What Happens to My House if I File Bankruptcy in New Jersey?

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If you are considering filing bankruptcy and own a home in New Jersey, you have cause to be worried. This article explains how your home will be treated in your Chapter 7 or Chapter 13 bankruptcy case, what actions you can take, and what rights you have. 

Don’t file bankruptcy before reviewing this information! And if you have further questions, do not hesitate to consult an experienced New Jersey bankruptcy lawyer.

Your Home Will be Seized and Sold if You Do Not Properly Apply Exemptions

When you file bankruptcy, “exemptions” protect your property from seizure by the Trustee (this is the person who manages your bankruptcy). When declaring bankruptcy in NJ, you have the choice of whether to apply for federal or state exemptions.

Under the federal exemption scheme and as of this writing, you can protect up to $22,975 of equity in your home – double that if you are married and filing bankruptcy jointly. The NJ exemption scheme has no exemption for your real property (meaning your house).

If you have equity in your home and wish to keep your home, you might consider selecting the federal exemptions, but keep in mind that you cannot mix and match. If the NJ exemptions would be beneficial to you in some other aspect of your financial situation, you have to weigh the potential benefits and losses of both systems.

What to Do If You Have Too Much Equity in Your Home in NJ   

What if you have more equity than you can protect? Let’s take a look at a couple of examples.

Example #1: Let’s say you and your spouse are considering bankruptcy due to medical debt. You have your home of 25 years appraised and find that it is worth $380,000, and since you refinanced about ten years ago you have a first mortgage with a balance of $260,000. 

You have $120,000 in equity and can only exempt $45,950 of it. The Trustee will assuredly be interested in seizing your home if you file bankruptcy. In this example, a skilled bankruptcy attorney will advise you as to bankruptcy and non-bankruptcy alternatives to dealing with the medical debt.

Example #2: Same house as above, but you also have a second mortgage of $53,000, which you took out to help your youngest through college.

Okay, let’s do the math. You are entitled to exempt $45,950 of equity. You have $67,000 in equity. That leaves $21,050 unprotected.

The Trustee will consider seizing your home. First, they will subtract 5% for the cost of sale, which is $16,000. It may not be worth it for the Trustee to seize and sell your home, so they may propose that you pay your creditors the amount they would get if your home were seized and sold. You can pay that $16,000 over the life of your Chapter 13 plan.

If your medical bills were more than $16,000, this might be a good deal. If not, you might have to reconsider your options.

You Can Stop Foreclosure by Filing Bankruptcy in NJ

Once you file a bankruptcy petition, the “automatic stay” is in immediate effect. It “stays” or stops any creditor action against you, including:

  • Collection letters
  • Collection phone calls
  • Wage garnishment
  • Bank account levy
  • Judgment liens
  • Lawsuits

Foreclosure lawsuits are stayed pending the closure of your case. Regardless of whether you wish to retain or surrender your home, no foreclosure judgment may be entered, your home cannot be sold, and you cannot be evicted during your bankruptcy case unless the creditor files a motion to lift the automatic stay and the court grants that motion.

Getting a Mortgage Modification in Bankruptcy in NJ

In New Jersey, when you file a bankruptcy petition and you are in arrears on your mortgage, you can avail yourself of the NJ Foreclosure Mediation Program to try to save your home. Through this program, you can negotiate with the lender to deal with past-due mortgage payments and fines and fees and perhaps modify the terms of your mortgage to make it more affordable.

You Can Catch Up with Mortgage Payments in a New Jersey Chapter 13 Bankruptcy

When you file a Chapter 13 case in New Jersey, you will propose a three or five-year repayment plan in which you can catch up with past-due:

  • Child support payments
  • Spousal support or alimony payments
  • Government fines or fees
  • Income taxes
  • Student loan payments
  • Rent 
  • Car payments
  • Mortgage payments

Chapter 13 is for people with a steady income stream who have fallen behind in payments but have the means to resume making regular payments as well as a payment each month to the Chapter 13 Trustee to fund their plan.

When the plan is fully funded, you are caught up with any and all arrears, and your unsecured debt, such as credit cards and medical bills, is discharged.

