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Important answers to commonly asked legal questions from New Jersey residents

Look at the frequently asked questions (FAQs) about debt relief, foreclosures, bankruptcy filing, asset protection, interest discharge or credit rehabilitation answered by Gloucester county bankruptcy attorney Steve Richardson. See how traffic court lawyer Steve Richardson answers FAQs about arrests for DWI/DUI, speeding, reckless driving, driving while suspended, and other traffic violations.

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  • Why Should I File Bankruptcy If I Am Judgment Proof?

    This is a question I get a lot from someone here in New Jersey who is in such bad financial shape that there is nothing that their creditors can do to them. They are, for all intents and purposes, "judgment proof." This is because:

    • They either have no income, or that income is from a source that cannot be garnished, such as Social Security benefits, unemployment benefits, a pension, child support, and the like.
    • They have less than $1,000 in their bank account, or that money is from sources such as those listed above.
    • They do not own real estate, such as a home.
    • They do not own any assets of any significant value, such as a car.

    As such, they see no need for bankruptcy because they do not perceive any benefit to it. They are wrong.

    Being Judgment Proof Is the Perfect Time to File!

    Yes, that's right; now is the best time to do it, and as such, there is value in filing bankruptcy when you are judgment proof! Few people, hopefully, are going to be judgment proof forever. They find employment, buy a home, and turn their lives around. In short, things get better.

    When that happens, do you want to have some creditor take money out of your paycheck, freeze your bank account so that the mortgage payment bounces, or seize your car? No way!

    Think about it. Right now there is little or no risk to filing bankruptcy; you don't own anything! There is no home to lose to the trustee, no income to go to creditors in monthly payments, and no big tax refund to be taken away. Filing bankruptcy when you are judgment proof is insurance against better times. Get rid of your debt now, so that it won't weigh you down when things get better.

    Let Me Help You Through It!

    If you live in Gloucester County, New Jersey or the surrounding area, and are considering filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

    If you have more questions about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

    If you are looking for more information on how bankruptcy might help you with your divorce, then you should download my free book, Top Questions Divorcing Couples Ask About NJ Bankruptcy.

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  • Do I Have to File Bankruptcy in NJ if I Have NJ Surcharges?

    One reason a lot of people in New Jersey end up filing bankruptcy is that they have a large amount of surcharges levied by the Motor Vehicle Commission. Repayment can be difficult, as there is often a demand for a large an unaffordable downpayment. To make matters worse, their driver’s license can end up being suspended!

    Bankruptcy can help by allowing for the discharge of the amount owed and the restoration of a suspended license. But what if you no longer live in New Jersey? What if this has followed you to another state and is interfering with you getting a license there? Can you file in your new state of residence or must you file in New Jersey?

    The answer is no, you do not have to file the bankruptcy in New Jersey just because you owe surcharges here; you can file in your state of residence. The NJ Motor Vehicle Commission is a creditor like any other and just has to be listed and noticed.

    Still Living in New Jersey?

    If you live in southern New Jersey and are considering filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

    If you have more questions about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

    If you are looking for more information on how bankruptcy might help you with your divorce, then you should download my free book, Top Questions Divorcing Couples Ask About NJ Bankruptcy.

  • Can I stop an eviction by filing bankruptcy in New Jersey?

    Bankruptcy can help you with an eviction in New Jersey, but only under certain circumstances, and only if you file the right kind of bankruptcy. This also presumes that eviction is being brought for nonpayment of rent, and not for some other reason. If it has been brought for some other reason, like habitual late payment, then bankruptcy can’t help.

    You Must File Before the Eviction Hearing

    You cannot wait until the last minute, and avoiding eviction must be accompanied by the repayment of back rent to the landlord. The key deadline here is the trial date for the eviction proceedings brought by your landlord. If that lawsuit has been brought, and you have already been to court, it is too late to do anything.

    Under New Jersey law, a judgment for possession is issued to the landlord if the unpaid rent is not paid by the end of the day of trial.

    You Must File a Chapter 13 Bankruptcy

    Assuming you file bankruptcy before trial day, it must be a chapter 13 with a plan of repayment and not a chapter 7. To do that, you need to have positive cash flow. In other words, you need to have money left over at the end of the month after paying your bills (including things like the current rent, but not things like credit cards). This can then be used to pay your landlord the back rent.

    The plan of repayment must also offer a “prompt cure” of your breach of the lease. What this is can depend on the judge assigned to your case, but is usually less than the three year plan period of most chapter 13s.

    So What Do I Do?

    If you live in southern New Jersey and are facing eviction from your home, and are considering filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

    If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

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  • What is a preferential payment in bankruptcy?

