Should I File Chapter 7 Or Chapter 13 Bankruptcy?

Should I File Chapter 7 Or Chapter 13 Bankruptcy?In a way, both these programs are very much the same. They use the same basic forms and the same judge may hear both types of cases. Most importantly, they both share the same goal. Once the judge issues a discharge order, the debtors and their families have a fresh financial start.

There are at least two major differences, especially since Congress changed the laws in 2005. Chapter 7 and Chapter 13 always catered to different types of debtors with different needs, and now those differences are even more pronounced.

Type of Debt

Broadly speaking, people with credit cards, medical bills, payday loans and other unsecured debt should consider Chapter 7. Chapter 13 may be a better choice for those who are behind on car loans, home mortgages and other secured debts.

However, many people fall behind on their secured debt payments, for many reasons, and they do not wish to retain the property. For example, a debtor may be $20,000 behind on a home mortgage. Even with a five-year repayment period, many families would be hard-pressed to make a monthly catch-up payment, especially after factoring in trustee fees and other debt retirement.

So, Chapter 7 may be an option for people who are behind on secured debts and plan to surrender the collateral.

Amount of Time

Some people want to quickly emerge from bankruptcy so they may begin rebuilding their credit scores. In many cases, a Chapter 7 may be discharged in as little as four to six months. This consideration may be very important if you plan on buying something large, such as a car or house, within the next five years. But since every situation is different, make sure you discuss your goals with your attorney.

On the other hand, some people need additional protection from the Bankruptcy Court. A creditor may be garnishing wages for a non-dischargeable debt, such as student loans, certain income taxes or delinquent domestic support obligations. Both chapters stop wage garnishment until the court issues a discharge order or unless the creditor obtains special permission from the judge. In a Chapter 7, the order typically comes within a few months. However, a Chapter 13 will not be discharged for at least three years, and quite possibly longer than that.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

The Means Test

The Means Test in Bankruptcy

The Means Test in BankruptcyBefore 2005, persons seeking to file bankruptcy could generally choose between a Chapter 7 liquidation proceeding and a Chapter 13 reorganization. However, as a part of the revisions to the federal Bankruptcy Code in 2005, Congress set limits on who may qualify to discharge debts under Chapter 7. To be eligible, you must now submit to what is known as the “means test.”

The purpose of the means test is to determine whether you reasonably have the capability to repay your creditors rather than having your debts discharged. The means test is designed to keep persons with high incomes from discharging debt and immediately having substantial discretionary income that could have gone to creditors. Under the means test, however, you don’t have to be without income to qualify for Chapter 7. Here’s an overview of the how the means test works.

Determining Your Eligibility for Chapter 7

The first question the bankruptcy court will ask: Is your income less than the median income in your state for a household of your size? If so, you don’t have to go any further—you qualify.

If, however, your income exceeds the median income, you must document your expenses to determine whether you have enough income left after paying “allowed expenses” to pay some portion to your creditors. If your income exceeds your total expenses by a specified amount (which varies from state to state), you fail the means test and must file a Chapter 13 petition if you choose to use bankruptcy to get a fresh financial start.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

The Two Most Common Personal Bankruptcy Options

Your Personal Bankruptcy Options

If you are considering filing for personal bankruptcy protection, you can easily be confused about the different options available to you. Here are the basic options for obtaining personal bankruptcy protection.

Chapter 7 Case

In a Chapter 7 bankruptcy proceeding, you are allowed to replace with most debts certain debts in exchange for the sale of some of your assets. There are some limitations on the debts you may discharge. Customarily, you cannot discharge the debt on secured assets—homes or cars—and still keep the property. Additionally, child support and alimony arrearages cannot be wiped out in bankruptcy, and student loan and tax debts are very difficult to discharge.

With respect to things you are financing like your car or home if you want to keep it you have to continue to make the payments. If the thing you are financing is work less than what you owe, you have the option to give it back to the lender and owe them nothing or keep it but continue with the payments.

Under the revisions to the federal bankruptcy laws in 2005, you must now qualify for Chapter 7 by submitting to a means test, where the bankruptcy court determines if you make too much money to be in Chapter 7, in which case your options are to file Chapter 13 or no bankruptcy.

