Should You Settle Your Debtor or File For Bankruptcy

As a Bankruptcy Attorney New Jersey, clients call my office on a weekly basis who have tried to settle their debts and ask me if they should have instead filed for bankruptcy. This is the ultimate question any potential client should ask before they either file for bankruptcy or choose to settle their debts. Let's go over the advantages and disadvantages for each of those two paths.

Settling Your Debts

For those with substantial credit card debts, settling those debts is a valid option. For many clients, the holder of the debt will be willing to settle that debt for a fraction of the principal amount. I have seen companies offer to settle the debt for 25% - 50% of the debt. The rule of thumb I tell clients is like this - the longer you have not paid that debt - the more times it has been sold off to another debt buyer - the more likely you can settle that debt for a fraction of the principal amount.

Clients often ask me though that up until now they have been paying the minimum payments and are not even late yet. In that case, I will advise them that the credit card company will not yet offer you a discounted rate because you are not late on your payments yet. Only when you become delinquent on your payments then will they be open to settling your debt. The longer you do not pay the debt the better discount you will receive. However, if you intentionally do not pay them, then the longer you are delinquent the more your credit score will decrease.

The Debt Settlement Catch

As a New Jersey bankruptcy attorney, I often have to advise clients about the catch the debt settlement programs do not tell you. Yes, you can settle your debts at a discount but you must have cash savings to afford the payoff. The debt holder will not accept a debt settlement from you unless you can payoff the entire discounted amount within a few days. I often find that clients think that they can get a debt discounted and then just pay monthly the discounted amount - this is not possible.

Therefore, unless you have savings to pay off each creditor one by one then debt settlement is not a realistic option. What a lot of the debt settlement companies do is have you pay them a monthly amount each month and they retain a certain percentage to build up savings for you to payoff the debt holders. However, this is something you can do yourself. Often, these debt settlement companies pay themselves first from these monthly amounts so if you cannot afford to make more payments they have already gotten paid and they keep all the money without settling your debts.

Another drawback to debt settlement is that you will be taxed on the debt the credit card company forgives. Let's say for example you settle a $50,000 credit card debt for $25,000. That means that you paid off the credit card company in a lump sum $25,000. Now you no longer owe them any debt, that's great! The IRS, however, will count the other $25,000 that the credit card company forgave as income to you for tax purposes. That means you'll be owing the IRS a percentage of that $25,000 that the credit card company forgave you on the debt depending on your income for that year.

Debt Settlement's Bottom Line

In summary, the advantages to settling your debts versus filing for bankruptcy are you can settle your debts for a fraction of what you owe and you do not need to file for bankruptcy and put your assets at risk, however, you will need to have a lump sum payment to settle your debts, you may have to wait months before you can settle your debts until the debts have aged or you have a lump sum to pay them off, and you will be taxed on the amount the credit card company forgives.

Bankruptcy as an Alternative to Debt Settlement So what can bankruptcy do for you that settling your debts cannot do for you?

Bankruptcy has many advantages over debt settlement. The first advantage is cost. As I mentioned above, if you are going to settle your debts you will need a lump sum payment to pay them off. For example, if you are going to settle a $20,000 debt then you may have to come up with a lump sum of $5,000-$10,000 to pay them off at once. For many clients they cannot come up with that kind of money. By contrast, a chapter 7 bankruptcy in New Jersey costs anywhere from $2,000 - $2,500. This is a one-time flat fee and it eliminates all of your debts in many cases.

When you settle your debts you have to pay off each one, one-by-one. When you file a chapter 7 bankruptcy, you literally wipe out all of your credit card debts. That means whether you have $10,000 of credit card, $50,000 or $100,000 you can wipe out all of that credit card debt for one flat-rate.

Eliminating Your Debts Quickly

When you file for a chapter 7 bankruptcy, you can expect to discharge your debts and get out of bankruptcy in 3-4 months. This is a lot faster than saving up a lump sum and paying off each creditor. This could take a year or more and there is no guarantee that you will even be able to settle your debts during that time period.

Erasing Your Debts Tax Free

When you file for a chapter 7 bankruptcy, all the debt you eliminate is tax-free. As I mentioned previously, when you settle your debts you have to pay income tax on the amount the credit card company forgave. By contrast, you pay no income tax at all on all the debt you eliminate in bankruptcy.