    One of the aims of the bankruptcy code is that all creditors be treated equally. All secured debt should be treated the same, all unsecured debt, and the like. Any time one creditor is given special treatment, there is the potential for a problem (mainly for that creditor).

    You Must Disclose Preferential Payments

    If you are filing bankruptcy, this means that you cannot pay off one debt and then seek to wipe out (discharge) the rest. The courts enforce this rule by requiring you to disclose all payments to creditors that total more than $600, paid out over the 90 days leading up to the filing of your bankruptcy.

    Do you owe money to friends or family? Payments to “insiders” (in any amount) made within one year of the bankruptcy filing also have to be disclosed. Doing this can be difficult, because you don’t want that friend or family member to be hurt by the bankruptcy. But it has to be done.

    But There Are Exceptions!

    There are exceptions to this, however, which are important to bear in mind. For example:

    • Payments made in order to obtain “new value.” This can be where your child has braces, but they still need to be adjusted and eventually removed by the orthodontist. Or perhaps your small business needs to make payment to a supplier on an outstanding balance due in order to get purchase more goods.
    • Payments made "in the ordinary course of business." If you run a small business as a sole proprietorship and make a routine payment to a vendor, that can be seen as not being a preference.
    • Payments on a bona fide payment of alimony, child support, or some other domestic support obligation.

    Ironically enough, if a trustee determines that you did make a preferential payment, then you don’t get into trouble (hey, you disclosed it); the creditor does! The trustee can seek to have that creditor give back the money received, so that it can be divvied up evenly among all of the creditors!

    This can be more than awkward, though, if that creditor is a friend or family member. The only consolation is that they do have the right to put in a claim for a fair share of the money returned.

    So What Do I Do?

    If you live in southern New Jersey and are considering filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

    If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

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  • What is Debt Forgiveness Income?

    This is something that comes up during the short sale of a home or the compromise of a debt with a creditor. Basically, whenever a creditor is paid less than what is owed, and does not pursue the debtor for the balance, that balance is considered "forgiven."

    Okay, but so what? So the creditor agreed to take less, and I am off the hook for the balance. Isn't that a good thing? Well yes, in a lot of ways, but you should be aware of a "gotcha" in that deal that most Americans don't know about: you have to pay taxes on the forgiven debt!

    Yes, that's right. The IRS considers forgiven debt to be income and taxes it. For that reason, the creditor will send a 1099 to the IRS for the forgiven amount, and the feds will expect to see that income as a line item on your tax return.

    Are There Ways to Deal With It?

    There are two ways to deal with this. The first is to negotiate deals with creditors with the assistance of a tax professional. So, for example, if you are offering 60% to creditors, and they all agree to take it, talk to an accountant or tax attorney about the estimated tax liability if the deal goes through.

    If you have the funds to pay the creditors and the taxes, then it is still a good deal. Just set the tax money aside in a separate bank account, ready to pay out when you eventually file your tax return.

    The second way is to avoid the tax entirely by claiming to be insolvent. This makes the debt forgiveness non-taxable. If your accountant thinks this will fly, then file a Form 982 with your tax return. Hopefully, that will convince the IRS to waive the tax. The other way is to go bankrupt, which is, in itself, a statement of insolvency.

    So What Do I Do?

    If you have a significant amount of debt that you want to resolve, and you want to avoid tax consequences, then bankruptcy might be a better alternative.

    For help deciding whether bankruptcy is a possible solution, download my free book, Am I In Too Deep? A Guide to Knowing When You Need to File Bankruptcy in NJ.

    If you live in southern New Jersey and are considering filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

    If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

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  • Did my bankruptcy discharge a debt if the creditor wasn't listed?

    Oops! A creditor is calling you to collect a debt. When you say you filed bankruptcy, they demand to see proof that they were listed. You take a look at your petition and find out that they aren't there! You forgot to tell your attorney about it or simply forgot the creditor because the debt was so old! Is the debt not discharged? Are you out of luck? Not necessarily!

    You Might Still Bo Okay

    The bankruptcy code creates a duty of due diligence to investigate your financial affairs and list all of your creditors.  But sometimes, because you are human, you forget or overlook the debt. It was unintentional, and you tried your best.

    In the vast majority of chapter 7s here in New Jersey, and in a good deal of the chapter 13s, this is not an issue, because nondischargeability only arises under two circumstances:

    When You Could Be in Trouble

    The Creditor Could Have Been Paid on the Claim. In some chapter 7s, the trustee does sell a debtor's assets to pay claims, and this creditor could have gotten some of the money had it known about the bankruptcy and had an opportunity to file a proof of claim to get paid.

    In a chapter 13, if your plan does propose to pay money to unsecured creditors, then there could be a problem if you leave one or more off the list. It is best to be sure when you file, so that this does not happen.