Chapter 13 Reorganization

In a Chapter 13 petition, you work out new payment arrangements with your creditors, agreeing to settle your debts over a three-to-five year period. Often, you will be able to get late fees and penalties waived. As long as you honor your new commitments, your creditors cannot make any additional efforts to collect on a debt.

The Automatic Stay

Whether you file for protection under Chapter 7 or Chapter 13, you are immediately entitled to the protection of the automatic stay, which prevents your creditors from calling, writing or taking any legal action outside of the bankruptcy proceeding to collect a debt from you.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

“Meaningful Review” by Collections Attorneys

U.S. District Judge Kevin McNulty, in the District of New Jersey, ruled last week in Bock v. Pressler & Pressler that a debt collection law firm violated the FDCPA (Fair Debt Collection Practices Act). The law firm apparently did not conduct a “meaningful review” of a collection claim filed against a consumer.

Bock had filed a federal court action against Pressler, alleging that Pressler had filed their State complaint against Bock without meaningful review by an attorney. His case work (Pressler employees working on behalf of the debt holder – Midland Funding LLC) was carried out by non-attorneys (a non-issue), but when it came time for the attorney review prior to filing the case with the State, the firm’s computer system shows a file accessed for review for only four seconds.

The standards set forth in the case Lesher v. The Law Offices Of Mitchell N. Kay in 2011 played a role in Judge McNulty’s decision. McNulty wrote that Lesher “establishes that it is false and misleading, within the meaning of FDCPA, for an attorney to send a debt collection letter without having meaningfully reviewed the case.”

Credit Card Debt HELP When You Need it Most

Regular, hard-working people get in over their heads with credit card debt and collections for many reasons. No matter how you got into deep credit card debt, there is a way out. In this country we do not put people in debtor’s prisons. Rather, our Constitution, as originally written in 1797, provides people the opportunity for a fresh financial start. Eliminating credit card debt can seem next to impossible when you don’t know your options. Our debt-relief attorneys can help you understand your options so you can make an informed decision about filing for bankruptcy and eliminating credit card debt.

Contact John Hargrave and Associates

The law firm of John Hargrave and Associates in Barrington, New Jersey, can help you regain your financial footing. Contact us online or call 856-547-6500 to schedule a free consultation with an attorney who has been helping people resolve difficult financial issues since 1977.

Questions to Ask Your Lawyer About Bankruptcy

Considering Filing for Bankruptcy? Here Are the Questions to Ask Your Bankruptcy Lawyer

You’ve been working hard to get your financial life back in order, but still can’t see any light at the end of the tunnel. You’re thinking maybe it’s time to consider filing for bankruptcy, but you are uncertain what that means, now and in the future. Here are the key questions to ask a bankruptcy attorney.

  • What are your qualifications? Before you hire a bankruptcy lawyer, find out how much experience they have, what types of bankruptcy proceedings they have handled and how well they have worked with others.
  • What are my options in bankruptcy? There are different approaches to bankruptcy. Chapter 7 allows you to permanently discharge most debts. In a Chapter 13 proceeding you have to make monthly payments to a Chapter 13 trustee who will distribute that money to your creditors over a three to five year period. A Chapter 13 bankruptcy case can also be used to catch up on missed mortgage payments, stop a foreclosure, or get back a car that has been recently repossessed.
  • Do I qualify for Chapter 7 protection? Under the 2005 revisions to the bankruptcy laws, to qualify for Chapter 7, you must demonstrate to the bankruptcy court that you lack the means to pay off your debts over a three-to-five year period. Your attorney should be able to walk you through the means test, provided you supply accurate financial information. Most people who are considering filing a Chapter 7 bankruptcy are eligible for Chapter 7.
  • If I file Chapter 7, can I keep any assets? The federal bankruptcy laws allow certain exemptions when you file for protection under Chapter 7. Each state has its own set of exemptions. You can choose one or the other. As a practical matter, nearly 98% of all people who file a Chapter 7 bankruptcy are able to keep everything that they own, including their houses and their cars.
  • What debts can I discharge? Most debts can be discharged in bankruptcy. However, not all debts may be discharged in a Chapter 7; certain tax obligations, child support arrearages and student loans are typically not dischargeable.
  • What information do I need to provide? You will be required to make an accurate and complete disclosure of your assets and liabilities as well as your monthly income and expenses. Your lawyer can work with you to collect all the documents necessary for a bankruptcy filing.
  • What is the cost? The cost for filing a bankruptcy case varies based on the complexity of the case. Between court costs and attorney’s fees, a standard Chapter 7 case can cost between $1,500 and $2,000. This amount is usually only equal to a small fraction of the debt owed.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Pros and Cons of Bankruptcy

Considering Filing for Bankruptcy? Reasons for and Reasons Against Filing

If you are struggling under a mountain of debt and you have been unable to get creditors to work with you, you may be considering a bankruptcy filing. Before you hire an attorney, here are some of the pros and cons of the process, so that you can make an educated decision about how you want to proceed.

