Myths About Bankruptcy in New Jersey
Bankruptcy Myth #1: “If I file for bankruptcy, they will take everything from me.”
Bankruptcy Fact: In New Jersey Chapter 7 Bankruptcies, over 98% of people keep everything that they own though the process and still have their debts forgiven. In New Jersey people can use the ‘Federal Exemptions’, a generous set of exemptions which allows you to protect the assets you care about. Here is how exemptions work:
The Bankruptcy Code provides individuals with the ability to shield their assets from a bankruptcy trustee with exemptions. With your exemptions you can protect:
- 100% of qualified retirement accounts including IRAs, 401Ks, and Pensions
- $10,800 of equity in your home
- $11,975 of value in whatever you want: Cash on hand, money in the bank, etc.
- $3,450 of equity in one automobile
- Up to $11,525 of household goods and furniture
- Up to $1,450 of equity in jewelry
- Up to $2,175 in professional books and tools of the trade
- Up to $11,525 of value in whole life insurance policies
- 100% of all professionally prescribed health aids
These are the major exemptions; there are many other exemptions available to you in the Bankruptcy Code.
Bankruptcy Myth #2: Filing for bankruptcy means that I am a failure or an immoral person.
Bankruptcy Fact: Financial problems usually have nothing to do with having done something wrong. People who have lost their jobs, have uninsured medical expenses, are no longer able to work, or have incurred extraordinary expenses, such as car accidents or hurricanes have nothing to be ashamed about. In fact, many successful people have turned towards bankruptcy for debt relief: Walt Disney and Donald Trump filed a number of bankruptcies. Recently American Airlines filed for bankruptcy. These people and companies are not immoral nor are they failures, and neither are you.
Bankruptcy Myth #3: “Filing for bankruptcy will ruin my credit rating”
Bankruptcy Fact: Based on the simple fact that you are considering filing for bankruptcy, your credit rating is probably already very low, or you are looking at events that will take it there in the very near future. A bankruptcy filing is a significant dent in your credit profile and it will drive your score lower. However, as with many people facing bankruptcy, it is highly likely that your credit score is so low already that filing for bankruptcy will do any more damage.
Bankruptcy Myth #4: “If I file for bankruptcy, I will never be able to get credit again”
Bankruptcy Fact: Once you have filed a bankruptcy, your ability to obtain credit will increase significantly. Prior to bankruptcy people typically owe a large amount of unsecured debt. Post-bankruptcy, that same person is a better credit risk for two reasons: 1.) They no longer have a large amount of unsecured debt; and 2.) Once you file a Chapter 7 bankruptcy, you cannot file a second Chapter 7 for eight (8) years. Our experience is that clients typically receive new credit card applications within two months of the time they file their Chapter 7 bankruptcy case. The credit cards will not be at a great interest rate or have high credit limits, but you will be able to use these cards to rebuild your credit.
Bankruptcy Myth #5: “If I file for bankruptcy, I will never be able to get a mortgage to buy a home”
Bankruptcy Fact: This is not true. Federal Housing Administration (FHA) rules say that you cannot qualify for a FHA backed mortgage for the first three (3) years after you file for bankruptcy. After that what will matter are all the typical things that go into the decision to grant a mortgage or not, i.e.: do you have the income to make the mortgage payments; have you been paying your bills on time after you filed bankruptcy.
Bankruptcy Fact: Once you have received your discharge, you will be eligible to finance the purchase of a new car. Once again, you will not get the best interest rates, but if necessary you will be able to finance the purchase of a new car.