You Can “Strip Off” a Second Mortgage or HELOC in a NJ Chapter 13 Bankruptcy

If your home is worth less than you owe on a first mortgage and you have a second mortgage or HELOC, you can “strip off” that second mortgage or home equity line of credit and have it discharged like any other unsecured debt.

Be advised that mortgage lenders often challenge your appraisal, claiming that your home is worth more in an attempt to prevent the strip-off. Your bankruptcy lawyer will help you prepare a convincing case that your home is worth what you say it is.

You Can Surrender Your Home to the Lender in an NJ Bankruptcy

If you simply cannot afford to keep your home, you can get out from under that mortgage debt and walk away free and clear by filing Chapter 7 bankruptcy in New Jersey. By selecting the “surrender” option with regard to your real property, you are giving the property to the lender, and the underlying debt will be discharged.

When the lender eventually sells your home at the sheriff’s sale, they will apply the proceeds of the sale to your account. There will likely be a deficiency balance, however, you are not responsible for paying it because it was discharged in your bankruptcy case.

Consult with an Experienced NJ Bankruptcy Attorney if You Have Questions

As you’ve read, there are many ways you can deal with your home and mortgage debt in bankruptcy in New Jersey. The most important thing is to be informed as to the value of your home, the amount you owe in mortgages or HELOC, and your current ability to pay or repay mortgage debt.

When you have this information, you can weigh your options. Be sure to consult with an NJ bankruptcy lawyer if you feel unsure about which is the best option for you.

Can Bankruptcy Get Rid of Government Fines or Court Fines?

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The short answer is it depends.

Government fines, fees, penalties, and costs are those that may be imposed by:

  • any agency of government (like the Division of Motor Vehicles or the IRS),
  • any level of government (such as county, state, or federal), and of course, 
  • any level of the court system, both state and federal. 

A general rule of thumb: when the government entity issued the fine as a punishment, it is likely not dischargeable in bankruptcy. When the government entity issued the fine to compensate for financial loss, then it likely is dischargeable. 

What Fines Can Not Be Wiped Out in Bankruptcy?

The classification of the fine depends upon state law, and your bankruptcy attorney can help you with that.  In general, fines and fees related to these are likely not dischargeable:

  • Criminal misdemeanors
  • Criminal felonies
  • Restitution to a victim of crime
  • Bad check fees
  • Traffic tickets issued for crimes
  • DUI
  • Any other costs or fees included in a sentence related to a criminal conviction

Which Fines Can Be Cleared in Bankruptcy?

  • Bail Bond Forfeitures
  • Parking or Traffic tickets, as long as non-criminal under state law
  • Any fine imposed as reimbursement due to something you’ve done
  • Court costs and fees not related to a criminal proceeding

These Fines May or May Not Be Discharged In Bankruptcy

Whether fines imposed for the following are dischargeable varies widely state-to-state:

  • Fines for building code violations
  • Fines for contempt of court
  • Unpaid tolls and toll violations

Eliminating Income Tax Debts and Penalties in Bankruptcy

In the Bankruptcy Code, income tax debts and penalties are treated separately from other types of government penalties. In general, if the tax was due less than three years ago, the tax and the penalty will not be discharged. If the tax was due more than three years ago, the tax and the penalty may be discharged under certain conditions.

Dischargeability also depends on whether or when you filed a tax return for the year due and whether or when the IRS assessed that income tax debt.  The rules are pretty complex and you should consult with an experienced bankruptcy attorney who can assess your tax situation in particular.

Fines and Penalties in a Chapter 13 Bankruptcy

Government Fines and Penalties Imposed Due to Fraud

Fines and penalties imposed due to fraud are not dischargeable in a Chapter 7 case.  However, they may be dischargeable in a Chapter 13 case, as long as those penalties are included in the Chapter 13 Plan and not imposed as part of a criminal sentence. Each case must be carefully looked at and you need to ask a bankruptcy attorney regarding your specific situation.

