Bankruptcy is governed by federal law in the United States, outlined in the Bankruptcy Code. The primary purpose of Bankruptcy is to offer relief to debtors burdened with unmanageable debt, providing them with a structured way to address their financial challenges.
There are several types of bankruptcy filings, but the two most common for individuals are Chapter 7 and Chapter 13:
Chapter 7 Bankruptcy:
- Often referred to as “liquidation” or “straight bankruptcy.”
- It involves the sale of non-exempt assets to pay off creditors.
- Remaining qualifying debts are typically discharged, providing a fresh financial start.
- The process is relatively quick, usually taking a few months to complete.
Chapter 13 Bankruptcy:
- It involves creating a debt repayment plan, allowing debtors to reorganize and retain their assets.
- Debtors make regular payments over a specified period (usually 3 to 5 years) to a trustee, who distributes funds to creditors.
- At the end of the repayment plan, remaining eligible debts are discharged.
- Chapter 13 is suitable for individuals with a regular income who want to retain their property and assets.
While bankruptcy laws are federal, there are certain circumstances in which the application of these laws varies in New Jersey from other states.
Different Aspects of Bankruptcy in New Jersey:
Exemptions: One key aspect that sets New Jersey apart from other states is the application of exemptions. Exemptions determine what property a debtor can keep when filing for Bankruptcy.
In New Jersey, debtors have the option to choose between the state’s exemptions and the federal exemptions. This flexibility allows individuals to select the best exemptions that suit their financial situation.
Application of State Laws:
Another factor influencing the application of bankruptcy laws in New Jersey is the reliance on state laws to define terms used in the bankruptcy code. For instance, the term “lien” is defined by state laws, and when a debtor owns property in multiple states, the bankruptcy court must consider the specific state laws governing those properties. This highlights the interconnected nature of state and federal legal frameworks in shaping bankruptcy proceedings.
Interpretation by Trustees and Judges: The bankruptcy code is extensive, complex, and open to interpretation. Local judges and trustees are crucial in shaping how bankruptcy laws are applied. Due to the subjective nature of specific provisions, a judge in New Jersey may interpret a bankruptcy clause differently than a judge in another state. This underscores the importance of understanding the local legal landscape and its potential impact on the outcome of bankruptcy cases.
Before filing for Bankruptcy in New Jersey, individuals typically undergo credit counseling and must meet specific eligibility criteria. The decision to file for Bankruptcy is significant and should be made after carefully considering all available options.
The Step-by-Step Bankruptcy Process in New Jersey:
Step 1: Find an Experienced NJ Bankruptcy Lawyer: The first step in the New Jersey bankruptcy process is to consult with a qualified bankruptcy attorney in New Jersey. Given the complexity of bankruptcy laws and the unique considerations in New Jersey, having an experienced lawyer is essential. The attorney will assess the individual’s financial situation, guide them on whether to file for Chapter 7 or Chapter 13, and provide support throughout the process.
Step 2: Collect Your Financial Documents: To determine the appropriate bankruptcy filing and prepare the necessary documentation, the debtor must gather financial documents, including tax returns, proof of income, bank statements, asset valuations, and budget information. These documents are crucial for accurately representing the debtor’s financial status in the bankruptcy petition.
Step 3: Take the Required Credit Counseling Course: Within 180 days before filing for Bankruptcy, individuals must complete a credit counseling course through an approved agency. The Certificate of Completion from this course is a mandatory filing with the Bankruptcy Court.
Step 4: Prepare the Bankruptcy Petition: Preparing the bankruptcy petition is a complex process that involves compiling detailed information about the debtor’s assets, income, and outstanding debts. A New Jersey bankruptcy attorney will work closely with the individual to ensure the accuracy and completeness of the petition.
Step 5: Filing the Bankruptcy Petition: Once the Chapter 7 or Chapter 13 bankruptcy petition is complete and the required credit counseling course is taken, the petition is filed with the United States Bankruptcy Court for the District of New Jersey. Additionally, for Chapter 13, a repayment plan is prepared and filed with the petition.
Step 6: Protection under the Automatic Stay: The automatic stay goes into effect upon filing the bankruptcy petition, providing immediate relief to the debtor by halting all collection activities. This includes phone calls, wage garnishment, lawsuits, and repossessions. Creditors are restricted from contacting the debtor directly, with communication allowed only through the bankruptcy attorney.
Step 7: Attend the Meeting of Creditors (341 Meeting): Approximately a month after filing, the debtor must attend a 341 meeting, also known as the meeting of creditors. The Bankruptcy Trustee conducts this meeting under oath to verify the debtor’s identity and ask questions about their financial situation. It is usually a quick and straightforward process, with the debtor’s attorney providing the necessary documents to the Trustee beforehand.
Step 8: Complete a Debtor Education Course: Individuals must complete an approved debtor education course that covers budgeting, money management, and wise credit usage to obtain a bankruptcy discharge. The Certificate of Completion must be filed with the Bankruptcy Court before the discharge can be granted.
Step 9: Your Debts are Discharged: Upon completing these steps, the debtor receives a discharge, relieving them from further liability on discharged debts. It’s important to note that particular obligations, such as alimony and child support, persist even after receiving a discharge.
Timeline for Bankruptcy Process in New Jersey:
The timeframe for the bankruptcy process in New Jersey varies depending on the type of
Bankruptcy filed.
Chapter 7 Discharge: About 60 days after the 341 meeting, most individuals receive their Chapter 7 bankruptcy discharge.
Chapter 13 Discharge: For Chapter 13 bankruptcy, eligible debts are discharged at the end of the payment plan, typically lasting 3 to 5 years, depending on the debtor’s situation.
Last Words:
Filing for Bankruptcy in New Jersey involves navigating a legal landscape shaped by federal and state laws. The decision to file for Bankruptcy is significant and should be made after carefully considering all available options. Individuals typically undergo credit counseling before initiating the bankruptcy process and must meet specific eligibility criteria.
Consulting with an experienced New Jersey bankruptcy attorney is crucial in obtaining guidance and support throughout the complex legal proceedings, ensuring a smooth and successful bankruptcy process tailored to the individual’s needs.