The Advantages of a Personal Bankruptcy Filing

One of the principal benefits to seeking protection under Chapter 7 or Chapter 13 bankruptcy is that you get the protection of the automatic stay. When you file your petition, your creditors will be put on notice and will be prohibited from calling, writing or taking legal action outside of the bankruptcy court to collect the debt.

If you file under Chapter 7, you can permanently discharge most debts. Most people who file a Chapter 7 bankruptcy keep everything they own and are not required to repay their creditors from their future wages. If you file for Chapter 13 you will typically only need to repay a small portion of the debt that you owe. The remaining balances are discharged at the end of your Chapter 13 case.

A bankruptcy filing can also immediately suspend a foreclosure or repossession proceeding, allowing a homeowner who was unemployed but is now working again the opportunity to catch up on past due mortgage payments.

The Disadvantages of a Personal Bankruptcy Filing

When you file for bankruptcy protection, it goes on your credit record and stays there for 10 years. It may hamper efforts to obtain credit, but the reality is that creditors are usually more interested in what you have done with credit since the bankruptcy filing. The mere fact that you filed will not necessarily exclude you from consideration.

You are only eligible to get your debts discharged in bankruptcy every so often. The law requires people wait 8 years after receiving a Chapter 7 discharge to receive a Chapter 7 discharge. The law requires people wait 6 years after receiving a Chapter 7 discharge to receive a Chapter 13 discharge and 4 years from Chapter 13 discharge to Chapter 13 discharge.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Why Is Bankruptcy Called Chapter 13?

Why Is It Called a Chapter 13?

So you are facing a mountain of debt, but have some income. Your attorney or a friend has recommended that you seek protection under “Chapter 13.” But what does that mean? Why is it called a Chapter 13 bankruptcy, and what does that look like? This form of bankruptcy is called Chapter 13 because it is provided for in Chapter 13 of Title 11 of the United States Code. (When Congress passes a law it become part of the United States Code. Title 11 of the United States Code provides for the country’s bankruptcy laws and is known as the Bankruptcy Code)

Chapter 13 bankruptcy is often called a “reorganization bankruptcy”, but that term is often misleading. It is more appropriate to call Chapter 13 a “partial repayment bankruptcy”. In a Chapter 13 bankruptcy your attorneys work with you to craft a Chapter 13 bankruptcy plan where you will make monthly payments to a Chapter 13 trustee. These payments will be payments that you can afford each month. The Chapter 13 trustee will distribute these payments according to your Chapter 13 plan. Your unsecured creditors will typically receive only a portion of what they are owed. At the end of 3 to 5 years the unpaid balances will be wiped out.

When you file for protection under Chapter 13, as with other forms of bankruptcy, you are immediately subject to the protections established under the automatic stay. The automatic stay prohibits your creditors from calling, writing, pursuing legal action or making any other effort to collect your debts, other than through the bankruptcy proceedings. So the calls and letters must stop, and any legal proceedings that are already underway must be suspended.

Contact John Hargrave and Associates

We have provided comprehensive bankruptcy counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Bankruptcy — A Financial Decision, Not an Emotional Decision

Keeping the Emotions Out of a Bankruptcy Filing

When you are struggling to put your financial affairs in order, you need to focus on financial matters. Far too often, people will let emotions interfere with financial decisions — they won’t make efforts to contact creditors because of the shame or guilt they feel, or they won’t consider a potential bankruptcy filing because of the perception of failure or inadequacy that our culture attaches to a Chapter 7 or Chapter 13 petition.

