New Jersey and Pennsylvania Bankruptcy FAQs

What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?

A Chapter 7 bankruptcy will result in a total discharge from all unsecured creditors with no repayment plan to the bankruptcy court.  A Chapter 13 bankruptcy will involve a repayment plan usually to cure arrearages on a mortgage, car loan or repayment of tax debts and will result in a discharge after the payment plan is completed (usually between 36 and 60 months).  A Chapter 7 bankruptcy is ideal for a person with primarily unsecured debt and limited equity in a home or automobile and a moderate to modest income.  A Chapter 13 bankruptcy may be more appropriate for people who are dealing with mortgage arrearages, tax debts, delinquent automobile payments or have income far in excess of the State median levels.

Can I keep my car and home even though I am filing a Chapter 7 bankruptcy?

In a great majority of cases, the answer is yes.  In a Chapter 7 bankruptcy, you will be entitled to certain exemptions for equity in a home and automobile as well as for other personal property and provided you do not exceed those limits, you are allowed to keep the items.  Remember, you must then continue to make payments on the secured loans relating to those items.  If your equity is too great or you are behind in payments on those items, you may file a Chapter 13 bankruptcy, in which case you would still be able to keep your home, car, and all other personal items.

Can I discharge my student loans in bankruptcy?

Most likely not.  Student loans are no longer dischargeable in any chapter of bankruptcy unless you can prove that a repayment loan creates undue hardship on you and your family.  Courts have usually determined that hardship would involve a disability that has prevented employment after the date you originally incurred the debt.  In order to have a student loan held non-dischargeable, it is necessary to file a separate action for the Court to determine the dischargeability of the loan.

Can I get rid of some unsecured debt while maintaining payments on other unsecured debt?

No.  Paying one unsecured creditor over another is referred to as a “preference” and is not allowed under the bankruptcy laws.

Will bankruptcy stop my home from being foreclosed on and my car from being repossessed?

Yes.  Immediately following the filing of either a Chapter 7 or Chapter 13 bankruptcy, an “automatic stay” arises by law, and all legal proceedings are ceased.  An exception to the Automatic Stay is if you have had two prior cases dismissed within one year prior to the filing.

Can I re-establish my credit after filing?

Yes.  You can begin to re-establish your credit immediately after your bankruptcy has been discharged.  While a bankruptcy may be legally reported on your credit report for up to ten years, lenders will consider many factors in determining whether to extend credit to you including, but not limited to, income to debt ratio and post-discharge credit history.  Therefore, since your income to debt ratio will significantly improve after discharge of a bankruptcy, provided you remain current on any post-discharge payments due, most people find that their credit scores actually improve after the filing of a bankruptcy because of the elimination of the delinquent debt.  Please also remember, in some ways, you are a better credit risk to a lender since you cannot again re-file to discharge the debt for a number of years.

Do I need to go to Court?

In a Chapter 7 and a Chapter 13 bankruptcy, you must attend at least one creditor’s meeting.  At that time, you will be accompanied by one of the attorneys from Young, Marr & Associates, along with the bankruptcy trustee.  The hearing is very informal in nature and is not held in a traditional court room.  The trustee who presides over the hearing will ask you to confirm the information provided in your bankruptcy filing.  Likewise, creditors may show up at the hearing and ask questions; however, it is very rare when a creditor actually appears.  Failing to appear at a hearing may result in your case being dismissed.

Does my employer get notified of a bankruptcy?

No.  Your employer does not get notified through the bankruptcy proceedings.  Of course, you may notify your employer of the filing or he would be notified if he was listed as a creditor in your bankruptcy.

Do both husband and wife always have to file together?

No.  Husband and wife are liable for the debts incurred by the other during the marriage as long as those debts were incurred for the two of them.  All medical bills incurred during the marriage are the responsibility of both the patient and the patient’s spouse.  However, if the debt is only in one party’s name, often it will not be necessary for the other party to file.  Likewise, there may be certain strategic advantages to one party filing a Chapter 7 bankruptcy while the other party files a Chapter 13 bankruptcy or no bankruptcy at all.

Will filing bankruptcy remove a bank freeze?

Yes.  Once a bankruptcy is filed, the provisions of the Automatic Stay of the Bankruptcy Code prevent creditors from moving forward with any collection efforts.  Therefore, often within one or two days after filing, a bank freeze may be removed.

Will filing bankruptcy stop any pending wage garnishment?

Yes.  Except for child support garnishments, filing a Chapter 7 or a Chapter 13 bankruptcy will immediately stop all pending wage garnishments.

If I forget to list a creditor on my bankruptcy petition, will it still be there after discharge of the bankruptcy?

No.  While we would prefer that your bankruptcy petition be as complete as possible, in the event there was a creditor that you were unaware existed  or inadvertently not listed on the petition, you are not responsible for the debt provided it was I unsecured and incurred prior to the date of filing.

If I previously filed a bankruptcy, can I refile?

Yes.  While there are restrictions on the amount of time between filings, provided you are not barred from re-filing by the Court, you can re-file both a Chapter 7 and/or a Chapter 13 bankruptcy.

Can I file for child support, alimony or equitable distribution rights?

No.  Child support, alimony and equitable distribution are not dischargeable in a Chapter 7 bankruptcy.

Does bankruptcy have to be listed on my return and does it have any tax consequences?

No.  There is an exception in the IRS Code which allows discharge in a bankruptcy as not creating a taxable event.  Therefore, unlike forgiveness of a debt pursuant to debt consolidation, there is no tax obligation.

How long do I have to have lived in this area before I can file bankruptcy?

The residence requirement s for filing bankruptcy is that you have to have lived in that area where you are filing for the better part of 180 days.