If you’re stuck under a mountain of debt and feel like you’ll never find your way to the light, you may be considering bankruptcy. And that means you probably have a thousand questions about what to do and how your choices will affect you now and into the future.
Here are answers to some common questions and concerns about filing bankruptcy in New Jersey, but you should always contact your attorney for counsel that pertains to your specific situation.
This is a three-part series that covers topics of debt (what is affected and what is not), the process (how it works), and your future (what to expect after filing). In this article we’ll cover debt, and what you need to know leading up to your filing.
Will all of my debts be eliminated in bankruptcy?
Although bankruptcy discharges many types of debt, including credit card balances, personal loans, medical bills, and past utility bills, it does not eliminate all of your financial obligations.
Some debt cannot be discharged, such as child support payments and student loans. In rare cases, and if you meet stringent requirements, you may be able to have student loans discharged, but it would have to be an extreme case and is so unlikely as to be nearly impossible in a typical bankruptcy scenario.
State and federal taxes can be discharged as long as they are filed and due and owing for more than three years. You are not required to prove any sort of exigent circumstances.
Will I lose my house if I file bankruptcy?
In a Chapter 7 bankruptcy, your mortgage debt is discharged, but if you plan to stay in your home then you must continue to make – and stay current on – your mortgage payments. This essentially becomes “rent” paid to the bank and these are considered voluntary payments. You can decide at any time to leave your home without paying anything further. Assuming that you continue to make timely payments, once the mortgage is paid in full, the title to the home is yours.
Chapter 13 is designed to help those who are either behind or underwater on their mortgages by restructuring debt to be repaid over a three- to five-year period. It is also an option for people who have no assets but make too much income to qualify for Chapter 7. The mortgage debt is not discharged because the intent is to help you pay the arrears in a financially manageable way.
If you have a second mortgage on an underwater home, there are additional protections that may be available to you.
All of this varies by state and a variety of factors come into play, so be sure to speak to your attorney so you understand your risks and options.
Do I need to stop using my credit cards if I plan to file bankruptcy?
The best-practice answer is: yes.
Racking up credit card debt immediately prior to filing bankruptcy may be considered fraud. Using your credit card to purchase certain luxury goods is considered “presumptive fraud” which means your case will automatically be dismissed.
However, there are exceptions. Emergency purchases (like having your car repaired so you can get to work) and necessities (like food and gas) may be charged. Keep in mind, though, that there is a difference between buying rice for dinner, and dining out at a high end steakhouse.
If you are thinking of filing bankruptcy, it’s best not to make any purchases that you know you cannot pay for. And consult with your attorney if you must use a credit card.
Will I lose my retirement savings?
Almost all retirement accounts and pension funds are exempt from creditors, including 401(k)s, 403(b)s and IRAs, which means you will keep your funds. If you are filing Chapter 13, it also means that the amount in your retirement account will not affect how much you must repay creditors.
There are some limitations on how much is exempt, however; specifically, if you have a Roth IRA, the exemption is currently limited to just over $1,200,000 per person. Any funds above and beyond that may be taken by the court to repay creditors.
Can I still keep a credit card if I file bankruptcy?
You may have a major credit card that you’d like to keep, but even if you are current on payments, you are required to list all creditors in your bankruptcy petition.
Bankruptcy is designed to protect both you and your creditors. It allows you to make a fresh start financially, without the burden of excessive debt and the stress of the constant calls from creditors, but it also helps ensure that each of your creditors gets a fair share of any funds available to pay your debts.
If you’re tempted to omit a credit card because you’re concerned that you’ll need one after the bankruptcy, we cover that topic in part 3.
Will creditors stop calling if I file bankruptcy?
Creditors and collection agencies are required to immediately stop all collection efforts upon learning of a bankruptcy filing. After you file your petition in court, a notice is mailed to creditors, so it can take a couple of weeks before they receive and process the information.
Alternatively, you or your attorney can contact creditors and provide your case number so they will become aware sooner and cease calling.
If a creditor continues to call, you should notify your attorney immediately. Creditors may be liable for court sanctions and fees for such behavior.
Bankruptcy can be a difficult choice to make, especially if you’re under emotional strain from debt and collections calls. But it can also be a way to a new start. There are complexities that are challenging to navigate under any circumstances, so if you have questions about how bankruptcy can help, which debts may or may not be discharged, or what your responsibilities are, get in touch with us for a free consultation.