Considering Bankruptcy In New Jersey? Consider The Alternative First

According to data from the United States Courts, there were 9,467 bankruptcy filings in New Jersey in the 12-month period ending on September 30, 2020. Of these filings, 6,947 were Chapter 7 bankruptcies, which involve the liquidation of assets to pay off debts, and 2,514 were Chapter 13 bankruptcies, which involve the creation of a repayment plan for debts over a period of three to five years. According to a report by the Institute for Fiscal Studies, as of 2020, the average debt per capita in New Jersey was $64,295, which is higher than the national average of $53,850. New Jersey has a relatively high cost of living and high home prices, which could contribute to its higher debt levels. In terms of credit card debt, a report by Experian found that as of 2020, the average credit card balance in New Jersey was $6,869, which is slightly higher than the national average of $5,897. The report also found that the average credit score in New Jersey was 703, which is above the national average of 695. New Jersey also has a high level of student loan debt. According to a report by the Institute for College Access and Success, as of 2019, 62% of New Jersey college graduates had student loan debt, with an average debt of $33,252. This places New Jersey among the states with the highest student loan debt burdens in the country.

Bankruptcy Laws In New Jersey

Bankruptcy in New Jersey is governed by federal law, but there are also state-specific exemptions that debtors can use to protect certain assets in bankruptcy. In order to file for bankruptcy in New Jersey, debtors must meet certain eligibility requirements, including completing credit counseling within 180 days of filing and passing a means test to determine if they qualify for Chapter 7 bankruptcy.

There are two main types of bankruptcy for individuals in New Jersey:

1. Chapter 7 Bankruptcy: This type of bankruptcy allows for the discharge of most unsecured debts, such as credit card debt and medical bills, in exchange for liquidating non-exempt assets to repay creditors. Certain assets, such as a primary residence and retirement accounts, may be exempt from liquidation under New Jersey law.
2. Chapter 13 Bankruptcy: This type of bankruptcy involves the creation of a repayment plan for debts over a period of three to five years. Debtors can retain their assets while making monthly payments to a trustee, who distributes funds to creditors according to the plan.

There are several types of bankruptcy that a business may consider, depending on its financial situation and goals. Here are the most common types of bankruptcy for businesses:

1. Chapter 7: This is also known as liquidation bankruptcy. In this type of bankruptcy, the business stops operating and all of its assets are sold to pay off its debts. This is usually the best option for businesses that have no hope of continuing operations.
2. Chapter 11: This is also known as reorganization bankruptcy. In this type of bankruptcy, the business is allowed to continue operating while it reorganizes its finances and operations. The goal is to become profitable again and pay off its debts over time. This option is usually best for businesses that are still viable but struggling financially.
3. Chapter 13: This type of bankruptcy is only available to sole proprietors or individuals who own unincorporated businesses. In Chapter 13 bankruptcy, the individual creates a repayment plan to pay off their debts over a period of three to five years.

Learn More about the 3 main types of bankruptcy

Things To Keep In Mind When Considering Business Bankruptcy In New Jersey

If you are considering filing for business bankruptcy in New Jersey, there are several things you should keep in mind:

1. Types of bankruptcy: As mentioned earlier, there are different types of bankruptcy, and you should understand which one is the most appropriate for your business.
2. Eligibility: Not all businesses are eligible for bankruptcy. To file for bankruptcy in New Jersey, your business must have a physical presence, assets, or a creditor within the state.
3. Automatic stay: Once you file for bankruptcy, an automatic stay goes into effect. This means that creditors must stop all collection activities, including lawsuits, foreclosure, and repossession. It provides immediate relief from creditor harassment and gives you time to reorganize your finances.
4. Creditors’ meeting: Within a few weeks of filing for bankruptcy, you must attend a creditors’ meeting. This meeting is an opportunity for creditors to ask questions about your finances and the bankruptcy process.
5. Bankruptcy trustee: A bankruptcy trustee will be appointed to oversee your case. The trustee will review your financial records, manage your assets, and ensure that your creditors are paid as much as possible.
6. Impact on credit: Filing for bankruptcy can have a significant impact on your credit score and your ability to obtain credit in the future. It’s important to consider the long-term consequences of filing for bankruptcy.
7. Legal representation: Bankruptcy is a complex legal process, and it’s important to have a qualified attorney to guide you through the process and protect your interests.

What Debts Are Not Discharged In Bankruptcy?

While bankruptcy can be a powerful tool for eliminating or restructuring many types of debt, not all debts can be discharged through bankruptcy. Here are some examples of debts that generally cannot be discharged in bankruptcy:

1. Certain taxes: Some tax debts cannot be discharged in bankruptcy, including recent income tax debts and certain other types of taxes.
2. Student loans: In most cases, student loans cannot be discharged in bankruptcy unless you can demonstrate that repayment of the loan would cause undue hardship.
3. Child support and alimony: Debts owed for child support or alimony cannot be discharged in bankruptcy.
4. Debts arising from fraud or willful misconduct: If you obtained a debt through fraud, misrepresentation, or willful misconduct, it may not be discharged in bankruptcy.
5. Fines and penalties: Debts owed for fines or penalties imposed by government agencies cannot be discharged in bankruptcy.
6. Debts incurred after bankruptcy: Any debts incurred after you file for bankruptcy are not eligible for discharge.

How Does Bankruptcy In New Jersey Affect Your Credit Score And The Approval Of Future Loans?

