A Chapter 7 bankruptcy is the most common type of bankruptcy filed by individuals, and in many ways is preferable to a Chapter 13 filing, as long as you qualify. A Chapter 7 bankruptcy offers many immediate benefits upon filing:
- A Chapter 7 bankruptcy filing immediately creates an ‘automatic stay'. This stops garnishments, court cases, creditor harassment/phone calls, foreclosures, court ordered house sales and car repossessions.
- Chapter 7 can be used to discharge both personal and business debt. Chapter 7 is the simplest, quickest and most common form of bankruptcy.
- A Chapter 7 bankruptcy gets rid of most unsecured debt, provided that the charges are more than 90 days old. Unsecured debt includes credit cards, medical bills, pay-day loans, signature loans and court judgments for the same. Judgment liens can even be lifted from your real estate.
Chapter 7 Bankruptcy allows you to choose what you want to do about your secured debt (i.e. automobile loan, home mortgage). You can eliminate the secured debt by surrendering the secured property, or you can keep your secured property. An automobile lender/lien-holder can require you to sign a reaffirmation agreement to keep your motor vehicle. The terms will be the same as your original agreement. If you sign a reaffirmation agreement and fail to make the payments, you can be sued after the bankruptcy. No reaffirmation agreement is required if you want to keep your house.
Certain debts will survive a Chapter 7 bankruptcy and cannot be eliminated. These include, child support, alimony, debts incurred by fraud, criminal penalties, debts incurred while DWI, intentional bad acts, debts less than 90 days old and some tax debts. Personal income tax debt from late filed or non-filed tax returns cannot be discharged in New Jersey. Recent tax debt for taxes due less than three years ago also cannot be discharged, even when the tax return forms are filed on time. Federal student loans are rarely dischargeable for ‘undue hardship'. Private students loans may or may not be dischargeable.
Most people who file Chapter 7 Bankruptcy are permitted to keep all of their property. (Property not exempt and not abandoned by the bankruptcy trustee must be surrendered.) During your free consultation I will review your real and personal property with you to make sure that it can be exempt/protected.
New Jersey residents may choose either the New Jersey or the federal exemption list of property to keep. New Jersey does not have the strongest debtor protections compared to most other states, so often the federal exemptions are preferrable, which often allow you to retain 100% of your real and personal property.
Income guidelines determine your eligibility for Chapter 7 Bankruptcy, where the debts are primarily consumer debts . (No means test is required if the majority of your debt is business debt.) If you earn less than the median income for the state in which you reside, you qualify. If you earn more, a means test will determine your eligibility to file. The median income for New Jersey residents fluctuates, but hovers around $72,000 for a single person, $88,000 for a married couple, $112,000 for a married couple with one child and $134,000 for a family of 4. Income includes your job pay, pension withdrawals, pension payments, rents received from renting real estate, net business income and regular monthly gifts from family.
Social Security is not counted in the means test.
Many people still qualify for Chapter 7 when their income is over the median income. This depends on a number of factors calculated by the means test, such as mortgages and car loans. It is important to do a means test before you do a pension withdrawal, to avoid potentially disqualifying yourself from filing for six months.