity than the $40,000 limit, and the cost of sale factor. However, in many cases that trust may still file a notice of abandonment of any excess equity. Every case is different. If a trustee believes that the debtors have too much equity than they will force the debtor to file a chapter 13 instead.

If a debtor can get their chapter 7 through even if they own a home, this does not mean that the debtor can take a vacation from their mortgage payments. The mortgage on the real estate remains unaffected and valid. If the debtor stops making their mortgage payments, even for a month, the mortgagee (bank) could ask the Bankruptcy Court for relief from the automatic stay and receive permission to foreclose against the real estate. Therefore, in order to file a chapter 7 where the debtor owns real estate, the real estate equity must be exempt under state or federal law, and, the payments must be current upon filing and maintained current.

6. What if the debtor fails to pay their mortgage payments due to circumstances beyond his control?

Unfortunately, mortgagees (banks) generally do not care what reasons that the debtor has for not making their mortgage payments. Banks are concerned with profits for their shareholders. Banks are not charitable organizations and will happily foreclose on any mortgagor who is delinquent, regardless of the reason. When a debtor falls behind in a chapter 7, the debtor may elect to convert the case to a chapter 13. A chapter 13 case has provisions for curing, among other things, a mortgage default over a maximum period of 60 months.

7. What happens if the debtor forgot to list a creditor in their bankruptcy schedules?

Generally, the debts that are not listed in a debtor’s bankruptcy schedules are not discharged. This means that the debtor will still owe the creditor even after his bankruptcy case is completed. Therefore, the debtor has a MUST list all types and manner of debt, no matter what the source. “Debts” includes any money owed or alleged to be owed to any creditor for any reason.

8. Can a debtor just list and discharge the “bad” debts, and keep the “good debts”?

No. All debts must be listed. In the world of bankruptcy you are not entitled to have a favorite creditor. After your case is discharged there is no law that prevents you from paying your discharged debts.

9. Can filing for bankruptcy help a person get his New Jersey driver’s license back?

If a driver loses their license solely because they couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow them to get your license back. However, a chapter 7 bankruptcy can not permit a person to wipe off their New Jersey MVS surcharges. MVS surcharges can only be partially discharged in a chapter 13. Basically, the debtor will have to pay back a small portion of the surcharges over three years. If the debtor does not own any real estate, then in most cases the debtor can only pay $50 in a wage earner plan in a chapter 13. This legal process will enable the debtor to wipe out the MVS surcharges. Remember, MVS surcharges are not wiped out in a Chapter 7. After the automatic stay is over, then NJ MVS will continue to send out surcharge notices to the debtor if he only filed for a chapter 7.

10. I have decided to file for bankruptcy. Should I max out my credit cards, and then go on a spending spree before I file?

Absolutely no way. Any debtor should not use his credit cards for at least 90 days before he files. If a debtor files within the 90 day period, then a credit card company can file an adversary proceeding, and object to the debtor’s discharge. To avoid this aggravation, and additional lawyer fees, all credit cards should be frozen for at least 90 days before filing.

The trustees also scrutinize all bankruptcy cases for credit card abuse. Beware if a debtor uses their credit to pay for a vacation, fancy clothes, or other luxury goods. If there is a gross abuse, then a credit card company can file an adversary proceeding. Moreover, the trustee may not recommend the debtor for a discharge.

Moreover, all debtors should not go on a huge buying sprees before he files for bankruptcy. There is major trend that many credit card companies are filing more and more adversary proceedings. Most of these cases are settled. However, the credit card companies usually extract some portion of the debt as a settlement. All of this aggravation can be avoided if the debtor freezes their cards, and waits for about six months before they file. If the debtor does go on a buying spree with their credit cards, then the longer the wait before filing, then the less likely there will be problems with the case.

In summary, the Bankruptcy Courts only like the “hontest” debtors. The trustees and the judges do like to give discharges to people who run up their credit cards right before they file. Moreover, the judges and the trustees do no like to grant discharges to people who has amassed credit card debts on fancy vacations, expensive clothing, and restaurants. If this is your situation, then you should wait at least six months after any credit card transaction before you file.