It’s important to understand that bankruptcy is a financial decision — nothing more and nothing less. When you are considering filing for bankruptcy, your analysis should go no further than an assessment of whether it will help you resolve financial challenges and get a fresh start. Some of the key questions to ask include:

  • Have my financial challenges interfered with my family life?
  • What would my life be like if I did not have to pay my credit cards and medical bills?
  • Does my monthly income exceed my monthly expenses?
  • Am I using credit to pay for necessities or pay down existing loans?

Key Things to Remember When Emotions Come Into Play

It’s hard not to let your emotions interfere with the financial decisions related to a bankruptcy. Our culture likes to tell us that any financial challenge is a symptom of failure. But consider this: many of the people we think of as models of success — Walt Disney, Ulysses S. Grant, Abraham Lincoln, Donald Trump — all filed for bankruptcy protection at some point in their lives.

Furthermore, bankruptcy laws are not a modern response to an alleged culture of entitlement; there have been bankruptcy laws for centuries. The famous Dutch painter, Rembrandt, sought bankruptcy protection nearly 500 years ago.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-759-6022 (toll free at 866-662-3191).

Factors That May Cause Your Bankruptcy Petition to Be Dismissed

If you are struggling to meet your financial obligations and have considered filing for bankruptcy protection, or if you are already in bankruptcy, you need to be careful not to engage in activities that will cause the bankruptcy court to dismiss your petition. As long as the bankruptcy is in effect, your creditors cannot call, write or take legal action against you, but if the court dismisses the petition, you will lose all bankruptcy protection. Here are the reasons that a bankruptcy court will dismiss a petition:

  • You have filed a Chapter 7 bankruptcy, but you do not ‘pass’ the Means Test. When Congress revised the bankruptcy laws in 2005 they added a Means Test to determine whether you have the resources to repay creditors over time. If the Means Test says that you can pay something to your creditors, then you cannot receive a Chapter 7 discharge. In this case, you can convert to a Chapter 13 bankruptcy or dismiss your Chapter 7 bankruptcy. You have filed multiple bankruptcies.
  • You don’t provide your bankruptcy trustee with the documents that they need to review your case. Typically these documents are pay stubs, recent bank statements and tax returns.
  • You didn’t take a pre-bankruptcy credit counseling class. Before filing for bankruptcy most filers must take a one-hour credit counseling course. If you have not taken this.
  • You fail to show up at the meeting of creditors-The bankruptcy law requires that you attend the 341 meeting of creditors. If you fail to appear, your petition can be dismissed.
  • Your Chapter 13 plan is not feasible—If the bankruptcy court reviews your plan and determines that it is not realistic, your plan can be rejected and your case dismissed.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-759-6022 (toll free at 866-662-3191).

What Debts Can Be Discharged Through a Chapter 7 Bankruptcy Filing?

If you are struggling to pay your bills, you may be considering bankruptcy as a way to get a fresh financial start.. There are limits, however, on what debts may be discharged in a Chapter 7 or Chapter 13 filing. You want to know what debts you can and cannot rid yourself of in Chapter 7 or Chapter 13, so that you get the outcome you need and want. This blog provides an overview of the types of debts that can and cannot be discharged in a Chapter 7 or Chapter 13 bankruptcy filing.

As a general rule, you cannot discharge secured debt and still keep the property. Secured debt means home mortgages, car loans and other debts secured by collateral.

The other kinds of debt that are generally excluded from discharge are:

  • Child support and alimony obligations—These obligations can never be discharged.
  • Tax obligations—There are limited instances where a tax debt can be eliminated in a Chapter 7 bankruptcy. The tax debt must be at least three years old, the tax return must have been filed at least two years ago, any assessments by the tax authority must have been made more than 240 days ago, and you must not have committed tax evasion or tax fraud.
  • Student loan payments—In rare situations, where a debtor has shown extreme hardship, the bankruptcy court has allowed the discharge of student loan payments. As a general rule, though, they cannot be extinguished in bankruptcy.
  • Equitable Distribution from a Divorce – If you owe money to a former spouse as equitable distribution (as opposed to child support or alimony) arising from a divorce, you cannot discharge this debt in a Chapter 7. However, this kind of debt can be discharged in a Chapter 13!

Even though you may not be able to discharge all of your debts by filing for bankruptcy, filing for bankruptcy can often by a smart financial decision. By wiping out your credit card, medical bills, and personal loan debts you will free up

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.