#1 Drawback to Filing for Bankruptcy: Your Assets

The biggest drawback to bankruptcy is that if you have assets they could be put at risk in bankruptcy. That is why you need to speak with a qualified Bankruptcy Attorney New Jersey and find out if any of your assets will be at risk before you file for bankruptcy. In New Jersey for example, you can keep up to $20,000 per person in the equity in your home according to the New Jersey bankruptcy exemptions. Therefore, if you are single and you have let's say $50,000 of equity in your home, then if you were to file for a chapter 7 bankruptcy you may lose your home (although you will receive the $20,000 of equity you can keep in your home). Therefore, before you file for bankruptcy you need to take an accounting of all of your assets such as any business you own, real estate, vehicles, or boats. Then figure out if any of these items have any equity in them. If they do, check your state's bankruptcy exemptions and see if your equity is within the allowed amount. If they are then you can freely file for bankruptcy without your assets being affected. If some of your assets are above the allowed equity amount then you need to speak with a bankruptcy lawyer to find out if there is anything you can do to keep the asset in bankruptcy. Sometimes when clients have assets that will be affected by bankruptcy, I ask them whether they are willing to trade that asset to get rid of all the debt. If the client will discharge let's say $75,000 worth of debt but will lose a car with $6,000 of equity in it - it is clear that the client is still coming out way ahead by filing for bankruptcy.

#2 Drawback to Filing for Bankruptcy: Payments to Insiders

Another drawback you have to check out before you file for bankruptcy is that any payments made to insiders family members or business partners within 1-year of filing for bankruptcy may be undone in bankruptcy. For example, let's say you paid your Mom back $5,000 within the year before you file for bankruptcy. If you file for bankruptcy, then the trustee of your case could sue your Mom to recover the $5,000. Of course, no one wants to involve someone else in their financial troubles so often times a client may delay their filing until after the 1-year period or may choose to file and just warn that family member of the possible result. At the end of the day though the client may still be way ahead even with this result

Conclusion

The answer to the question should you file for bankruptcy in New Jersey is really it depends on your situation. If you have a lump sum of money to pay off your creditors and have assets that you would lose in bankruptcy, then of course you should settle your debts instead of filing for bankruptcy. If your assets would not be touched in bankruptcy then it may make more sense to file a chapter 7 bankruptcy in New Jersey since that would be cheaper and faster than settling your debts. Either way, the most important thing for you to do is to speak with a qualified New Jersey bankruptcy attorney about your case before you either settle your debts or file for bankruptcy. I offer a free phone consultation to help clients with this so I encourage you to call.

Why Can’t Everyone Avail The Benefits of Chapter 13 Bankruptcy?

Any Tom, Dick and Harry who is not able to repay the debts cannot file for chapter 13 bankruptcy. Some of the eligibility criteria to file for chapter 13 are as follows :

* Any business even if it is sole proprietorship is not eligible for filing chapter 13 bankruptcy. Only the debts, that are linked to the business and that the owner is personally responsible for, can be included for filing chapter 13 bankruptcy.

* The personal bankruptcy of commodity brokers and stockbrokers cannot be included for filing chapter 13 bankruptcies.

* If the secured debts are more than $1,010,650, the debtor cannot file for chapter 13. Home loans and the filing of lien by the IRS are the examples of secured debts.

* If the unsecured debts are more than $336,900, the debtor cannot file for chapter 13. Some prominent examples of unsecured debts are medical bills, back utility bills, card debts, legal bills, and charges of the department store.

* To prove one's eligibility for filing chapter 13 bankruptcies, one has to exhibit sufficient income after deducting some expenses and payments to service the secured debts, to do the necessary repayments.

* One must submit the proof of filing the state and federal income tax returns for a minimum duration of 4 years before the date of filing the bankruptcy. The filing of chapter 13 can be rejected if the applicant is not current on Income Tax Filings or has not submitted any proof of being regular at tax payment.

