Learn About Bankruptcy

Bankruptcy FAQ’s

1. What is a Chapter 7 bankruptcy, and how does it work?

Chapter 7 is a liquidation bankruptcy meaning it can eliminate most types of unsecured debt. Examples of unsecured debt are credit cards and medical bills. Individuals, married couples, corporations, and partnerships can all file a Chapter 7 bankruptcy if eligible.

2. What is a Chapter 13 bankruptcy, and how does it work?

Chapter 13 is a reorganization or repayment bankruptcy that allows the debtor to enter into an interest-free debt repayment plan to pay back all or some of the debtor's debts over a 3 to 5 year period. The length of the plan will depend on the debtor's property, income, and expenses. During this time, creditors must abide by the plan and are not permitted to collect from you or contact you.

One crucial aspect of a Chapter 13 bankruptcy is that you must have a regular income, for you will be required to pay both your monthly living expenses and repayment to the court for your consolidated debts.

A Chapter 13 bankruptcy is very powerful because it provides a mechanism for debtors to prevent foreclosures and sheriff sales and stop repossessions and utility shutoffs while catching up on their secured debt.

3. If I file bankruptcy, will creditors stop harassing me?

As soon as you come to our office for a free consultation and hire us as your New Jersey bankruptcy lawyer, creditors will no longer be permitted to contact you or your friends and family members. After hiring our firm, you will be able to give our firm's name and number to any future creditors who call. The sooner you come to our office and meet with one of our New Jersey bankruptcy lawyers, the sooner the harassment will stop.

4. Can I keep my house?

One of the biggest fears people have when first discussing filing a bankruptcy is the possibility of losing their homes. Bankruptcy is meant to help you get a fresh start, not hurt you. There are several different ways to deal with homes in bankruptcy proceedings; listed below are some explanations.

If you are current on your mortgage payments and file a Chapter 13 bankruptcy, you will not lose your home as long as you can continue to keep current with the mortgage payments. If you file a Chapter 7 bankruptcy and are current on your mortgage payments, whether or not you will lose your house depends on the amount of equity you have in the property as well as the amount of the homestead exemption to which you are entitled. Homestead exemptions vary from state to state, so it is best to contact one of our New Jersey bankruptcy lawyers at (201) 489-5500 to discuss your specific situation.

If you are behind on your mortgage payments, typically, the best way to keep your house is to file a Chapter 13 bankruptcy. However, you will need to resume making your regular mortgage payments and repay your missed payments through the Chapter 13 repayment plan. There is a much greater chance you will lose your house if you file a Chapter 7 bankruptcy and are behind on your payments.

Since everyone's situation is different, we strongly recommend that you contact our office at (201) 489-5500 or [email protected] and speak to one of our New Jersey bankruptcy lawyers to discuss your specific set of circumstances.

5. Can I keep my car?

Depending on whether you file a Chapter 7 or a Chapter 13 bankruptcy, there are ways for you to keep your vehicle. In a Chapter 7 bankruptcy, you must be current with your car payments if you want to keep your vehicle. If you are not current when you file, you must be able to catch up on your payments, usually in a short amount of time.  

If you are filing a Chapter 13 bankruptcy and are current with your car payments, you can continue making the same payment outside the bankruptcy plan. If you are behind on your car payments, one of our New Jersey bankruptcy lawyers can help you arrange for the payments to be included in your Chapter 13 repayment plan. Either way, you will be able to keep your car.

6. Can I get rid of student loans or tax debts in bankruptcy?

Today, the most effective way to get relief from student loans is through a Chapter 13 repayment bankruptcy. Student loans cannot be discharged in a Chapter 7 bankruptcy. Using a Chapter 13 bankruptcy, our New Jersey bankruptcy lawyers may be able to consolidate your student loan debt into a repayment plan. This will ease the burden of possible garnishments as well as harassment from student loan agencies. Call our office today at (201) 489-5500 to speak with one of our New Jersey bankruptcy lawyers on easing this burden.

As for tax debts, they are generally dischargeable only if you file bankruptcy more than three years after you have filed a timely and accurate tax return. If your tax return had been filed late, the tax debt is generally dischargeable only if you file bankruptcy more than two years after filing an accurate return. However, tax matters can be complicated, and it is best to contact one of our experienced New Jersey bankruptcy lawyers at (201) 489-5500 or [email protected] to discuss all your options thoroughly.

7. Do all of my creditors have to be listed in the bankruptcy?

Yes, all of your creditors must be listed in your bankruptcy, along with their names and addresses. This is important so that all of your creditors can receive notice of the bankruptcy and, if you are repaying your creditors through a Chapter 13 bankruptcy, can get their share of the money that is being repaid. Not listing all of your creditors is in violation of the law.

8. What if I forget to list a creditor in my bankruptcy?

If you forget to list a creditor, you should contact your attorney as soon as you realize the creditor has been left out. At that time, you can provide your attorney with the creditor's name and address and the type and amount of the debt. Omitted creditors can often be added to the bankruptcy; however, your attorney will advise you on how things will proceed. Our experienced New Jersey bankruptcy lawyers can help you handle this issue if it arises.



