Chapter 7 trustee’s questions and concerns during the Meeting of Creditors’ Hearing [341(a) hearing]

Please note that it is unusual for a trustee to sell a debtor’s asset.

Although there are number of issues that the trustee is concerned about, in general, the most important issues relate to the following:

1.  The value of the debtors’ property.

The trustee is entitled to a percentage of the funds that are distributed to creditors, including the liquidation of assets. Therefore, the trustee is interested in the value of all the debtor’s property. Assets includes any interest in any personal property or real estate. An asset includes the debtor’s right to sue for money, such as a breach of contract action or a personal injury action. For example, if the debtor has a right to sue someone for an injury that was caused by a third party, the trustee may have a right to such money.

2.  Ensure that the debtors’ monthly household income is less than their    reasonable and necessary expenses.

The main criteria for a chapter 7 is that the debtors’ monthly household income is less than the debtors’ household’s monthly necessary and reasonable expenses. Typically, the expenses only include necessary items, such as: food, clothing, utilities, mortgage payments, transportation, etc. The monthly expenses do not include payments on credit card debt.

3.  Ensure that the filing was not fraudulent.

The trustee must ensure that the debtor unexpectedly found themselves in a situation that required the filing of bankruptcy protection and that the filing is not fraudulent.

In addition to the above, the trustee is interested in other issues, such as his right to pursue the debtors’ creditors for money. However, most of the questions relate to the above listed issues. Some of the questions that a chapter 7 trustee will ask are as follows:

-        Is your petition true and correct?

-         Did you review the petition prior to signing?

-         Does the petition reflect your signature?

-         Does your petition require any modifications or additions?

-         Do you own any stocks, bonds, or investments of any kind?

-         Can you sue anyone for any reason, including a personal injury action?

-         Do you own any real estate?

-         If so, when did you buy the real estate and how much did you pay to buy the real estate?

-         Did you own or sell any other real estate within the last five years?

-         Do you have a safe deposit box?

-         Are you entitled to receive any money from the estate of a person who passed away?

-         Did you transfer any money or property to anyone within 2 years prior to the filing?

-         Did you sell any property within the two years prior to the filing?

-         Did you pay any creditor, including a family member in the last year?

-         Do you owe or receive alimony or support?

-         Have you ever filed for bankruptcy before?

-         Do you presently or have you in the past five years owned any interest in a company or operate your own business?

-         What happened in your life that required you to file for bankruptcy protection?

You may contact the bankruptcy attorney in NJ., Robert Manchel, at 1 (866) 503-5655,  to discuss chapter 7 issues.

Should spouses file jointly or alone

One spouse can file bankruptcy without the other spouse. Each spouse should only file if there is a benefit for each spouse.

A person is liable and owes a debt to a person or company, if that same person contracts with the entity to borrow the money. If two people, such as a husband and wife, jointly, contract with a company to borrow money, both individuals owe the entire amount to the same company. This means, the company can sue both of the individuals for the entire balance due, in the event of a default. However, the company cannot obtain more than the amount that is due. In other words, the creditor can obtain 60% from one co-debtor and 40% from the other, or 90% from one and 10% from the other. A spouse is not liable to the other spouses’ creditor solely due to marriage.

The criteria of a chapter 7 and chapter 13 is not effected by whether a person files alone or jointly with their spouse. In other words, the criteria regarding the household income and expenses are the same whether or not there is a joint filing. This means that if the wife does not wish to file, the court will still include her income, in the determination of the disposable income analysis’.

In general, if the non-filing spouse owes a joint credit card debt with the filing spouse, the non-filing spouse will continue to owe the debt after the bankruptcy filing and discharge. However, if the one filing spouse pays all of the credit card debt through a chapter 13 bankruptcy plan, the non-filing spouse is no longer liable for the debt.

If only one spouse files a chapter 7, the filing of the bankruptcy case does not stop the creditor from pursing the non filing spouse for the debt. In other words, the automatic stay provision of the bankruptcy case does not apply to the non-filing spouse and the creditor can pursue the non-filing spouse at any time after the filing. However, in a chapter 13, the filing of one spouse, does initially, stop a creditor, from pursuing the non-filing joint debtor spouse. If  the joint debt is not paid, in full, through the chapter 13 plan by the one spouse, the creditor will be granted permission from the court to pursue the non-filing spouse for the balance that is not paid through the bankruptcy plan.

If  a mortgage company is foreclosing on a residence that is jointly owned and mortgaged, there are circumstances, whereby both spouses need not file a chapter 13 to permanently stop the foreclosure action and reinstate the mortgage.