A word of caution for all gamblers. Credit card cash advances for gambling debts can cause a mess. Sometimes a credit card company may file an adversary complaint to object to the discharge of this cash advance. Some courts are sympathetic to debtors who are addicted to gambling. Others courts are not. If you are filing for bankruptcy primarily because of gambling debts make sure that you hire a very experienced consumer bankruptcy lawyer, who has handled gambling adversary complaints before. Gambling debts can really turn a simply Chapter 7 case into a mess.

11. Will I still owe taxes after I file for bankruptcy?

Discharging taxes is one of the least known benefits of filing for bankruptcy. Many people are not aware that bankruptcy does provide certain protection against federal and state tax obligations. It is entirely possible to discharge some tax obligations. The discharge of taxes depend on a number of factors. These factors include the type of tax owed, the age of tax obligation, and whether you filed a tax return. Some taxes can be discharged, and I have been successful on a many occasions to wipe out thousands of dollars in past due taxes. If this is one of your concerns, then you need to see an experienced bankruptcy attorney to determine whether your tax obligations can be discharged.

12. What if a person has committed fraud, would his debts still be discharged in bankruptcy?

No! The Bankruptcy Code has long prohibited debtors from discharging liabilities incurred on account of their fraud, carrying forth a basic policy of affording relief only to an “honest but unfortunate debtor.” Congress did not favor giving perpetrators of fraud a fresh start (by allowing them to wipe out their debts in bankruptcy) over the interest in protecting victims of fraud when it wrote the Bankruptcy Laws. Accordingly, Section 523(a)(2)(A) of the Bankruptcy Code excepts from discharge in bankruptcy “any debt ………….. for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud.” 11 U.S.C. §§ 523(a)(2)(A).

13. Can a debtor be discriminated against for filing bankruptcy?

No. 11 U.S.C. sec. 525 prohibits governmental units and private employers from discriminating against you because you filed a bankruptcy petition or because you failed to pay a dischargeable debt. However, be advised that many employers now routinely look at a person’s credit report before they are hired. Some of my debtors have advised me that they have lost jobs because their potential employer was concerned with their credit report. Some potential employers believe that filing bankruptcy shows poor character.

Please be further advised that many landlords also carefully scrutinize a potential tenant’s credit report before they sign a lease. Many landlords won’t touch a person if they have a bankruptcy on their credit report. A person who files for bankruptcy should always have a secure lease before they file for bankruptcy.

14. What debts will I still owe after bankruptcy?

When your bankruptcy is completed, many of your debts are “discharged.” This means they are canceled and you are no longer legally obligated to pay them.

However, certain types of debts are not discharged in bankruptcy. The following debts are among the debts that generally may not be canceled by bankruptcy:

* Alimony, maintenance or support for a spouse or children.

* Student loans. Almost no student loans are canceled by bankruptcy. However, you can ask the court to discharge the loans if you can prove that paying them is an “undue hardship.”  Occasionally, student loans can be canceled for reasons not related to your bankruptcy when, for example, the school closed before you completed the program or if you have become disabled.  There are also many options for reducing your monthly payments on student loans, even if you can’t discharge them.

* Money borrowed by fraud or false pretenses. A creditor may try to prove in court during your bankruptcy case that you lied or defrauded them, so that your debt cannot be discharged. A few creditors (mainly credit card companies) accuse debtors of fraud even when they have done nothing wrong. Their goal is to scare honest families so that they agree to reaffirm the debt.   You should never agree to reaffirm a debt if you have done nothing wrong. If the company files a fraud case and you win, the court may order the company to pay your lawyer’s fees.

* Most taxes. The vast majority of tax debts cannot be discharged. However, this can be a complicated issue. If you have tax debts you will need to discuss these issues with your lawyer.

* Most criminal fines, penalties and restitution orders. This exception includes even minor fines, including traffic tickets.

* Drunk driving injury claims.

If you have debts that may not be discharged, you should discuss with your lawyer whether filing or converting to a chapter 13 may help.

15. Do I still owe secured debts (mortgages, car loans) after I file for bankruptcy?

Yes and no. The term “secured debt” applies when you give the lender a mortgage, deed of trust or lien on property as collateral for a loan. The most common types of secured debts are home mortgages and car loans. The treatment of secured debts after bankruptcy can be confusing.Bankruptcy cancels your personal legal obligation to pay a debt, even a secured debt.  This means the secured creditor can’t sue you after a bankruptcy to collect the money you owe.