    The Creditor Had a Potential Claim for Nondischargeability. Some debts cannot be wiped out in a bankruptcy. Debts like alimony or child support, moneys owed for restitution, and certain taxes, are automatically nondischargeable. Others, like debts incurred through fraud or the willful and malicious act of the debtor, can be found to be nondischargeable if the creditor affirmatively seeks that remedy from the court.

    If the debt is in the latter category, the creditor can cry foul because, due to its ignorance of the bankruptcy, it did not have the opportunity to object to discharge.

    So What Do I Do?

    In essence, if you forget to list a debt, there is usually only a problem if the creditor can show it was disadvantaged by this in some way. If a creditor is claiming to have a non-discharged debt because it was not listed in your bankruptcy, then you need to talk to your attorney right away. Find out if there is anything that has to be done to fix it.

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  • What do I do if my spouse files for divorce while I am in bankruptcy?

    Although bankruptcy can help with a divorce by simplifying issues of marital debt, it can be rather disruptive if it is done without planning.  If you are coordinating a bankruptcy into an expected or ongoing divorce action that is one thing; it is quite another if it happens without warning after the bankruptcy has been filed.

    If you are in a chapter 7, then the impact is not as great.  These bankruptcies in New Jersey are resolved about four months from their filing, and unless issues of equitable distribution are resolved within six months of your bankruptcy case ending, the divorce will most likely not disrupt your bankruptcy or change its outcome.

    Issues in a Chapter 13

    Problems arise, however, if you are in a chapter 13.  This is because you are in an ongoing case that can last anywhere from three to five years based on anticipated income and expense levels.  A divorce filed during it can be quite disruptive because

    • The income situation changes.  Your spouse moves out and has his or her own living expenses to pay.  Although some, like food and clothing, may stay the same, others, like housing and utilities, can increase.  These expenses will be paid either by that spouse’s income or by spousal support sought from you during the pendency of the divorce.
    • The goals of the bankruptcy may no longer be reachable.  If the purpose of the bankruptcy was to save the marital home from foreclosure, this could put that marital asset into serious jeopardy.
    • New debts can arise for you and your spouse as you hire (and pay for) attorneys to represent you in the divorce action.

    As you can see, an unplanned divorce filing can cause some serious problems.

    So What Do I Do?

    So what do you do if this should happen?  Can the bankruptcy be saved, and can the goals it had when it was filed still be met?  Well, I have several suggestions depending on your situation.

    1. If you are trying to save the marital home and you are not too far away from the completion of the plan, you can just tough it out until then.  Couples often “stay together for the kids”; you can stay together for the house!  Get the mortgage brought current, so that this marital asset can be saved (or some other important goal of the plan is reached).
    2. If you think the economic disruption from the divorce filing might be short term, you can petition the court to suspend plan payments for a certain number of months (as long as you can meet all other financial obligations, and you can still meet plan goals like saving the home once payments resume).
    3. If your change in income and expenses is so drastic as not to eliminate all disposable income for a plan payment, and your goal can still be reached by a lower payment, you can petition the court to modify your repayment plan to reflect your new economic reality post divorce filing.
    4. If you do not see being able to make a plan payment at all in the foreseeable future, and your plan only addresses debts like credit cards or you are resigned to losing the home or some other goal, you can convert to a chapter 7 to discharge your debt and still get a fresh start.

    Naturally, you should consult with your bankruptcy attorney on which option is best for you under your circumstances.  But this should be done as soon as possible and in concert with your bankruptcy attorney.

    For more discussion of this topic, check out my podcast on Bankruptcy Strategies in Divorce.  You can also get more information about bankruptcy and divorce by downloading my free book, Top Questions Divorcing Couples Ask About NJ Bankruptcy.

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  • Can filing bankruptcy help me get rid of a second mortgage?

    Many people here in New Jersey have more than one mortgage.  This may be because they purchased it with an 80/20 loan (one loan for the “downpayment," another for the remainder of the purchase price), borrowed money for a home improvement like a kitchen remodeling, or got a debt consolidation loan.

    Either way, many times when they fall into financial hardship, that second mortgage payment can become a burden.  The question becomes, if you have to file bankruptcy, can you get rid of it? “Stripping off” a mortgage in bankruptcy is possible, but there are three things to bear in mind.

    1.   You Must File a Chapter 13 Bankruptcy

    You can only do it as part of a chapter 13 debt repayment plan, not a straight chapter 7.  This can be a barrier to many people, as they are not in a financial position to handle a chapter 13.  Their budget has to allow for money available to pay into the plan, and most folks considering filing are barely making it.

    2.   Your Home Must Be Worth Less Than the First Mortgage

    The home has to have a value substantially lower than the balance owed on the first mortgage. What do I mean by “substantial”?  Well, if even so much as $1 remains of value over and above the first mortgage lien, that is enough for the second mortgage to survive.

