What Is a Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, or liquidation bankruptcy, is a court-supervised procedure that allows individuals and businesses to discharge most of their unsecured debts, including medical and utility bills, credit card debt, and personal loans.
However, the bankruptcy filer must give up nonexempt assets to a bankruptcy estate managed by a court-appointed trustee. The trustee will sell these assets to pay creditors. The nonexempt property includes cash, bank accounts, securities, luxurious items, and a second car or household.
Every bankruptcy filer must undergo a “means test” to calculate their monthly income. A five-year monthly income, excluding expenses and secured debt payments, that is higher than 25% of their unsecured debts or $15,150, whichever is lesser, can disqualify them on the basis of abuse. The goal is to prevent those with enough income from paying off their debts through bankruptcy and avoiding repayment.
NJ Chapter 7 bankruptcy can be filed by individuals, partnerships, or corporations. However, they must meet certain requirements.
If you’re considering a Chapter 7 New Jersey bankruptcy filing, our bankruptcy attorney at the Law Offices of Scott J. Goldstein, LLC can help you.
How to File Bankruptcy in New Jersey
Before filing for New Jersey Chapter 7 bankruptcy, you must make sure to comply with the local and federal bankruptcy laws as well as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
1. Credit counseling
If you are an individual, you must obtain court-approved credit counseling within 180 days before filing the bankruptcy petition. Credit counseling may include discussing your financial situation and, optionally, developing a debt management plan.
The counseling typically takes around an hour and may be done over the phone, online, or in person. When completed, the debtor receives a credit counseling certificate, which must be filed with the bankruptcy petition.
2. Filing the bankruptcy petition
To file for Chapter 7 bankruptcy, you must complete and file a bankruptcy petition and the required financial documents and form, including schedules of:
- Assets and liabilities
- Current income and expenses
- Executory contracts and unexpired leases
- Exempt property
The petition and these documents must include a list of creditors, the amount of debt, property, and monthly expenses.
If you are an individual, you will have to file additional documents. It’s crucial to consult an experienced bankruptcy lawyer to make sure you have all the required documents.
You can file your petition with the New Jersey bankruptcy court in Camden, Newark, or Trenton, depending on where you live or operate as a business.
Once you file for bankruptcy, an automatic stay goes into effect, which stops all debt collection actions and legal proceedings against you.
3. Debtor Education Course
Besides credit counseling, you must take the Personal Financial Management Course and file form 423 after the completion. You must complete this course to receive a discharge.
4. The trustee meeting
Within 21 to 40 days after the filing, the bankruptcy trustee will schedule a meeting, called the 341 meeting, with you and the creditors. You will be under oath and will have to answer questions from the trustee and the creditors.
This meeting is vital because its outcome will determine whether your bankruptcy case is valid or abusive. Moreover, your creditors will be able to object to the discharge, dischargeability of debts, or exempt property.
5. The Discharge
Bankruptcy discharge relieves you from some debts and protects you from lawsuits or debt collection actions by creditors. While Chapter 7 bankruptcy can wipe out your unsecured debts, you may have to return any collateral property to discharge secured debts.
The bankruptcy process is complex, involving many steps and forms. Hiring a New Jersey bankruptcy lawyer will give you the legal counsel and advice you need. They can help avoid common mistakes made before filing for bankruptcy and determine whether you meet the qualification requirements of Chapter 7 bankruptcy protection.
How Do I Qualify for Chapter 7 Bankruptcy in NJ?
Generally, most individuals in New Jersey are eligible for bankruptcy Chapter 7 if they meet the income requirements.
Filing for Chapter 7 bankruptcy protection requires having a lower income than the New Jersey median income for a household of equal size.
As of April 1, 2023, the debtor’s income on an annual basis can’t be higher than $99,056 in New Jersey for a family of two. The amount is higher if there are more members of a household. If your income exceeds the state’s median, it doesn’t necessarily mean you won’t qualify for Chapter 7 bankruptcy.
You can still file for Chapter 7 if your disposable income, which is the difference between your income and expenses, is lower than a certain amount.
What Property Can You Keep?
Your property will be divided into exempt and nonexempt property. You will be able to keep all assets deemed exempt, whereas the trustee will liquidate the nonexempt assets.
Both federal and state laws have property exemption rules, and you will be able to choose between the two at the time of filing.
For example, under federal exemptions, you may exempt one motor vehicle valued at $4,000, whereas New Jersey exemption rules don’t include cars. However, you may use the $1,000 personal property exemption to cover your car.
Other factors can influence what property you’ll be able to keep. For example, whether you’ll be able to keep your home can depend on how current you are with your mortgage payments.
Will Filing Bankruptcy in New Jersey Erase My Debts?
The main goal of Chapter 7 discharges is to completely eliminate most of your unsecured debts. However, certain debts cannot be discharged, such as:
- Child support
- Student loans
- Most taxes
- Debts arising from fraud, embezzlement, or intentional harm
Moreover, filing for bankruptcy can negatively affect your credit score for several years. A low credit score can make it harder for you to get a loan, rent an apartment, or secure a job. However, you can recover if you handle your finances responsibly after the bankruptcy. You can also achieve financial stability in the long term.
Bankruptcy Attorneys at Law Offices of Scott J. Goldstein Can Help
Filing for New Jersey Chapter 7 bankruptcy can be a life-changing decision. But it can also be the first step towards debt relief and a fresh start.
If you are an individual filing for personal bankruptcy, you will find the process particularly complicated. Our bankruptcy attorney in New Jersey is available to help you understand the process, requirements, and consequences of Chapter 7 bankruptcy. We can also attend the creditors meeting with you and make sure you are well-prepared.
Are you planning to file for bankruptcy? Contact New Jersey bankruptcy lawyers at the Law Offices of Scott J. Goldstein for a free consultation today.