But, and this is a big “but,” the creditor can still take back their collateral if you don’t pay the debt. For example, if you are behind on a car loan or home mortgage, the creditor can ask the bankruptcy court for permission to repossess your car or foreclose on the home. Or the creditor can just wait until your bankruptcy is over and then do so. Although a secured creditor can’t sue you if you don’t pay, that creditor can usually take back the collateral.

For this reason, if you want to keep property that is collateral for a secured debt, you will need to catch up on the payments and continue to make them during and after bankruptcy, keep any required insurance, and you may have to reaffirm the loan.

16. Can more than one creditor sue me at a time?

There is no legal limit on the number of creditors who may sue you at one time. But generally, if more than one of them have judgments against you, only one at a time is entitled to garnish your wages. In New Jersey a debtor can only be garnished for 10% of his salary. The first creditor to get the wage garnishment will collect first. Thereafter, any other creditors with judgments can then apply for another wage garnishment.

17. Can my car be repossessed without any warning? I am behind on my car payments, and neighbor noticed someone lurking around my driveway the other day . The bank hasn’t yet sent me any delinquent notices. Could it have been the “repo man” coming to take my car away without my permission? I’m thinking of storing the car in my friend’s garage. Is this a good idea?

Unless your driveway is a particularly attractive lurking spot, your repo man theory is a good one. In New Jersey if you are behind in your car payments, then the lender on your car note can “repossess” your car without warning or even leaving his calling card. The lender or the repossession company can hot-wire your car and drive it away from any location. The only limitation is that they can’t illegally enter your locked home or garage.

Don’t wait around for that lurking repo man to find your car. Instead, take action. First, determine if your inability to pay your car note is temporary or long-term. If it’s temporary, immediately contact your lender, explain your situation and try to work out a short-term solution. You may consider adding the missed payment to the end of the loan term. Moreover, you could also borrow money from friends or family to get current on your car loan.

If your situation will be long-term, then you should still contact your lender and try to buy some time. Then, sell the car yourself and use the proceeds to pay off your car loan. If you let the lender repossess the car, it will sell the car to cover what you owe on the loan and also charge you fees for repossession, sales costs and the like. And if the sales price is less than what you owe (including all the extra fees), you will owe the lender money. It is far better to sell the car yourself — you’ll get a better price, won’t be charged extra repossession and sales fees and you may even have some money left over after you pay off the loan.

In summary, dealing with a car repossession situation often requires filing for chapter 13. In a chapter 13, the debtor can repay the car payment arrears over three to five years. However, be forewarned that filing a chapter 13 is substantially more expensive than for filing a chapter 7. In a chapter 13, a debtor is also required to pay for trustee commissions, which is 9%. Moreover, the legal fees for a chapter 13 range from $1,500 to $2,000. Therefore, it is best to borrow the money, and to reinstate the arrears on the car payments, and then file for a chapter 7 if the debtor owes too much on their credit cards. Chapter 13 should be a last resort for a debtor to get caught up on their missed car payments.

18. The principal signor on a loan filed bankruptcy. Now the creditor is coming after the co-signor. Can they do that?

Yes, the lender can require the co-signor to make payments on a loan once the principal has declared bankruptcy on the credit. This fact makes it extremely important that those considering co-signing for a loan for another be ready, and able, to pay the loan in the event that the principal signor defaults.

A co-signer always has to be careful. Quite often, a really “slick” debtor will wipe out the debt, and also add the co-signer. This can be a really nasty life experience, especially if you cosign on a car note. Always be careful when you cosign. You may really regret it in the future.

19. When does a debtor have to stop using his credit cards if wants to file for for bankruptcy?

As soon as you anticipate filing bankruptcy then you must stop using your credit cards. Bankruptcy law allows the review of questionable purchases for potential fraud. If a purchase is made 90 days prior to filing, or cash advances taken within 90 days of filing, the debt may possibly be excluded from the bankruptcy.

I have always advised my clients to wait at least 6 months before filing for bankruptcy if they have used credit cards recently. There are law firms that specialize in filing adversary complaints for credit card companies. They try to shake the debtor down, and make they reaffirm or pay off part of the debt. Their main purpose is to convince the debtor that it would be easier to reaffirm and pay back part of the debt, then to pay their bankruptcy lawyer to litigate in Federal Court. Any litigation in Federal Court can be expensive and time consuming. Therefore, it is always advisable to wait at least 90 days before filing if recent credit card transactions are an issue.