Do All My Debts Disappear if I File for Personal Bankruptcy in New Jersey or New York?

by | Mar 25, 2024 | Chapter 13, Bankruptcy, Chapter 7, Client Resources

At the Law Offices of Wenarsky & Goldstein, LLC, we are dedicated to guiding clients through the complexities of bankruptcy in New Jersey and New York, providing a beacon of hope for those facing financial adversity. Our experience in bankruptcy law is crucial for clients seeking a path to financial relief and stability. This comprehensive article serves as a vital resource, offering in-depth insights into the bankruptcy process. It clarifies which debts can be discharged and those that remain, enabling individuals like you to confidently navigate their financial journey.

As your trusted advisors, we are committed to delivering clarity and support, ensuring you understand the most important facts about bankruptcy and how they apply to your unique situation. The knowledge we share here is designed to empower you with the necessary tools to make informed decisions, whether you’re considering filing for bankruptcy or seeking to fully understand its implications. Our goal is to assist you in achieving a fresh financial start, turning the tide from turmoil to tranquility.

Debts You Can Eliminate in Chapter 7

If you file for Chapter 7 bankruptcy, you should be able to eliminate most unsecured debt. This is debt that isn’t secured by collateral, and the lender can seize it in the event you stop paying on the debt.

For example, the most common debts a consumer can eliminate in Chapter 7 are:

  • Medical debts
  • Credit card debts
  • Personal loans
  • Unpaid rent
  • Old unpaid income taxes
  • Certain court judgments against you

These debts get discharged at the end of the Chapter 7 process, which usually takes two or three months. Helpfully, an automatic stay goes into effect when you file for bankruptcy, which prevents creditors from taking any collection action against you.

Debts You Can’t Discharge

Not all debts are dischargeable in Chapter 7 bankruptcy. This means you can go through the entire bankruptcy process, and these debts will still be with you. The bankruptcy code actually lays out what debts you can’t discharge:

  • Child support or alimony payments
  • Debts owed to an ex-spouse which arise from divorce
  • Attorney’s fees for child support or custody
  • Criminal restitution and fines
  • Student loans (usually)
  • Recent unpaid income taxes
  • Personal injury debts related to drunk driving
  • Debts arising from fraud

Why can’t you eliminate these debts? Congress essentially thinks these debts are so important that you need to pay them back. Letting you discharge unpaid child support, for example, would penalize your child. Allowing you to wipe out debts related to drunk driving or fraud would allow you to profit from criminal behavior.

Secured Debts

You also can’t really eliminate secured debts. These are debts tied to an asset. Think of your car loan, which is secured by the car itself, or a mortgage secured by your home. The bankruptcy process can’t wipe out the security interest the lender has in the collateral.

Consequently, if you stop paying on these secured debts, the lender can seize the collateral. Yes, the automatic stay will delay them briefly, but they know how to ask a judge for permission to take action against you.

More on Student Loans and Bankruptcy

Since student loans are unsecured, you might think you can easily eliminate them in bankruptcy. After all, they aren’t too different from credit cards. If you used a credit card to pay for school tuition, you could ultimately discharge the debt. Why can’t you discharge a student loan?

Again, Congress has decided to make it harder to eliminate student loans in bankruptcy. Harder, but not impossible. It’s sometimes possible to file an adversary proceeding within bankruptcy and get a judge to agree to discharge student loans.

A judge will decide based on three factors:

  • Whether you can maintain at least a minimal living standard if you are forced to repay your loans.
  • The likelihood that your financial situation will improve during your repayment period.
  • Whether you’ve made a good faith effort to repay your loans.

For example, if you are experiencing temporary unemployment, then you probably won’t receive a discharge of your student loans. But if your financial difficulties have lasted a long time—and you made concerted efforts to repay your loans—then your odds go up.

Chapter 13 & Debts

So far, we have discussed Chapter 7, which is the quicker of the two bankruptcies. However, consumers can also file for Chapter 13 protection. This bankruptcy works a little differently. It typically takes between 3-5 years, and you come up with a payment plan based on your disposable income. You’ll live a lean lifestyle, but the benefit of Chapter 13 is that you don’t lose any of your property if you successfully complete it.

It’s possible to end up paying back the majority (or even all) of your debts during this period. The amount you pay back will depend on your disposable income and the debts you have. Those non-dischargeable debts are given priority, so all available disposable income will be thrown at them first. What’s left over will go to unsecured debts, like credit cards and medical debt.

Any unpaid qualifying debt gets wiped out at the end of your repayment period. Talk with an attorney to review how much you might eliminate.

Wenarsky & Goldstein Knows Bankruptcy

Before filing for bankruptcy, consumers should meet with an attorney to review their financial situation. Bankruptcy makes sense for some people but less sense for others. Go into the process with your eyes wide open. Contact us today to schedule a consultation by calling 973-453-2838.

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