What To Do if You Cannot Afford to Pay Your Fines and Fees

Filing a Chapter 13 petition also can give you additional time to pay off fees that are non-dischargeable.  When you file you will propose to pay off that debt over a three year to five-year repayment plan. If you can prove you have the income to pay the monthly plan payments, the court will likely confirm your plan.

Filing Chapter 13 Can Help You Get Your Driver’s License Back

One more benefit of filing Chapter 13 Bankruptcy:  if you lost your driver’s license due to failure to pay fines, some states will allow you to get your license back if you can demonstrate that the fines are being paid in full through your Chapter 13 plan.

Filing Bankruptcy Can Help You Even If Your Fines Are Not Dischargeable

This article is not meant as legal advice. Instead, it is meant to let you know generally what type of court and other government fines, fees, penalties, and costs are likely dischargeable and what type are probably not. 

Filing bankruptcy could result in either getting that government debt discharged, allowing you to pay off that debt over time, or having your other unsecured debt discharged so you can afford to pay the government debt. In any of these three scenarios, bankruptcy offers you a fresh start.

How to File Chapter 7 Bankruptcy Without a Lawyer

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You CAN file Chapter 7 bankruptcy yourself, which is called filing “pro se.” This article will explain the process of filing Chapter 7 and identify pitfalls that, if not avoided or resolved, will result in you not getting the financial fresh start you need.

Why Do You Think You Need to File Chapter 7?

The most common reasons people are forced to turn to bankruptcy as a solution are job loss, divorce, and significant medical bills.

Chapter 7 allows you to discharge many forms of unsecured debt, such as credit cards and medical bills. A discharge means you are no longer responsible for paying that debt.

You cannot discharge certain kinds of debt like child or spousal support, government fines and fees, most income taxes, or student loans in a Chapter 7 filing. You may be able to get a mortgage or car loan discharged if you surrender the collateral to the lender.

Use the U.S. Bankruptcy Court Website and the Website of the Court in Your Jurisdiction

Bankruptcy is governed by federal law. The U.S. Courts website has PDF files of many of the required forms, and the federal courthouse in your jurisdiction will have a website with a page for pro se litigants with the required local forms. 

Some states have multiple bankruptcy courts, while others have one. For example, if you’re filing for bankruptcy in Pennsylvania you would go to either the Eastern District of Pennsylvania bankruptcy court site, Middle District of Pennsylvania, or Western District of Pennsylvania. On the other hand, if you’re filing bankruptcy in New Jersey, there is just one website for the District of New Jersey.

Bear in mind that judges, clerks, and any employee of the court cannot give you legal advice and that pro se litigants are held to the same standards as attorneys. You will have to comply with all procedural requirements in your case.

If you are single, married, or a sole proprietor, you will use forms in the 100 series.

If you are filing on behalf of a business that is a corporation, partnership, or LLC, you will use forms in the 200 series.

Gather Your Financial Documents, Records, and Other Information

You will need the following documents to prepare your Chapter 7 filing and to have ready to give to the Chapter 7 Trustee:

  • The last three years of federal income tax returns;
  • The last six months of all bank account statements;
  • Copies of your credit report from each of the three credit reporting agencies;
  • Copies of overdue bills and debt collection notices showing amounts in arrears;
  • If you rent, a copy of the lease;
  • If you own, copies of the mortgage(s);
  • A real estate appraisal of your home;
  • The past six months’ worth of paystubs
  • Your monthly budget for expenses;
  • The value of each of your possessions.

Complete Your Chapter 7 Petition and Schedules

Once you’ve gathered all of the documents, you are ready to download and print the Chapter 7 petition and schedules. The petition will require you to enter all personal and contact information. On the schedules, you will disclose all income, expenses, assets, and debts.

Be sure to list all creditors and all debts. Failing to include all creditors and debts can result in a debt not being discharged or an allegation of fraud, which under federal bankruptcy law is punishable by hefty fines, jail time, or both.

There is no law preventing you from paying a debt back even if it is discharged, so list everything – even that loan you got from your parents.

Take Your Credit Counseling Course

Since the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), everyone filing bankruptcy must take a credit counseling course over the phone or online. The list of accepted course providers will be on your jurisdiction’s website. You will file the certification of course completion with your petition and schedules.