Do you fit in the above mentioned eligibility criteria? If yes than file for chapter 13 bankruptcy. The chapter 13 bankruptcy plan can be funded through the following sources of income:

* Income through self employment

* Benefits through social security

* Freelance commissions

* Benefits on account of Worker's compensation

* Public benefits

* Alimony in case of divorce

* Royalties

* Regular salary or wages

* Pension payment

* Seasonal work wages

* Disability benefits

* Benefits due to unemployment and strike

* Child support benefits

* Rent

* Profits due to selling of property

* A working spouse could also be the source of funds

The best bankruptcy advice can be got from bankruptcy attorneys and bankruptcy lawyers. We take pride in having association with the top most experienced bankruptcy attorneys. The chapter 13 bankruptcy filing can include the personal bankruptcy. The credit card bankruptcy and the medical bankruptcy form the major part of the personal bankruptcy.

What The Basics Of Bankruptcy Are

Filing for bankruptcy doesn't have to be difficult. It's a good idea to have an attorney guide you through the process and to make sure you do things correctly. You will get all the answers to your major questions from a lawyer. Bankruptcy attorney Benjamin J. Ginter runs the Law Offices of Benjamin J. Ginter in Cranford, New Jersey. Here, he discusses what the basics of bankruptcy are and why you need an experienced lawyer.

Consumer bankruptcy allows people to either eliminate or wipe out most of their debt, in some circumstances, to repay their creditors under a court supervised repayment plan. The eventual goal of any type of bankruptcy filing is almost always to obtain a discharge from the court, which means that all the consumers' debts (with some exceptions) which exist before the filing are eliminated.

With few exceptions, any person or business owing money to a creditor can file for a bankruptcy petition.

Consumers typically file Chapter 13 bankruptcy, where repayment is made to creditors; or a Chapter 7, where most debts are eliminated. For the majority of consumers, a Chapter 7 would be filed; usually a Chapter 13 is filed by those who face losing their home in a foreclosure.

Some people do have a simple case that they could possibly do on their own. But it's a good idea to have an attorney guide you through the process and make sure you do things correctly. A lawyer can guide you through the intricacies of the process and help you avoid the pitfalls. Although you may think your case is easy, if you file incorrectly, it can significantly delay your discharge, and in some cases, your case could be dismissed. Moreover, if you file for the wrong bankruptcy chapter, you could put yourself in jeopardy of losing assets, including your home.

A Chapter 7 bankruptcy can be filed every 8 years from a previous chapter 7 filing or 6 years from a prior chapter 13 filing. Chapter 13 can be filed 4 years from a prior Chapter 7 filing or 2 years from a prior Chapter 13 filing. Filing bankruptcy can adversely affect your ability to obtain future credit, rent housing and even negatively impact a job application, so it's important to consider these things as you decide whether to file.

No. The debts that cannot be discharged vary slightly between the different chapters of bankruptcy. Generally, student loans, recent income taxes, child support and other marital obligations, and items having to do with fraud are not dischargeable.

It depends on different factors: where you live, how much equity you have in the property, how far you are behind in the mortgage payments, etc. If you have a home or own any kind of real estate, it's more important than ever that you hire a bankruptcy attorney. Filing the wrong bankruptcy could jeopardize your home.

Exemptions allow an individual to exempt or keep certain kinds of property. Most people who wish to file bankruptcy are unlikely to have a great deal of money or property stashed away. It is likely that unless you own a valuable car that's paid off, a house with a lot of equity, a valuable inheritance, or some other kind of unusually valuable property, you will be able to keep everything you own as "exempt."

No. Although at your option, you can file an explanation with the credit reporting agencies briefly describing the events resulting in your bankruptcy. If an account is reported inaccurately, you can request that the record be updated to reflect the actual situation.

10. Can you get credit cards after you file for bankruptcy?

Yes. You might even start receiving offers in the mail right after you file your case. However, these credit cards usually carry high interest rates and fees. They put money in your bank's pocket, not in yours. If you want the convenience of a credit card, you can have one with a small limit.

11. Is filing for bankruptcy immoral or bad?

No, the bankruptcy law is in place because our system of law recognizes that your life and future should not be ruined because of some financial mistakes you've made. You should never feel ashamed or feel like a failure if you decide to file for bankruptcy. Hold your head up high and remember that bankruptcy can give you a fresh start.

Can You Still Qualify For Chapter 7 Bankruptcy?

A lot of people are under the misconception that they no longer qualify for bankruptcy because of the changed laws. Bankruptcy attorney Benjamin Ginter runs the Law Offices of Benjamin J. Ginter in Cranford, New Jersey. Here, he says bankruptcy is still a viable option for many individuals although the bankruptcy laws have changed.

