Q. I have received letters and solicitations from individuals and companies telling me that I can save my home and avoid filing bankruptcy. Are their claims true?


A. The short answer is NO. These are predators, preying on your assumed lack of knowledge about how bankruptcy works, how your credit scores work and on your fear of losing your home. These people want to “steal” your home from you and they do this for a living. You owe it to yourself and to your family to speak to a knowledgeable bankruptcy attorney before you even consider such a drastic step as responding to one of these solicitors. A free consultation with Gillman Bruton & Capone, LLC can explain how the foreclosure process works, how the bankruptcy process works and how your credit scores are affected. Gillman Bruton & Capone, LLC can lay out all your options for you so that you have the information necessary to make an informed, knowledgeable decision about the course of action you should take. At the very least, you owe that to your family and yourself.

Q.  Who Qualifies for a Chapter 7 Bankruptcy Fresh Bankruptcy Start?

A:  A Chapter 7 Consumer Bankruptcy Petition may be filed by an individual or married couple and is intended to give the debtor the opportunity for a fresh start.  Generally, whether you qualify for a Chapter 7 Fresh Start can be determined by comparing your family size and income to the median income in your State, which is known as the Means Test.   The determination of whether you qualify for a Chapter 7 Bankruptcy is a complicated legal matter and should be reviewed with an attorney experienced in New Jersey Bankruptcy cases.

Q. What is the difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy?


A.
 Primarily the difference is that a Chapter 7 is liquidation and Chapter 13 is reorganization. 

In a Chapter 7 bankruptcy, a trustee is appointed to administer the assets of your estate. The Chapter 7 trustee’s function is to determine if there is any value in your personal and/or real property above and beyond what the Bankruptcy Code allows you to exempt. The Chapter 7 trustee will liquidate any non-exempt property and use those proceeds to pay your creditors. Upon completion of the liquidation process or upon the Trustee’s determination that there are no assets to be liquidated, you will be discharged from your remaining, unsecured, dischargeable debt.

In a Chapter 13 bankruptcy, a trustee is appointed, however, you remain in possession of all of your assets. In return, you file a plan with the Bankruptcy Court outlining how you will reorganize. Certain debts have to be paid back, like mortgage arrears, real estate tax arrears, and certain income tax debts. Other debts such as credit card debt, medical bills, and certain income tax obligations may be paid back in full, partially, or not at all, depending on factors specific to your particular situation. Upon completion of your plan, which can take from 36 to 60 months, you will receive your discharge.

Q. What if I do not qualify for a Chapter 7 Bankruptcy or I have substantial equity in my home?

A:  A Chapter 13 Bankruptcy may enable you to reduce the amount you must repay to your creditors and allow you to repay it over a five year period at no interest.

Q:  If I file a Chapter 13 Bankruptcy, will I be required to repay all of my debt?

A:  In a Chapter 13 Bankruptcy, in most cases, there is no requirement that you repay all of your debt.   In a Chapter 13 Bankruptcy, the amount you are required to repay to your creditors is based on the Court’s determination of your available income after paying your reasonably necessary monthly expenses or through non-exempt assets.

Q. If I file a bankruptcy, will my credit be ruined forever?


A.
 Absolutely NOT. What you need to understand is that if you are presently in the position of considering filing a bankruptcy, your credit is most likely damaged. By filing a Chapter 13 and stopping the downward spiral, you will actually begin to rebuild your credit. It will depend on what you do post-filing. If you make all of your post-filing mortgage payments in a timely fashion, you will begin to rebuild your credit. If you make all of your post-petition car payments in a timely fashion, you will begin to rebuild your credit. Our New Jersey Bankruptcy Lawyers work closely with various mortgage companies that have very good “bankruptcy bailout” programs. We have had very good success refinancing clients out of their Chapter 13 case once they have re-established credit worthiness. Gillman Bruton & Capone, LLC can place you in touch with these mortgage companies prior to filing your case so that you can see what you will need to accomplish within your Chapter 13 case to re-establish your credit.

Q. I am presently out of work or disabled and have limited income. Is it still possible to file a Chapter 13 and save my home from foreclosure?


A.
 Absolutely. While a Chapter 13 does require that an individual have regular income, that income can come from any number of sources, including unemployment, Social Security, family contributions, rent, etc. Additionally, there are numerous creative plans of reorganization that can be filed with the Bankruptcy Court, all of which will result in your saving your home from foreclosure. Gillman Bruton & Capone, LLC takes special pride in its ability to craft a Chapter 13 plan that fits your specific needs.

Q. Can Bankruptcy Provide Individuals, Married Couples and Businesses With a Means to Deal With Delinquent Taxes?

A: A personal bankruptcy may be an effective way to address significant personal tax issues. For individuals (or married couples) who owe federal and/or state income taxes, a Chapter 7Chapter 11, or Chapter 13 Bankruptcy may provide an alternative to going through difficult and costly programs directly with the taxing authority.

