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.

Stop Garnishment and Levies by Filing for Bankruptcy Protection

When your debts become unmanageable, you face the risk that creditors will take legal action against you, garnishing your wages or levying on your bank account. If you are already subject to a garnishment or you fear that a creditor may seek to attach your bank account, you can stop this action and protect your interests through a bankruptcy filing. Whether you file for protection under Chapter 7 or Chapter 13, an automatic stay immediately goes into effect when you file, preventing creditors from calling, writing or taking legal action against you.

The automatic stay will be in effect throughout the bankruptcy process. In a Chapter 7 proceeding, your debts will be permanently discharged, and your creditor will have no further right to seek recovery from you, once the bankruptcy is final. In a Chapter 13 reorganization, your creditor may not contact you or take any legal action against you (outside of the bankruptcy proceeding) during the term of your repayment plan (typically three to five years). At the end of your Chapter 13 reorganization your debts will be permanently discharged.

Ending Wage Garnishment with a Bankruptcy Filing

Before a creditor can file a request to garnish some of your wages, the creditor must file a lawsuit against you and get a judgment. Before the lawsuit can proceed, you must receive notice that you have been named as a defendant in a lawsuit. If you do not respond to the lawsuit, the creditor can obtain a default judgment. Even if a creditor files for garnishment of your wages, your employer typically cannot withhold more than 10 percent of your paycheck (there are exceptions, though, for child support and tax arrearages). The automatic stay in a bankruptcy stops wage garnishments.

Stopping a Bank Levy

When a creditor attempts to levy a bank account, they obtain a court order directing your bank to freeze some or all of the assets in your bank account. The automatic stay in bankruptcy prohibits your creditor from taking this legal action against you.

Contact John Hargrave & 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.

Converting a Chapter 7 Bankruptcy Petition to A Chapter 13 Filing

When you face financial woes, and decide to file for bankruptcy protection, your first inclination may be to file a petition under Chapter 7, where you can permanently discharge debts and be done with them. However, you may not qualify under the new rules governing Chapter 7 filings, or you may discover that you have compelling reasons to go into Chapter 13. The good news is that you can successfully amend your Chapter 7 petition to a Chapter 13 filing.

Reasons to Consider Converting a Chapter 7 Filing

There are a number of reasons you may decide to change your Chapter 7 liquidation proceeding to a Chapter 13 reorganization:

  • You may not pass the means test required for Chapter 7—Under the 2005 revisions to the bankruptcy laws,people with very high incomes may not be eligible for a Chapter 7 bankruptcy.
  • You may want to keep all your property or have a lot of nonexempt property—You may decide that you don’t want to sell certain items of property to satisfy creditors. A Chapter 13 bankruptcy proceeding will allow you to keep assets, but will give you a respite from payments while you work out a reorganization plan.
  • You may have significant debts that cannot be discharged in bankruptcy, such as child support arrearages, tax debts or student loan payments and need the protection of bankruptcy to repay them in an orderly fashion.
  • Chapter 7 may only postpone foreclosure or repossession efforts—In a Chapter 13 proceeding, you can catch up on mortgage arrears. . As long as you make regular monthly payments outside of your Chapter 13 plan and make your monthly Chapter 13 payment,, your creditors cannot move forward with repossession or foreclosure proceedings. A Chapter 13 filing can help you reduce obligations on secured debts, such as cars or homes—You can use Chapter 13 to “strip” a second mortgage from real property, or to “cram down” a car loan.

The process for converting from a Chapter 7 to a Chapter 13 is simple. You must file a motion with the court, state your reasons for changing your petition, and demonstrate that you can afford the payments in a Chapter 13 filing.

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).