Bankruptcy FAQs

Facing financial challenges can be a daunting and overwhelming experience. However, certain legal processes, such as filing for bankruptcy, can help alleviate financial stress and help you work toward financial recovery.

Bankruptcy is not a sign of failure; it is a legal tool designed to offer individuals and businesses an opportunity to pause, reassess, and strategize about their finances, providing a structured way to manage or eliminate overwhelming debts and a chance to rebuild financial stability. 

The Law Offices of Herbert K. Ryder LLC, located in Somerville, New Jersey, understands the difficulties of financial hardship and has considerable experience in bankruptcy law. Since filing for bankruptcy is no small decision, it's important to know what it is and how it can help. Here are some frequently asked questions about bankruptcy. 

What Is Bankruptcy?

If you are unable to pay your debts, bankruptcy is a legal process that can help you seek relief from creditors. This can provide a fresh start if you are struggling with overwhelming debt. There are various types of bankruptcy, each with its own eligibility requirements and benefits. It is important to understand the different bankruptcy options available in order to determine which one is best for your specific financial situation. 

What Types of Bankruptcy Are There?

There are several types of bankruptcy, but the most common are Chapter 7 and Chapter 13.  

Chapter 7, also known as "liquidation bankruptcy," involves the sale of your non-exempt assets by a trustee. The proceeds from the sale are then used to pay off your creditors. This option is suitable if you do not have the means to pay off your debts and want to discharge most, if not all, of your unsecured debts. To qualify for Chapter 7 bankruptcy, you must pass a means test, which compares your income to the median income for your household size in your state. If your income is below this median, you may be eligible to file for Chapter 7 bankruptcy. 

Chapter 13 is often referred to as a "wage earner's plan." If you have a regular income, this type of bankruptcy allows you to develop a plan to repay all or part of your debts. Under this chapter, you can propose a repayment plan to make installments to creditors over three to five years. One of the primary advantages of Chapter 13 over Chapter 7 is that it provides you with an opportunity to save your home from foreclosure by catching up on missed mortgage payments through your repayment plan. It is suitable for those who have a steady income and wish to keep their property but need to reorganize their debts to manage their financial obligations more effectively. 

What Type of Bankruptcy Should I File For?

Determining the type of bankruptcy you should file for hinges on your various personal and financial circumstances. Before deciding what type of bankruptcy fits your situation the best, consider your long-term financial goals, the nature of your debts, and your current income levels. A consultation with a knowledgeable bankruptcy attorney can provide personalized advice based on the specifics of your finances and help you select the path that best facilitates your financial recovery. 

How Do I Know if I Qualify for Bankruptcy?

Your eligibility to file for bankruptcy depends on various factors such as the type and amount of debt you have, your income, and the state you reside in.  

To qualify for Chapter 7 bankruptcy in New Jersey, you will need to pass a "means test," which is designed to ensure that filing for this type of bankruptcy is appropriate based on your financial situation. The means test compares your average monthly income for the six months prior to filing to the median income for a household of your size in New Jersey. If your income is below this median, you are presumed to qualify for Chapter 7. However, if your income exceeds the median, further analysis will be needed to determine whether you can file for Chapter 7 or if you must explore other bankruptcy options, such as Chapter 13. 

To qualify for Chapter 13 bankruptcy in New Jersey, you will need to prove you have a steady income high enough to support a reasonable repayment plan while managing your current living expenses. The law stipulates a maximum debt limit for both secured and unsecured debts for Chapter 13 eligibility. As of the current statutes, your secured debts must not exceed $1,257,850, and unsecured debts should be no more than $419,275. Additionally, your tax filings must be up-to-date. Not filing your federal and state tax returns for the four years prior to your bankruptcy filing can affect your eligibility.  

Can Filing for Bankruptcy Erase All My Debts?

Bankruptcy serves as a financial reset button for many, offering relief from many types of unsecured debts such as credit card balances, medical bills, and personal loans. In New Jersey, bankruptcy can potentially eliminate mortgage or car payments, provided you are willing to relinquish secured assets. However, not all debts can be eliminated in the wake of bankruptcy. Obligations such as domestic support arrearages, most tax debts, student loans, and criminal fines or restitution cannot be discharged through bankruptcy. 

Will Filing for Bankruptcy Ruin My Credit?

Bankruptcy will impact your credit score depending on which type of bankruptcy you file for. However, the effect is not permanent. Chapter 7 bankruptcy will stay on your credit report for ten years, while Chapter 13 will remain for seven years.  

While your credit score may initially decrease, bankruptcy can also provide a platform to rebuild credit more securely. By eliminating your overwhelming debt, you can focus on maintaining timely payments and responsible fiscal management to improve your credit score over time. The impact of bankruptcy will diminish over time, and you can often see substantial improvements in your credit scores within a few years, depending on your commitment to responsible financial practices.  

Can Bankruptcy Stop Foreclosure on My Home?

When you file for bankruptcy, an automatic stay goes into place. This halts most collection activities by creditors and can temporarily stop foreclosure proceedings. Chapter 13 bankruptcy, in particular, can be a powerful tool for homeowners aiming to keep their homes. Through Chapter 13, you can potentially restructure your mortgage arrears into a manageable repayment plan spread out over three to five years, allowing you to catch up on missed payments while maintaining your mortgage. 

What Are the Bankruptcy Exemptions in New Jersey?

New Jersey law provides exemptions that play a crucial role in determining what property you can keep when you file for bankruptcy. These exemptions allow you to protect certain assets from creditors, ensuring you are not left destitute and have the essential means to rebuild after bankruptcy. Notably, New Jersey offers a choice between using federal bankruptcy exemptions or state-specific exemptions, allowing you to select the option that best safeguards your assets.  

New Jersey does not offer a specific homestead exemption or motor vehicle exemption, but individuals may opt for federal exemptions to safeguard a portion of equity in their homes. The state employs a personal property exemption that allows you to exempt up to $1,000 of personal property, such as furniture, clothing, and household goods. Additionally, New Jersey’s wildcard exemption can be used to protect any property of your choosing up to a certain value, offering further flexibility in safeguarding assets. 

Pensions and retirement accounts also receive protection under New Jersey law, consistent with federal regulations that generally exempt these funds from bankruptcy proceedings. 

What Should I Do Before Filing for Bankruptcy?

Before considering bankruptcy, it's important to negotiate with creditors, consolidate your debts, and explore alternative relief measures. Compile a comprehensive list of your debts, assets, income, and expenses, and consider scheduling a confidential consultation with an experienced bankruptcy attorney to discuss your financial situation in depth. During this meeting, you can explore the implications of bankruptcy on your credit score, employment, and future financial opportunities. Additionally, gathering all your relevant financial documents ahead of time can streamline the filing process. 

Should I Consult a Bankruptcy Attorney?

Embarking on the bankruptcy process without professional guidance can be challenging. An experienced attorney can not only provide legal representation but also offer a compassionate understanding of the challenges you're facing. From determining the best time to file to helping you protect your valuable assets and mitigate the risk of fraud allegations, the expertise offered by an attorney is indispensable. 

Legal Counsel You Can Trust

While bankruptcy might initially appear daunting, informed decisions facilitated by expert guidance can pave the way to financial recovery. Attorney Herbert K. Ryder is experienced in bankruptcy law and offers personalized solutions to help you achieve debt relief and restore financial stability. Located in Somerville, NJ, the Law Offices of Herbert K. Ryder LLC proudly serves clients throughout Clinton, Brunswick, Princeton, and Woodbridge.