File Your Chapter 7 Case

Attorneys can file your case electronically. As a pro se litigant, you will have to visit the Clerk of Court and physically file your case along with the filing fee of $335 (as of March 2021).

Attend Your 341(a) Meeting of Creditors

You will receive notice of a mandatory meeting with the Chapter 7 Trustee. This meeting is called the Meeting of Creditors because all of your creditors receive notice of it too, and if they have questions about your debt or their collateral, this is their opportunity to appear and inquire while you are under oath.

The Trustee will swear you in, verify your identity by inspecting your photo ID and your social security card and ask you targeted questions about your filing. The Trustee may or may not request additional information or documentation, which you are required to supply.

Take the Financial Management Course

Under BAPCPA, Chapter 7 debtors are required to take a second course, called the financial management course or the debtor education course. This can be done over the phone or online. Once you receive the certification of completion, you must file it with the Clerk of Court. You will not receive your discharge if you fail to complete the course or fail to file the certification of completion.

Wait for the Deadline for Creditors to Object to Pass

Creditors have a limited amount of time to object to discharge of the debt you owe them. The last date your creditors can object will be on the notice you receive that your case is filed.

If a creditor does object to discharge, there can be any number of reasons for that, including:

  • The debt is secured and the creditor wants the collateral back;
  • The debt was incurred just before filing bankruptcy;
  • The debt is nondischargeable.

If you are unable to negotiate with the creditor and that debt is not discharged, you will still be responsible for paying it when your bankruptcy case closes.

Receive Your Discharge

Once the deadline to object passes, a discharge order will be entered in your case. Keep it handy in case any creditors attempt to collect discharged debt so that you can give them your case number and mail, fax, or email a copy of the discharge order to them.

If You Need Help, Consult with a Bankruptcy Attorney

If, after organizing all of the documents and information you need to file Chapter 7 and looking over the required forms, you find that you are confused or that you are uncertain as to how to proceed, consult with an experienced bankruptcy lawyer in your jurisdiction. 

Filing bankruptcy can have unintended consequences for you and for others if you do not fully understand what will happen in your case and anticipate potential problems. An attorney can help you:

  • Determine if filing Chapter 7 is the best solution for your particular situation;
  • Inform you about the pros and cons of filing Chapter 7 or Chapter 13 bankruptcy;
  • Assess your debt situation and advise you which debt can be discharged;
  • Determine whether you will be able to keep your home, your car, or other property when you file bankruptcy;
  • Correctly apply “exemptions” so the Trustee does not seize your property;
  • Prevent your car from being repossessed;
  • Negotiate with secured creditors if you fell behind in payments but want to keep your home or car;
  • Negotiate with creditors that object to discharge;
  • Deal with any creditors who violate the automatic stay;
  • Advise you about whether you should continue to pay creditors, and if you are able to stop paying some bills, that may make hiring an attorney affordable;
  • Inform you of any tax consequences of filing bankruptcy;
  • Ensure that your case complies with all bankruptcy law, procedures, and filing requirements;
  • Complete all of the required forms for you to review and sign;
  • Represent you in the 341(a) Meeting of Creditors, before the Trustee;
  • Prepare you for testifying under oath at the 341(a) Meeting of Creditors;
  • Represent you if your case is subject to random audit by the U.S. Trustee’s office;
  • Ensure that you get what you need from filing bankruptcy.

Most bankruptcy lawyers offer a free initial consultation. What do you have to lose (other than thousands or tens of thousands of dollars of debt)?

How to Stop the Repo Man with Chapter 7 Bankruptcy

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Have you had trouble making your car payments lately? You are not alone. Many people purchase a car they believe they can afford, then something catastrophic happens such as job loss, divorce, or medical emergency that suddenly makes those payments impossible.

This article will tell you how to keep your car from being repossessed, and if the repo man already took your car, how you can get it back – by filing Chapter 7 bankruptcy. Not only can you stop car repossession, but you can get rid of debt such as credit card bills and medical bills. Find out how!