Q. Are any delinquent taxes dischargeable in a Bankruptcy?

A:  A common misconception is that all taxes of any kind are not dischargeable in a bankruptcy case. Some taxes actually are dischargeable in bankruptcy, including personal income taxes that are more than three years old. Fiduciary taxes are generally not dischargeable. The Bankruptcy Code’s provisions relating to taxes are very complex, and differ by chapter or type of bankruptcy that you file.

Q. How can bankruptcy provide for the repayment of taxes which cannot be discharged?

A: It is often the case that the bankruptcy case allows for debtors to “catch up” on their tax obligations. Because the bankruptcy code requires that debtors in Chapter 13 cases be “current’ in the filing of their tax returns, the bankruptcy case offers an opportunity to review complete tax records and determine what remains due and if any portion of past due taxes, interest, and/or penalties, may be discharged. Even if amounts are due (including those that result from a federal tax lien), a reorganizational bankruptcy under Chapter 11or 13 provides a framework to propose a repayment plan to the IRS, while having the opportunity to determine which taxes must be repaid.

Q. Will a bankruptcy affect my future tax filings?

A: Some people also believe that filing a bankruptcy may affect their tax filings in the future. Generally, most individuals (or married couples) continue to file their personal tax returns in a normal manner and to ensure than where taxes were owed in the past, the taxing authority properly applies any refund.

Q. What are Trust Fund Taxes and how can a Bankruptcy Help with them?

A:  Trust Fund Taxes are taxes that are held “in trust” by a business for the benefit of a federal or state taxing authority. Generally, these are Federal Withholding (or 941) taxes or State Sales and Use taxes which are to be collected by the business and paid to the taxing authority.   Trust Fund Taxes are generally deemed to be non-dischargeable and are a debt of both the business and the responsible members of the business A Chapter 11or Chapter 13Bankruptcy may allow a business or individual to repay Trust Fund Taxes and avoid Federal and State Tax Liens and collection.

Q. Is the debt discharged in bankruptcy “income” that has to be reported on my income tax return?

A:  While typically “cancellation of debt” may be deemed income to a debtor for the purposes of  Federal income taxes, a debtor who has received a Discharge in a Chapter 7 Bankruptcycase cannot be deemed to have earned such income.  Even if creditors issue a 1099C (Cancellation of Debt) Form, any of the discharged debt is not deemed to be income for federal tax purposes.  This differs from the Internal Revenue Code Exception for Cancellation of Debt where a tax payer is deemed to be “Insolvent”.  IRS Publication 4681clarifies that debts canceled in a Title 11 Bankruptcy case are not included in your income if a debtor is under the Jurisdiction of the Court and the cancelation of the debt is granted by the Court.

Q. Are there alternatives to filing bankruptcy?


A.
 Yes. If your financial problems are only temporary, it is sometimes possible to negotiate with each individual creditor and request that each creditor accept lower payments or grant an extended payment schedule. If you are in foreclosure, most mortgage companies have a Loss Mitigation Department, whose purpose is to help customers who have defaulted on their mortgage loans. These departments will generally request a significant amount of financial information from you, similar to when you originally applied for the mortgage. Normally, it then takes months before they inform you of whether or not they can help you. Be very wary of counting on this route being the solution to your problem. For starters, the mortgage company will be proceeding with its foreclosure action the entire time you are dealing with the Loss Mitigation Department. Secondly, more often than not, the best deal the mortgage company will offer you is to pay half of your arrears immediately, with the other half paid out over 6 months, in conjunction with the resumption of your regular monthly mortgage payments. However, by the time the Loss Mitigation Department makes this type of offer, the arrears are so significant that most people can’t come up with that type of lump sum payment.

Q. Can an employer refuse to hire me because I filed a bankruptcy in the past?


A.
 If you review 11 U.S.C. Section 525(b) again, you’ll see that the answer is not quite as clear.

The code says an employer cannot discriminate “with respect to employment.” It could be reasonably argued that this would prevent any employer from discriminating in hiring practices just because a candidate was filing for bankruptcy. Most cases interpreting this provision, however, indicate that the statute only applies to the debtor’s current employer and not any employer, [In re Merriweather, 185 B.R. 235 (Bkrtcy.S.D.TX 1995), In re Briggs, 143 B.R. 438 (Bkrtcy.E.D.MI 1992), In re Patterson, 125 B.R. 40 (Bkrtcy.N.D.AL 1990]. Thus, it is questionable whether this protects the debtor from discrimination in applying for new employment.

However, keep in mind, that prospective employers pull credit reports. Many employers will rescind offers of employment or refuse to hire a person merely because of a bad payment history. Thus, if you find yourself considering a bankruptcy case, you are probably having trouble paying your debts as they are due. Even if you are current on payments right now, you likely won’t be in the future and any delinquent payments could equally affect an employment decision in the future.

In fact, some employers would prefer that you have discharged your debts. Many employers would rather not deal with creditors calling its employees during work hours on the job and don’t want the administrative headaches associated with processing wage garnishments. These employers would rather hire someone who is debt-free, instead of someone who has debt problems.

The information set forth above is not legal advice which can be provided to you only after a full review and evaluation by an attorney of your particular circumstances and the remedies which may be available.