There are a number of strategic reasons why only one spouse should file. There may be a situation that would permit married individuals to save additional equity in their property and/or reduce the amount that must be paid through a chapter 13, in the event that there is  substantial equity in their property.

You may contact the NJ. bankruptcy lawyer, Robert Manchel, at 1 (866) 503-5655, to discuss your financial issues and schedule a free one hour consultation.

What happens in a chapter 7 Case if the trustee can sell the debtor’s property?

There may be circumstances when a person would rather file for chapter 7 and allow the trustee to sell an asset, instead of keeping the asset and filing a chapter 13. If a debtor files a chapter 7, he may still receive an order of discharge of his debts, even though the trustee is able to sell an asset, if the debtor meets the criteria for a chapter 7 discharge.

The criteria for a chapter 7 discharge is the following. The debtor must meet the Means Test or Current Monthly Income Test. In other words, the debtors’ household income for the six months prior to the filing must be less thanNew Jersey’s median income of a household of the same size. If the debtors’ household income is greater than the state’s median income, he may still meet this criteria, if the debtors’ average household net income, for the six months prior to the filing, is less than the debtors’ household’s average necessary and reasonable monthly expenses, for this same time period. The expenses must be permitted under the internal revenue Service Code.

Additionally, the debtors’ projected future monthly household net income, must be less than the debtors’ projected monthly necessary and reasonable household expenses. If the debtor meets the criteria explained above, he will receive a discharge of debts within the normal time period, which is about 31/2 months after the filing.

The amount that is due to the trustee is based on non exempt assets. In other words, if the debtor is unable to apply his exemptions towards the fair market value of any property, the trustee is entitled to the value of the property that is unable to be fully exempted.

Example: A debtor has a third auto valuing $10,000.00, with only $4,000.00 of remaining exemptions to apply to the auto. In this example, the debtor must either allow the trustee to sell the auto and keep $6,000, or work out a settlement with the trustee to pay him $6,000.00 over a specific time period. Typically, the trustee will work with the debtors’ attorney to resolve the amount that is due and the manner in which the payments will be made.

If the debtor wishes to avoid these issues, he may be able to file a chapter 13, keep the third auto, and pay an additional $6,000.00 to the creditors, through a monthly bankruptcy plan.

Please contact Robert Manchel, the NJ. bankruptcy attorney, at 1 (866) 503-5655,  for a free consultaion.

Chapter 7 debts not discharged

Any debt that is discharged in a chapter 7, means that the creditor can never attempt to collect the money owed from the debtor. If a secured debt, such as a mortgage is discharged in bankruptcy, the mortgage company cannot attempt to collect the money from the debtor. However, if the debtor does not pay the mortgage, the mortgage company is permitted to take the collateral and foreclose on the house.

If the debtor meets the criteria of a chapter 7 bankruptcy filing and everything goes perfectly, there is certain debt that will not be discharged (eliminated). This means that any creditor that is owed debt, which is non-dischargeable, may continue to collect the money from the debtor after the chapter 7 case is complete, as if no bankruptcy case was filed. Most of the type of debt that is non-dischargeable includes the following:

1. most taxes, including, but not limited to, recently incurred income taxes, sales’ taxes, and taxes that an employer owes to the government that were withheld from employees;
2. any debt that was incurred for the payment of taxes that cannot be discharged;
3. domestic support obligations that are typically incurred in connection with a divorce;
4. debts incurred from causing injury to another from operating a motor vehicle, while intoxicated;
5. debts incurred by borrowing funds from certain pension plans;
6. certain debt that is not properly listed on the petition;
7. any debt, whereby the debtor specifically signs a Reaffirmation Agreement, which is approved by the court;
8. student loan debt;
9. certain debt due to a government, such as fines, penalties, forfeiters and criminal restitution debt;
10. debt incurred by fraud;
11. debt incurred by the willful and malicious injury to a person or property;
12. real estate association fees that become due after the filing and prior to the transfer of the deed from the debtor to a third party.

Please note that there are numerous exceptions and variations of the above list.

The bankruptcy attorney  in NJ., Robert Manchel,  can be reached at 1 (866) 503-5655, to explain how you may benefit from a chapter 7 case.

What can happen to your auto in a chapter 13

A chapter 13 trustee will never sell a debtor’s auto no matter the value. Also, a chapter 13 will permit a debtor to save their auto,  if they are behind with their finance or lease payments.

The filing of a chapter 13 stops the finance company’s ability to repossess the auto. However, immediately upon the filing, the finance company will request proof of auto insurance that adequately covers the finance company as the loss payee or lien holder. If the debtor cannot provide such proof, the finance company will be permitted to repossess the auto.