Filing for bankruptcy in New Jersey can have a significant impact on your credit score and your ability to obtain credit in the future. A bankruptcy filing can remain on your credit report for up to 10 years, and it can negatively impact your credit score for several years. When you file for bankruptcy, your credit score will likely drop significantly, depending on your current score and the type of bankruptcy you file. A Chapter 7 bankruptcy filing may have a more significant impact on your credit score than a Chapter 13 bankruptcy filing. In addition, having a bankruptcy on your credit report can make it more difficult to obtain credit in the future. Many lenders view bankruptcy as a red flag and may be hesitant to lend to you, or they may offer you loans with higher interest rates or more stringent terms.

How Does Bankruptcy In New Jersey Affect Tax Debt?

When a person files for bankruptcy in New Jersey, their tax debts may be impacted in different ways depending on the type of tax debt and the type of bankruptcy they file.

Chapter 7 bankruptcy may help discharge certain tax debts. In New Jersey, income tax debts can be discharged in a Chapter 7 bankruptcy if the following conditions are met:

• The tax debt is at least three years old
• The tax return was filed at least two years ago
• The tax assessment is at least 240 days old
• The debtor did not commit fraud or willful evasion

Other types of tax debts, such as payroll taxes, cannot be discharged in a Chapter 7 bankruptcy.

Chapter 13 bankruptcy is a reorganization bankruptcy that allows debtors to pay off their debts over a period of three to five years. In a Chapter 13 bankruptcy, tax debts can be included in the repayment plan, but they must be paid in full by the end of the plan.

Will You Lose Your Home Or Car In Bankruptcy In New Jersey?

The answer to this question depends on the type of bankruptcy that you file, the amount of equity that you have in your home or car, and whether or not you are current on your mortgage or car payments. In a Chapter 7 bankruptcy, which is also known as a liquidation bankruptcy, the bankruptcy trustee may sell some of your assets to pay off your creditors. However, New Jersey has exemptions that allow you to protect some of your property, including your home and car, from being sold to pay off your debts. If you have significant equity in your home or car, you may be required to sell some of that equity to pay off your creditors, but you will be able to keep any equity that is covered by the exemptions. In a Chapter 13 bankruptcy, which is also known as a reorganization bankruptcy, you can keep your assets as long as you are able to repay your debts through a court-approved repayment plan. If you are behind on your mortgage or car payments, you may be able to catch up on those payments through the repayment plan.

Statute Of Limitations For Collections In New Jersey

In New Jersey, the statute of limitations for collections is the time period during which a creditor can legally sue a debtor for an unpaid debt. The statute of limitations varies depending on the type of debt. For written contracts such as credit card debts or personal loans, the statute of limitations is six years in New Jersey. This means that a creditor has six years from the date of the last payment or the date the debt became due and payable to file a lawsuit to collect the debt. If the creditor does not file a lawsuit within this time frame, the debt is considered time-barred and the creditor cannot sue the debtor to collect the debt. For oral contracts and open accounts such as utility bills or medical bills, the statute of limitations is four years in New Jersey.

Cons Of Bankruptcy In New Jersey

While bankruptcy can be a helpful tool for individuals and businesses struggling with overwhelming debt, there are also some potential drawbacks and consequences to consider. Here are some of the cons of bankruptcy in New Jersey:

1. Impact on credit score: Filing for bankruptcy can have a significant negative impact on a person’s credit score, which can make it more difficult to obtain credit or loans in the future.
2. Public record: Bankruptcy is a matter of public record, which means that anyone can access information about the bankruptcy filing, including potential employers or landlords.
3. Possible loss of property: Depending on the type of bankruptcy and the assets involved, a person may be required to sell or surrender some of their property as part of the bankruptcy process.
4. Difficulty obtaining credit: Even after the bankruptcy process is complete, a person may find it difficult to obtain credit or loans with favorable terms due to their credit history.
5. Potential impact on employment: Certain employers may view bankruptcy as a negative factor when considering a candidate for employment, particularly if the job involves financial responsibilities.
6. Potential impact on co-signers: If a person has a co-signer on a loan, the co-signer may still be responsible for repaying the debt even if the debtor files for bankruptcy.

Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy

Why People Regret Filing Bankruptcy:

While bankruptcy can be a useful tool for individuals and businesses struggling with overwhelming debt, some people may ultimately regret filing for bankruptcy. Here are some common reasons why people may regret filing for bankruptcy:

1. Impact on credit score: As mentioned earlier, bankruptcy can have a significant negative impact on a person’s credit score, which can make it more difficult to obtain credit or loans in the future. This can be particularly frustrating for individuals who did not fully understand the long-term impact of bankruptcy on their credit score.
2. Potential loss of assets: Depending on the type of bankruptcy and the assets involved, a person may be required to sell or surrender some of their property as part of the bankruptcy process. This can be particularly difficult for individuals who are emotionally attached to their property.
3. Guilt or shame: Some people may feel guilty or ashamed about filing for bankruptcy, particularly if they believe that they could have avoided it with better financial planning or decision-making.
4. Lack of financial education: Many people who file for bankruptcy have limited financial education and may not fully understand how to manage their finances or avoid future financial problems.
5. Misconceptions about bankruptcy: Some people may file for bankruptcy based on misconceptions or false information about how it works, leading to unexpected consequences or regret.

What Happens If You Do Not Qualify For Bankruptcy In New Jersey?

If you do not qualify for bankruptcy in New Jersey, it may be because you do not meet the eligibility requirements for Chapter 7 or Chapter 13 bankruptcy. In that case, you may need to explore other options for managing your debt, such as debt settlement. 

If you do not qualify for bankruptcy, you may need to explore other debt relief options, such as debt settlement.

Why Debt Settlement In New Jersey Is Better Than Bankruptcy:

There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.

1. No BK on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
2. Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
3. Emotional Impact: People report horror stories of the negative emotional impact of BK.
4. With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
5. Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
6. Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.

Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help

CuraDebt – An Alternative To Consider

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