    Also, the second mortgage holder is most often going to put up a fight and produce their own appraisal, so you want to be sure yours shows a figure as low as possible when compared to the first mortgage lien.

    3.   You Must Complete Your Plan

    Most importantly, even if you win the motion to have the second mortgage “stripped off,” you have to complete your plan and get a discharge!  This can be the most difficult condition to meet, as a lot can happen during your three to five year plan, and most chapter 13s fail for one reason or another. So be sure that your plan is solid, that your monthly expenses are calculated as accurately as possible, and that your income stream is reliable.

    If you get through your chapter 13 after winning your motion to strip off the loan, you can emerge from bankruptcy with one less mortgage payment and be in a better position to recoup equity down the road as your home increases in value and you pay down the principal on the first mortgage.

    If you live in South Jersey and are considering filing bankruptcy, call my office at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

    If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

  • Can a NJ bankruptcy help me with my Western Sky loan?

    Lots of folks here in the Gloucester County, New Jersey area call me asking about Western Sky loans. They took one out and are now being pursued by collection agencies or debt buyers asking for an exorbitant amount of money paid immediately. The question they have is, what can they do? What are their options?

    I maintain that if you have obtained a loan from this company, or other types of high risk options like pay day or car title loans, that it is a symptom of a much bigger financial problem. If that is the case, then rather than fight Western Sky, you should just file bankruptcy and discharge it.

    Can Bankruptcy Help?

    So, in answer to the question, yes, bankruptcy can help save you from Western Sky. Loans to this outfit are no different than credit cards and medical bills (no matter what the collector may say to you on the phone), and thus can be wiped out, or discharged.

    There are pros and cons to this approach, though. The con is that it can have a more devastating effect on your credit than just defaulting on the one loan. Thus you should check all three of your credit scores to see if you have bad credit already.

    If so, that might not be a downside. The pro is that bankruptcy is a broader approach to your problem, addressing ALL of your debt, not just one.

    Or Should I Fight It?

    You could also fight any attempt by Western Sky to collect the loan.  Loans from this company are illegal in New Jersey due to their extremely high interest rates, which are often far in excess of 100% annually.

    New Jersey considers it criminal usury to charge 30% or more on a loan. Some states have a higher threshold for illegality, however, like Delaware at 35%.

    Thus some loans that are issued under another state's law may be legal if they come into New Jersey to collect. But Western Sky boasts of being apart from the U.S.A., and thus would not be entitled to "full faith and credit." New Jersey courts may well look harshly on their attempts to collect.

    So What Do I Do?

    If you are not sure about whether bankruptcy is the right solution to your problem, then you should download my free book, Am I In Too Deep? A Guide to Knowing When You Need to File Bankruptcy in New Jersey to find out.

    If you live in southern New Jersey and are thinking about filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

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  • Will taking a new job cause problems for my chapter 13 bankruptcy?

    Sometimes a chapter 13 repayment plan in a New Jersey bankruptcy crashes and burns. Unexpected expenses derail plan payments, a drop in income due to disability or loss of bonuses or overtime, or you lose your job. This can lead to an unaffordable plan payment to save a house or the outright conversion of a case to a chapter 7 liquidation. Not good news!

    But sometimes the news is good: Your unemployed spouse gets a job or you get a raise or a promotion to a higher paying position. When this happens, my clients will ask me, what do I do? My answer is always the same: Celebrate! Hey, you got a raise, promotion, whatever! Go out to dinner or have some other special occasion! This is good news? But then the question comes:

    What will this do to my chapter 13 repayment plan?

    The answer can depend, but it should never be a reason to decline a job, raise, or promotion. Hopefully that change in fortune will last well past the end of your plan, and your life will get better as a result.

    If your plan already pays creditors 100%, then your plan will not change (although you may choose to pay it off sooner with larger payments from your increased household income). If it does not, then the trustee may require you to file a modified plan with higher payments.

    But this is only where the plan requires annual updates on income and expenses (in other words, where you are required to TELL the court and the trustee about the good news). Finally, if disclosure is not required, then enjoy the nicer lifestyle that that income provides (or save for retirement, kids' education, etc.)

    The bottom line is, you should not let good financial news like this get tarnished over worry about your bankruptcy. If you are already in bankruptcy, discuss it with your attorney.  If you are not, don't let the possibility of goof news keep you from filing. It may still be the best thing for you.

    So What Should I Do?

    If you live in the Woodbury, Gloucester County area, or anywhere in South Jersey, and you are thinking about bankruptcy, feel free to call me at 856-432-4113 or contact me through this site to schedule an appointment.

    If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

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