A chapter 13 debtor has various options regarding their finance payments. A debtor may wish to surrender the auto and classify the financing debt to general unsecured, which is the same as credit card debt. Based on the debtor’s income, expenses, and asset values, the debtor may pay all, none, or a portion of their unsecured debt. If the debtor is current with their finance payments, he may wish to keep the auto and make the monthly finance payments directly to the finance company. Under this scenario, the bankruptcy filing will have no effect on the auto financing.

If the debtor is behind with his finance payments, he may make his regular monthly finance payments directly to the finance company, in addition to paying the arrears through his monthly trustee payments, the same as for mortgage arrears.

If the debtor purchased and financed their auto more than 910 days prior to the bankruptcy filing, he may “cramdown “ the financing debt. This means that the debtor may be able to pay to the finance company only the fair market value of the auto, plus a fair rate of interest, through the bankruptcy payments. Typically, this means that the debtor can keep the auto, by paying less than the balance due on the financing. Also, the debtor can make these payments over a period of 60 months, which may lengthen the payment period that was required under the original financing agreement. Under this scenario, the debtor need not make regular monthly finance payments directly to the finance company, as all payments are paid through the bankruptcy plan.

Also, the debtor may be able to payoff the entire loan, plus a fair rate of interest, through the bankruptcy plan. Under this scenario, the debtor may also, lengthen the time period for repayment of the loan, that extends beyond the original financing agreement. Again, the debtor need not pay the finance company directly.

If the debtor is behind with auto lease payments, he must cure the arrears promptly, through the bankruptcy plan and within the lease expiration period. In addition to paying the arrears through the bankruptcy plan, the debtor must make regular monthly payments to the finance company. The debtor cannot “cramdown” a leased auto.

The bankruptcy lawyer  in NJ., Robert Manchel,  can be reached at 1 (866) 503-5655, to explain how your auto can be saved by filing a bankruptcy case.

What can happen to your auto in a chapter 7

A chapter 7 trustee will only sell a debtor’s auto, if the auto has substantial value. It is unlikely that the chapter 7 trustee will unexpectedly sell a debtor’s auto because the debtor should know the value of the auto and the available exemptions, prior to the filing.

Similar to the liquidation analysis of a house and other assets, the trustee is required to perform a liquidation analysis to determine if he can sell the debtor’s auto(s). The trustee will obtain the fair market value of the auto from his source. Subsequently, the trustee will subtract the finance payoff amount from the value. Thereafter, he will subtract the debtor’s available exemptions in the auto. The exemption amount for one auto is $3,450.00. However, the debtor can use up to $10,850 of unused exemptions of the debtor’s residence, and possibly an additional $1,150.00.

If there is a negative value after the deductions, the trustee is not permitted to sell the auto(s). If there is a positive amount, the trustee may attempt to sell the auto. However, the debtor may prevent the sale, by paying the trustee the amount that would have been received, if the auto was sold. If the debtor wishes to pay the trustee, in lieu of the sale, the funds paid to the trustee, must come from a third party or from the debtor’s exempt funds.

Initially, the filing of a chapter 7 bankruptcy case, stops the repossession of an auto. However, if a debtor is behind with their auto payments, the bankruptcy filing will not permit the debtor to save their auto from repossession. In the event that the debtor is behind with their auto finance payments, the finance company will file documents with the court requesting permission to pursue repossession of the auto. The court will permit the finance company to repossess the auto, if the debtor is behind with their payments and the trustee is not able to sell the auto.

A Reaffirmation Agreement is an agreement whereby the debtor continues to be obligated and liable to pay the debt, after the bankruptcy case is completed. This means that if the debtor fails to make a payment after the bankruptcy case is complete, the finance company may sue the debtor for the total funds due and repossess the auto, as if no bankruptcy case was filed.

Under the 2005 modified bankruptcy code, the finance company is permitted to repossess the auto, if the debtor fails to sign a Reaffirmation Agreement, which is approved by the court. However, in reality, it is unlikely that a finance company would repossess an auto, in connection with a debtor who is current with the financing.

If the finance company permits the debtor to keep the auto, without signing the reaffirmation agreement, the finance company may only repossess the auto if a debtor falls behind with the payments after the completion of the bankruptcy case. However, typically, if a Reaffirmation Agreement is not approved by the court, the finance company will not report to the credit bureaus that the debtor is making timely finance payments.

