Disadvantages and Advantages of Filing Bankruptcy in New Jersey
Debt Relief Lawyers in Manalapan Helping Clients Make Informed Decisions on Their Finances
Bankruptcy is not the end for people struggling to pay bills; it is the beginning of a clearer financial future. Prior to and during the bankruptcy process, it is important to remember the positive aspects of debt discharge or restructuring. Bankruptcy means you take important steps to free yourself from the financial handcuffs adversely affecting your life. Additionally, you are protecting your credit, employment and family. Of course, people should understand both the advantages and disadvantages to filing bankruptcy in New Jersey under either Chapter 7 bankruptcy or Chapter 13 bankruptcy to make an informed, educated choice about their financial futures.
Our bankruptcy lawyers want prospective clients to know that bankruptcy is one of many options they may have. However, some clients may wish to avoid filing bankruptcy by using alternatives to bankruptcy such as loan modification, short sales or other debt relief. In a free initial consultation, we can review all the options a person has so that people make an informed choice to file bankruptcy or take another path for their financial lives.
What are the Advantages of Bankruptcy?
At Garland & Mason, L.L.C., we believe that, if a bankruptcy filing is in your best interests, taking that step is a courageous one, and not a decision that carries any negative stigma. There are many advantages of bankruptcy:
- The automatic stay will immediately stop foreclosure actions, repossession and collection attempts, including harassing phone calls and letters.
- Federal and New Jersey bankruptcy exemptions allow you to keep a certain amount of property completely away from creditors.
- Chapter 13 refinance offers relief to homeowners with second mortgages and property “underwater” (meaning the primary mortgage is higher than the fair market value). This means you can strip off the secondary mortgages and eventually have them discharged as unsecured debt.
- Stopping foreclosure gives you time to review your best options. You can surrender the home or reaffirm the loan in Chapter 7, engage in a loan modification or short sale, or catch up to the mortgage and save the house with a Chapter 13 payment plan.
- You will receive a debt discharge at the completion of either Chapter 7 or Chapter 13 bankruptcy. This means you will no longer be legally obligated to pay the debt. This includes most unsecured loans like credit card debt and medical bills.
- Even though you cannot discharge secured debts or student loans, you will still get relief from those creditors for the entire length of your bankruptcy. Additionally, getting rid of your cumbersome debts will leave you more income to pay this non-dischargeable debt after bankruptcy.
- Chapter 13 bankruptcy can help you save your car from repossession and even reduce the amount you owe. In a process called a Chapter 13 “cramdown”, you can reduce the total debt you owe on your car to the car’s value. This allows you to keep your vehicle, which in turn gives you freedom to get to work, among other things.
What are the Disadvantages of Bankruptcy?
There are some disadvantages to filing for bankruptcy, although most of them are short-term. The stress of filing and going through the bankruptcy process will end, but it can be difficult to face. Other disadvantages of bankruptcy include:
- Although both Chapter 7 and Chapter 13 bankruptcy can help you get rid of most of what you owe, there are some debts you cannot discharge. These include student loans, most taxes and any secured debt (like a mortgage). So, after the bankruptcy process is complete, you will still owe some creditors.
- Chapter 7 bankruptcy stays on your credit report for 10 years, while Chapter 13 will stay around for seven years. This may damage your credit score or prevent you from buying a new home. However, you can start improving your credit score even before your bankruptcy is erased from your report.
- You will not be able to file for Chapter 7 bankruptcy again for eight years. The exception to this rule is that you may be able to file Chapter 13 more recently after receiving a Chapter 7 discharge in order to pay off your remaining non-dischargeable debts. You also must wait six years if you wish to file Chapter 7 after receiving a Chapter 13 discharge.
However, for many, the positive effects of bankruptcy far outweigh the negatives ones. Even though people worry about their credit reports after bankruptcy. However, the reality is that when you are facing bankruptcy, you likely have a very low credit score anyway. Without bankruptcy, it will continue to drop into a downward debt spiral. By filing bankruptcy, you stop this downward cycle and can rebuild. We also see many people receive credit offers for credit cards, mortgages and car loans after bankruptcy because the creditor knows the person cannot refile for several years. If you are careful with these new lines of credit, you can start rebuilding your credit score almost immediately.
New Jersey Bankruptcy Lawyer Guiding Clients to Better Financial Futures
Reach out to the Manalapan bankruptcy lawyers of Garland & Mason, L.L.C. to schedule a no obligation, free initial consultation with an experienced bankruptcy attorney. We will help you decide if bankruptcy is right for you. Our office is handicapped-accessible and is conveniently located just fifteen minutes from the New Jersey Turnpike and the Garden State Parkway.