1. Sell your house - the American dream does not depend on owning a home-you can be perfectly happy renting.

2. Under the Housing and Economic Recovery Act of 2008 you may be eligible for
- Refinancing by converting your current variable rate mortgage into a 30 yr fixed rate mortgage insured by Federal Housing Administration
-To see if you qualify call a HUD approved counselor at (800) 569-4287

3. Do nothing. Today in New Jersey it may take a year or more for the foreclosure process to be completed. If you do not answer a foreclosure complaint you will eventually receive a certified letter from the foreclosing attorney advising you of the date of foreclosure sale. You may then receive 2 two week adjournments from the sheriff at a cost of $26.00 each. Even after a foreclosure sale take place it takes approximately six weeks for the lender to schedule an eviction through the sheriff. Meanwhile you have been living "rent free" for approximately a year. In the event a lender seeks to recover the difference between what the property sold for and the amount of the debt it must file suit within 90 days of the sale to seek a deficiency against you. These suits are rare in New Jersey today. Even if a deficiency is sought you may defend it on the basis that you are entitled to a credit for the actual value of the house notwithstanding what was bid at the sale.

4. Work Out - You can attempt to resolve your situation directly with the lender. Today most lenders have voluntary loan modification programs. These programs can reduce the interest rate, put missed payments to the end of this loan or increase the term. Generally banks do not voluntarily reduce the principal. Many have forms that must be filled out to proceed. The key to whether or not the bank will voluntarily modify a mortgage is the bank's calculation of what it would recover in the event of a foreclosure. If your offer is better than that there is a possibility the bank may accept it. The House of Representatives has passed a bill to allow bankruptcy judges to 0 reduce the principal amount of first mortgages (cramdown) in chapter 13 cases but the bill is stalled in the Senate.

5. Reinstate - You can make up your missed payments by paying late fees and interest and thus "cure" the default.

6. Refinance – If available to you, this is an excellent option, especially if you can take advantage of today's low rates.

7. Short sale - This means that you find an arm's length buyer but the purchase price is insufficient to pay off the mortgage in full. The lender may well go forward with a "short sale" because that option is better than a full foreclosure would be because a short sale is quick and the price is at market. Often the only buyer at a foreclosure sale is the lender. The lender would then have to fix up and list and market the property paying a real estate broker's fee, legal fees, etc. Thus, from the lender's point of view a "short sale" is a good option. A short sale will not work if there is a second or third mortgage because the title cannot be cleared. You should be aware that there may be adverse tax consequences due to "debt forgiveness" and should discuss this with your tax preparer before entering into a "short sale". You should also be aware that you will probably be contacted by many real estate brokers to sell your property in a short sale but these brokers are not motivated to help you but by receiving a commission if there is a closing.

8. Deed in Lieu of Foreclosure - This is similar to a "short sale" except that the "buyer" is the bank itself to whom you deed the property. As with a short sale there may be adverse tax consequences.

9. Reverse mortgage if over 62. A reverse mortgage is one where a lending institution advances you money based on the value of the home and your life expectancy. You get to stay in the house for life without having to make a mortgage payment. This is generally not a good business decision for the homeowner but it is an option if there are no better alternatives. Remember, the bank is seeking a profit and a good one at that.

10. Litigate foreclosure - You can hire a lawyer to represent you in the foreclosure case itself. This should be done if there is a dispute over the F amount due or if other defenses can be raised. Due to the securitization process it may be that your lender cannot produce important documents such as the promissory note which you signed when you took out your mortgage. The State of New Jersey has recently instituted a program to mediate foreclosure cases. During the litigation or mediation process it may be possible for you to negotiate a modification to your mortgage.

11. File Chapter 7 bankruptcy. If the value of your home is roughly equivalent to the mortgage debt and if you have other debts you wish to discharge, Chapter 7 bankruptcy is an excellent option for you because instead of making payments on your credit cards you can apply the extra money to your mortgage payment. In Chapter 7 bankruptcy you can keep your house (provided you make your mortgage payments) so long as there is not too much equity in it. How much is too much? Let's say your home is worth $300,000 and the first mortgage payoff is $240,000. The trustee will deduct 10%, hypothetically, the cost of sale from the value.

$300,000 - $30,000=$270,000
(hypothetical sale value)

Under the Bankruptcy Code a New Jersey husband and wife are entitled to a maximum exemption (property you are allowed to keep after bankruptcy) of $40,400 in a home.

$270,000 - $40,400 = $229,600 (money available to creditors)

Since payoff of the mortgage @ $240,000 is greater than the amount available to creditors, there is no "equity" that must be paid to creditors. Thus in this example a husband and wife could file for chapter 7 bankruptcy, discharging their other debts (credit cards, medical bills, etc) and keep their home because there is no available equity for creditors. What happens if there is too much equity in the house to file for Chapter 7?

12. File Chapter 13 bankruptcy - Chapter 13 bankruptcy allows you to propose a pay back plan to creditors to cover the liquidation value of assets creditors would be entitled to in a chapter 7. Thus, in the above example, if the value for the home were $350,000, creditors in a chapter 7 would receive $34,600.

$350,000-$35,000-$240,000-$40,400 = $34,600
Home value - cost of sale - mortgage - exemptions = money to creditors
This amount can be paid monthly over 5 years, $576.67 per month. You only qualify for chapter 13 bankruptcy if you owe less than $336,900 in 3 unsecured debts (credit cards, etc) and less than $1,010,650 in secured debts (mortgages). What happens if you owe more than these debt limits?

13. File Chapter 11 bankruptcy. In Chapter 7 and 13 cases creditors do not get to vote. Not so in Chapter 11. 2/3 in number and 1/2 in amount have to vote for your plan. Except in rare cases, chapter 11 bankruptcy is expensive and impractical.

14. What not to do

- Don't use a foreclosure rescue company. These companies generally do not improve what can be done in bankruptcy and often charge excessive fees.

- Common scam is when someone proposes that you sell the house to him and lease it back with a purchase option. This converts you from owner to tenant. Often the rent is high and ends in eviction or you cannot pay the purchase option price and you eventually lose the home. The options above are far preferable to a sale/lease back.