Cherry Hill Bankruptcy Blog

Dealing with a financial emergency when you have a low income

Common recommendations for keeping your finances in good order include budgeting and self-restraint. While this may seem to be wise and good-intentioned advice, it is not of much use to those whose income can barely cover essentials like food and shelter.

Many people in the United States, unfortunately, are not paid a wage that makes living with a disposable income possible, and this is one of the reasons why debt issues are so common.

AVOIDING 1099C TAXABLE INCOME THROUGH BANKRUPTCY

1099c income occurs when there is a cancellation of debt. For example, if you owe a creditor $10,000.00 and they agree to settle for $6,000.00, forgiving the $4,000.00, the sum of $4,000.00 can count as income to you. However, if instead the entire debt is eliminated through a bankruptcy, there is no income to you and no tax consequence since the debt is discharged rather than forgiven or cancelled. A tax can also result from forgiveness of debt with a foreclosure. Again, filing a bankruptcy before the completion of the foreclosure can help avoid a tax liability.

Am I eligible to file a Chapter 13?

"Am I eligible to file a Chapter 13?" is a question I am often asked. Bankruptcy code section 109, entitled "Who may be a debtor" provides many of the requirements. To file a Chapter 13 you cannot have more than $1,257,850.00 in secured debt nor more then $419,275.00 in unsecured debt. Since this is Federal law these rules apply regardless of whether you file bankruptcy in New Jersey, Pennsylvania or anywhere else. In addition you must have completed a credit counseling course within 180 prior to the filing. You must be an individual. Also, you are not eligible to file a Chapter 13 you had a Chapter 13 within the prior 180 days and your prior case was dismissed for willful failure to obey court order or to appear in proper prosecution of a case. In addition, if you dismiss a chapter 13 bankruptcy after the creditor has filed a motion for relief from the automatic stay, you cannot file another Chapter 13 for 180 days. However, if your prior bankruptcy was dismissed by the court, and not at your request, you can refile. There are other rules that come into play, such as good faith. It is best to consult with an experienced bankruptcy attorney to confirm eligibility

How does bankruptcy affect your credit report?

Bankruptcy can be a helpful step for people with overwhelming financial obligations to eliminate or reorganize their debt. A Chapter 7 bankruptcy can stay on your credit report for 10 years, and a Chapter 13 filing will remain for seven to 10 years.

Accounts included in a bankruptcy filing will be listed as “discharged” or “included in bankruptcy” on your credit report, which can hurt your chances for a loan or a credit card. However, those accounts are no longer listed as “unpaid” or “past due,” and your credit scores will start rebounding, providing you remain financially responsible.

Losing your job-issued credit card during bankruptcy

Maybe you fear you’ll have to declare bankruptcy. You’re even playing it out in your head, trying to see how it would really go.

What about that business credit card from your employer, which you use for job-related expenses? Will they take it away from you? Does your employer even have to know about your bankruptcy?

UNDERSTANDING BANKRUPTCY

Lets say you are having financial difficulties but are not sure if Bankruptcy is right for you. Where do you begin. The library is a good place to start. I checked out the Willingboro Library at 220 Willingboro Parkway near my Willingboro office. A review of some of the books available in the Willingboro Library such as Chapter 13: Keep your Property and Repay your Debts Over Time, by Stephen Elias and Robin Leonard or Bankruptcy Law for the Individual Debtor by Margaret Jasper are good places to start. Consulting with an attorney should also be considered since bankruptcy law can be complicated. Once you have the knowlege as to how bankruptcy works, it will allow you to make an informed decision as to whether it is right for you.

MEDIAN INCOME FOR BANKRUPTCY INCREASES IN 2019

Under Bankruptcy Law, the Bankruptcy Court takes into account the debtors household income and compares it to the median family income of their state to help determine whether a chapter 13 or a chapter 7 should be filed. On April 1, 2019 the household income numbers increased. In New Jersey, there is a presumption that a Chapter 13 should be filed (although depending on expenses a Chapter 7 is still possible) if income exceeds $68,349.00 for a family of one, $82,263.00 for a family of two, $103,634.00 for a family of three and $125,465.00 for a family of four. In Pennsylvania those numbers are $55,117.00 for a family of one, $66,649.00 for a family of two, $82,518.00 for a family of three and $100,078.00 for a family of four. Note that even if you make less than the average similiar family, equity in assets and expenses will still also be used to determine whether chapter 7 is appropriate.

I DON'T WANT TO INCLUDE MY CAR IN MY BANKRUPTCY

Whether I am in my office in Willingboro New Jersey or in Northeast Philadelphia I often hear the same statement when a client comes in to file a Chapter 7 bankruptcy- "I don't want to include my car in the bankruptcy ".  While keeping a car is generally not a problem, the car is required to be included in the bankruptcy since  a debtor is required to list everything owned and all debts, including car loans. However, in addition to listing the car, a Statement of Intentions regarding the car must also be filed. In it the debtor states whether they intend to surrender the vehicle, reaffirm the debt on the vehicle, or redeem the vehicle. Reaffirm means a form is completed and filed with the court which has the effect of taking the car out of the bankruptcy. The good part is it helps rebuild credit. The bad part is if you default and the car is repossessed you will be liable for any deficiency claim. Redemption is when you have a car worth, for example, $10,000.00 and you owe $15,000 there are companies that will lend you the $10,000 and you are basically saying if I gave you the car back you would only get $10,000 even though I owe you $15,000 so I am giving you $10,000 and that is what you get. The bottom line is keeping your car in a bankruptcy is generally not a problem.

Bankruptcy Benefits For High Income Earners

When you have a high amount of credit card debt, bankruptcy is often a good solution even if you are a high income earner. In a bankruptcy the court considers equity in assets and income compared to expenses in determining whether you can eliminate the debt or whether you have to pay back some or all of the debt. I sometimes have people come into my Cherry Hill, New Jersey or Philadelphia, Pennsylvania office that believe bankruptcy is not an option because they "earn too much money". While the high income may prevent the individual from filing a chapter 7, they can file a chapter 13 bankruptcy. Depending on disposable income after taking into account reasonable and necessary living expenses, the disposable income would be used for a period up to five years to pay the creditors. Depending on total debt and income, you may be able to pay a reduced amount, like 40% of the debt. However, even if you have to pay the debt in full, you can pay it over 5 years without interest. This results in a significant savings. Short term, the payment is going to be less than you were paying monthly. Long term the savings is even greater because if you are paying minimum payments on a credit card, it will take approximately 22 years to pay off the debt. In Chapter 13, it is only 5 years. Even a high income earner should consult with an experienced bankruptcy attorney if they are struggling with high credit card debt.

Medical bills are the leading cause of bankruptcy

Nearly 67% of all personal bankruptcies in the U.S. are related to medical bills. This shocking percentage makes medical bills the leading cause of bankruptcy. Serious medical conditions can be extremely expensive, and Americans are unable to afford the cost—even if they have health insurance.

These medical expenses are often unforeseen and can cause the individual to go further into debt. Serious medical conditions may necessitate expensive medical care and a long recovery period.

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