Filing for bankruptcy should not be considered an end, but a new beginning. You will have the opportunity to rebuild your credit and can even apply for car loans or home mortgages soon after filing. The procedure of filing can be complicated, but it will be successful if it is done correctly. A qualified and experienced bankruptcy attorney can help you every step of the way.

Filing For Chapter 7 Bankruptcy

It is still possible to file for Chapter 7 bankruptcy, although some of the main areas have changed. For example, you can now file for Chapter 7 bankruptcy once every eight years instead of every six years. Under the bankruptcy law, certain property is exempt. Often when you file for Chapter 7 bankruptcy, you are able to keep your property because of the exemptions.

Now you will face a means test and need a medium-income level to file for bankruptcy. Each state has set its own rules of medium-income level for a family of a certain size. Here in New Jersey, for example, if you have a household of four people, including children, the medium-income level has been determined to be roughly $103,000.

If you and your spouse make more than $103,000, you could not file for Chapter 7 bankruptcy. As based on your combined income, you could afford to file for Chapter 13 bankruptcy, which means you can make regular payments. However, a lot of people do not make the kind of income that would exceed this level, so they can still file for a Chapter 7.

Making Deductions

If you are required to file for Chapter 13, you will have to show that you have expenses that prevent you from making the payments, and prove that you are correct in filing for Chapter 7.

Sometimes that is based on what you pay in mortgage payments or whether you have a car that you have to make regular payments on. You can make deductions from this and be able to file for Chapter 7, even though your income exceeds the medium-income level.

Understanding the complicated rules of filing for bankruptcy can be difficult, which is why many people seek the advice of a professional.

Bankruptcy Defined

Bankruptcy definition states that it's the law which gives a new start to those individuals who are unable to pay off their debts due to the circumstantial financial stringency by liquidating their assets to pay off their outstanding debts. On some occasions even a repayment plan is created. Bankruptcy laws also provide assistance to troubled businesses and offers orderly distributions to their creditors by the process of reorganization or liquidation.

You would obtain much information pertaining to bankruptcy on net, but the relevance of this bankruptcy info should be checked before completely relying upon it. When we speak about our US Fed laws, bankruptcy is generally of six types, which are namely Chapter 7, 9,11,12,12,and 15. Among these the most common types used frequently are chapter 7 and chapter 13. Statistics reveal that more than 65% of the filings are under chapter 7. Mostly all the corporate or businesses file for chapter 7 bankruptcy. Followed by these two in rank is the chapter 11 bankruptcy. As per the Fed Laws, bankruptcy cases cannot be filed in state courts and needs to be files in a federal bankruptcy court.

Individuals normally file for bankruptcy when they are left with no option to pay off their debts incurred. Though the results of it are long lasting, but in their helplessness they are forced to take this debt management option. Thought you are discharged of your debts by this, but its presence remains in your credit report for the next ten years, which could make your life ahead pretty difficult to obtain a credit, buy a home, get insurance or even in cases of getting a job!

Mostly individuals file for either the chapter 7 or chapter 13 bankruptcies. Filing for a bankruptcy also incurs costs consisting of the filing fees of few hundred dollars, and the hired attorney's fees.

Chapter7 bankruptcy generally known as the straight bankruptcy allows the individual having a consistent flow of income to keep his property like the mortgaged house or car etc, which else might have been lost under the bankruptcy process. It's the simplest and fastest. Under this chapter you would need to wait for the next eight years to file for bankruptcy again under this same chapter.

Chapter 13 bankruptcy is basically the rehabilitation payment plan for individuals with a steady source of income, and thus is also known as the wage earners bankruptcy. Here the court allows the individual to use your income to pay off your debts within the three-to-five-year span, rather than surrendering your assets. You are discharged only after you pay off all your debts. The waiting period for this is much shorter of about only two years in contrast to the 8 long years for the chapter 7 bankruptcy.

Apart from all the above mentioned bankruptcy info, both these types of chapter 7 & 13 bankruptcies frees you from unsecured debts. It also puts an end to foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. But when bankruptcy definition is explained one thing to be kept in mind is that never erases child support, alimony, fines, taxes, & a few student loan obligations.