How to Avoid Repossession

The only sure-fire way to avoid repossession is to make your car payments in full and on time. The only other sure-fire way to stop repossession once you’ve missed some payments is to file bankruptcy.

Most automotive retail installment contracts provide that “the lender may take immediate action to secure the collateral if you fail to perform under the contract.” In English, that means that the papers you signed when you bought your car gave the lender permission to repo your car if you fail to pay.

Every state regulates how a repo man can take your car. Typical laws include the manner in which the repossession can happen, which must be “peaceful.” A repo man cannot break locks or damage property. 

Can a repo man open your garage? If it is unlocked, yes. A repo man may also be able to move other vehicles that are blocking access to the car they want.

While you may be successful at hiding your car from the repo man for a while, eventually he will find it. Nothing you do can stop the repo man from taking your car once he is hired to do it – except filing bankruptcy.

How Chapter 7 Bankruptcy Stops Car Repossession

The minute you file a Chapter 7 bankruptcy case, the “automatic stay” is put in place. The automatic stay “stays” or stops any creditor action against you, including car repossession as well as:

  • Wage garnishment
  • Bank account levy
  • Placing a judgment lien on your house
  • Debt collection lawsuits
  • Debt collection letters
  • Debt collection phone calls

The automatic stay is meant to give you some breathing room to rearrange your financial situation. However, it does not solve the matter of being behind on your car payments. Once your bankruptcy case closes, the repo man will be back unless you take further action.

How to Keep Your Car in Chapter 7 Bankruptcy

One solution to your car loan problems is to “redeem” your car in your bankruptcy case. This involves paying either the retail value of the car or the balance of your car loan, whichever is lower. 

Redemption involves coming up with a lump sum payment for the lender. During the four-to-six months of your Chapter 7 bankruptcy case, while you are not paying your car loan or credit card bills, you may be able to save that up. In the alternative, redemption lenders have popped up on the internet recently and they may be able to help you, albeit at a higher rate of interest than your original car loan.

If you can’t come up with the money to redeem your car, you have other options.

Surrender Your Car in Chapter 7 Bankruptcy

If you simply cannot afford your car, you can “surrender” it to the lender in your bankruptcy case. Yes, the repo man will then take your car, or you can drop it off at the dealership. However, the underlying debt will be discharged – meaning, you are no longer responsible for paying it. 

This means that when the lender sells your car at auction, and it sells for less than what you owe on the loan, you are not responsible for paying the difference (called the ”deficiency balance”).

This really isn’t as bad as it sounds. When I declared bankruptcy this is exactly what I did. And shortly after my bankruptcy I was able to qualify for a new car loan.

Reaffirm Your Car Loan in Chapter 7 Bankruptcy

When you “reaffirm” your car loan, you sign a new loan agreement to pay for the car. This agreement can be negotiated by your bankruptcy attorney, and you may be able to roll missed payments into the loan balance or add them to the end of the loan term. 

Bear in mind that when you reaffirm debt, it is not discharged in your bankruptcy case – meaning, if you fall behind again and the repo man takes your car, you are still responsible for paying the deficiency balance.

Consider Filing Chapter 13 to “Cram Down” Your Car

If you have a steady income stream, you might consider filing Chapter 13 instead of Chapter 7. This will allow you to discharge your unsecured debt, such as credit card and medical debt, but also allow you to keep your car, pay it off through your three or five-year repayment plan, and “cram it down.”

What is “cram down?” When you file Chapter 13, you have the power to force the lender to accept retail value for the car instead of the loan balance, and you pay that retail value at prime plus 1-3% interest over the life of your plan. When you complete your plan, you own the car!

People save thousands of dollars by cramming their cars down in Chapter 13. Talk to an attorney if you think you might be able to afford to cram your car down.

Get Your Car Back with Chapter 7

Even if your car has already been repossessed it’s possible you can still get it back. This can be a somewhat complex process and you’ll likely need the help of a bankruptcy attorney. Most bankruptcy attorneys offer a free initial consultation – why not take advantage of that and find out what your options are? What do you have to lose?