Frequently Asked Questions
What is Bankruptcy?
Bankruptcy, as a concept, dates back to the days of the Romans, who would forgive a farmer's debts in any year in which that farmer's crops failed to grow. Its origins can also be found in the Bible, which provided for an elimination of debt every seven years, in the Jubilee year. The origins of what are now our bankruptcy laws date back to the earliest days of the American colonies, and rumor has it that Benjamin Franklin was one of the first debtors in the United States.
The overriding concept is fairness. Fairness to creditors, so that similarly situated creditors will be treated fairly and evenly as between themselves, and fairness to debtors, who are seeking relief from their obligations. Bankruptcy law provides that an honest debtor is entitled to a fresh start.
That is what we, at the Law Offices of Lee D. Gottesman, have striven to ensure since this office began operation in 1992.
There are four different types of bankruptcy proceedings in which individuals may participate: Chapter 7, Chapter 11, Chapter 12 and Chapter 13.
In Chapter 7, your assets come within the control of a trustee, who is appointed to administer the case on behalf of the creditors. The trustee has the right to sell assets, to raise moneys for unsecured creditors, subject to lien interests (such as mortgages and car loans) and exemptions: an exemption is established by law to protect a debtor's equity interest in his or her property, up to a point; if there is no equity above and beyond the value of liens and exemptions, in most cases, a debtor will be able to file a Chapter 7 Petition, and not have any asset sold by a trustee. Most Chapter 7 cases will last between four and five months, from the date of filing until the date that the order of discharge is entered.
Chapter 13 is primarily used by debtors who are seeking to prevent foreclosure sheriff sales from proceeding, or alternatively by debtors who have unprotected equity in assets which might otherwise cause a Chapter 7 trustee to liquidate an asset. In certain circumstances, based upon a debtor's income levels, a Chapter 13 case may be required instead of Chapter 7 if bankruptcy relief is sought. A Chapter 13 debtor will propose a plan to repay their creditors, which is subject to review by a Chapter 13 trustee and to approval by the Bankruptcy Court. Chapter 13 has debt limitations, and a Chapter 13 case will last at least three years, and as many as five years.
Some individual debtors may have too much debt to qualify for Chapter 13, and may not wish to face a liquidation by a Chapter 7 trustee. Those debtors are eligible to file a Chapter 11 Petition. Creditors have more rights in Chapter 11 cases, and those cases are usually very expensive. If a debtor qualifies for Chapter 13, there is usually no reason to consider Chapter 11.
Finally, if a debtor is a farmer, they are eligible for Chapter 12; this type of proceeding, which is similar to Chapter 13, is very rarely used in New Jersey.
The specific type of bankruptcy relief for which you may be eligible is dependent upon many factors. You should not consider any of these options without consulting with qualified bankruptcy counsel.
We are federally designated consumer debt relief agency under Title 11 of the United States Code. We provide legal assistance to consumers under the United States Bankruptcy Code.
Contact Law Offices Of MaryBeth Schroeder today at 732-228-4500 to start to recover your financial well-being, or browse our website for more information about our firm.
Does bankruptcy affect my whole life insurance policy?
Whole life policies have what is called a cash surrender value, which is the amount of money an insurance company would redeem to a policyholder if the policy was canceled. Therefore, a whole life policy can be considered an asset. Every state has its own set of bankruptcy laws, some states do protect cash surrender value of whole life policies in case of bankruptcy, but you should always check with your local bankruptcy court to determine how the laws read in your area.
Does bankruptcy affect my term life insurance policy?
Bankruptcy does not affect a term life insurance policy. Unlike life insurance policies that have a savings/investment component, such as whole life, term life policies have no cash surrender value. The value of a term life policy is only realized on the death of the policyholder.
Can you refinance while in chapter 13 bankruptcy?
Yes - it is possible to refinance your mortgage while in chapter 13 bankruptcy. This form of bankruptcy requires a debtor to enter a debt repayment plan that is both approved and monitored by a bankruptcy court. In order to refinance, a debtor should have made at least 6 plan payments on time. Additionally, the debtor will need an approval from the bankruptcy trustee to refinance the mortgage.
Can I get a debt consolidation loan with bad credit?
In today's lending environment, it's extremely difficult for people with bad credit to get approved for a debt consolidation loan. Lenders simply are not taking on excessive risk. If you have an existing relationship with a financial institution it always makes good sense to talk to them first as they have a vested interest in your financial welfare. Consumers with poor credit and in need of debt relief should read up on these available services (link to debt relief).
What kinds of debt relief are available to people with bad credit?
The three main types of debt relief services are: credit counseling, debt settlement, and debt management. A debt consolidation loan is designed to lower a consumer's monthly payment on their debt, while ideally getting out of debt quicker. While debt consolidation is a sensible debt relief strategy, people with bad credit will often have difficulty getting access to this option if they have a poor credit score.
What are the fees for a debt consolidation or debt settlement service?
The term debt consolidation, for most of us, equates to a debt consolidation loan. However, debt consolidation can also refer to a service, one offered by certain reputable credit counseling agencies. To find a nonprofit or low cost credit counseling company, search The National Foundation For Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA). Debt settlement, on the other hand, is a service not provided by traditional credit counseling agencies. A plethora of small companies have sprung up in recent years offering debt settlement services, and no consistent industry wide cost structure has become apparent. Some companies may charge a percentage of the total debt- others may charge a percentage of the total savings. Consumers need to strongly consider all debt relief options before electing for a debt settlement service.
Is free credit counseling available?
There are several well respected nonprofit companies that offer free credit counseling services. The National Foundation For Credit Counseling (NFCC) and the Association of Independent Consumer Credit Counseling Agencies (AICCCA) sites enable consumers to easily locate free or low cost providers of credit counseling services. Consumer Credit Counseling Services is an example of a well established, nonprofit, agency that is free of charge.
Are government debt consolidation loans available?
The government does not have programs to offer conventional debt consolidation loans. The U.S. Department of Education does, however, have a program to consolidate existing federal student loan debt. Eligible for consolidation are all federally insured student loans, such as Stafford loans.
Can I get a debt consolidation loan without owning a home?
Home ownership is not required to get a debt consolidation loan, but it does limit the available options. The loan option available to non-homeowners to consolidate debts is a personal loan.
Can a collection agency sue for a debt?
Collection agencies can file a lawsuit in order to collect on a debt. In most cases, collection agencies will only take this action if they have purchased the bad debt from the originating lender.
What are my options for affordable debt consolidation?
For homeowners, the lowest cost option is usually a home equity loan. Equity loans, though they often come with various fees attached, offer lower interest rates than most other loan products, and come with the added benefit of tax deductibility. The other primary debt consolidation loan option is found in personal loans, which have higher rates, but no fees. Personal loans provide a sensible option particularly in situations where a consumer only requires a relatively small loan amount. For consumers who are struggling, making the loan option unfeasible, one option is to contact a nonprofit credit counseling agency that offers free debt consolidation services.
Can I negotiate credit card debt on my own?
Many experts do suggest trying first to negotiate debt reduction before utilizing a debt relief company. Contact the credit card company, explain your situation, and work together to explore alternatives. Though the credit card company is under no legal obligation to reduce your debt, starting a dialog early will improve your chances of negotiating a plan to help get you through difficult times.