The debtor always has the opportunity to surrender the auto and discharge the debt to the finance or lease company. The financing or leasing debt will be eliminated or discharged upon the discharge of the case.

Please contact the NJ. bankruptcy practitioner, Robert Manchel, at 1 (866) 503-5655, for bankruptcy information.

What can happen to your house in a chapter 13

A chapter 13 trustee will never sell a debtor’s house no matter the value. Also, a chapter 13 was created to permit a debtor to save their house from foreclosure in the event of mortgage arrears.

Immediately upon the filing of a chapter 13 case, the mortgage foreclosure action ceases. If the debtor is behind with their mortgage payments, typically, she must cure the arrears over a period of 36 to 60 months, through a monthly bankruptcy plan. In addition to making the regular monthly mortgage payments directly to the mortgage company, the debtor must pay the pre filing arrears to the trustee. If the debtor has insufficient income to make the trustee payments and the regular monthly mortgage payments, the debtor will be unable to save the house.

The New Jerseybankruptcy courts provide a second option for saving their house from foreclose in the event of mortgage arrears. The court will allow the debtor to participate in the loss mitigation process. Basically, this is a loan modification process, which is guided by way of the court system. The court does not possess the power to require the mortgage company to enter into a loan modification. The court only assists with the loan modification process and the facilitation of the documents between the parties. The mortgage company conforms to the same criteria in accepting the loan modification, as when the debtor is not in bankruptcy. However, the court time constraints and the ease of the flow of paper work expedites the process. During this process, the debtor must pay the monthly mortgage payments, or under certain circumstances, 60% of the regular monthly mortgage payments.

A chapter 13 is very flexible and may be modified, if a debtor changes their intent as to how they wish to proceed with their house. If a debtor is current with their mortgage payments and wishes to file for bankruptcy protection due to other issues, the debtor may keep the house and continue to make the regular mortgage payments. However, if the house has substantial equity, the debtor will be required to pay more funds to the unsecured debt. Also, for any reason, the debtor may wish to surrender their house and discharge the mortgage debt. Furthermore, the debtor may wish to sell the house during the bankruptcy filing. If the debtor’s residence is sold, the debtor may keep up to $21,625.00 of the sales’ proceeds.

The NJ. bankruptcy lawyer, Robert Manchel,  can be reached at 1 (866) 503-5655 to discuss your bankruptcy questions.

What can happen to your house in a chapter 7

A New Jerseychapter 7 trustee will only sell a debtor’s house, if the house has substantial value. It is very unlikely that a chapter 7 trustee will surprisingly sell a debtor’s house, because prior to the filing the debtor should know the house’s value and whether the trustee is permitted to sell the house.

The trustee is required to perform a liquidation analysis to determine if he can sell the debtor’s house. In general, the trustee will obtain the fair market value of the real estate from his source. The mortgage payoff(s) is subtracted from the value. Thereafter, 10% to 13% cost of sale is deducted. Subsequently, the debtor(s) co-owner’s $21,450 exemption is deducted. If there is a negative value after the deductions, the trustee is not permitted to sell the real estate. If there is a positive amount, the trustee may attempt to sell the house. However, the debtor may prevent the sale, by paying the trustee the amount that would have been received, if the house was sold. Under that scenario, the funds paid to the trustee, must come from a third party or from the debtor’s exempt funds. Please note that if a married couple files for bankruptcy protection, both of whom own the house, each spouse can apply their $21,450.00 exemption in the liquidation process.

Under virtually all circumstances, the filing of a chapter 7 bankruptcy case, stops a mortgage foreclosure action. However, if a debtor is behind with their mortgage payments, the bankruptcy filing will not permit the debtor to save their property from foreclosure. Typically, if the debtor is behind with payments, the mortgage company will file documents with the court requesting permission to pursue or commence the foreclosure action. The court will grant the mortgage company’s request, if the debtor is behind with their payments and the trustee is not interested in selling the house. If the mortgage company pursues the foreclosure action, the debtor may reside in the property through the entire foreclosure process, through the date of the sheriff’s sale.

A debtor is permitted to pursue a loan modification at any time before or after the bankruptcy filing and discharge. The debtor may pursue a loan modification after the case is discharged, through the foreclosure process and prior to the sheriff’s sale.

A discharge in a chapter 7, discharges (eliminates) the mortgage company’s right to collect any of the mortgage debt (money) from the debtors. However, if the debtor is behind with their mortgage payments, the mortgage company can pursue the foreclosure action for the purpose of taking the real estate only.

Robert Manchel is an expert bankruptcy lawyer in New Jersey, whose practice is limited to bankruptcy law. Robert Manchel can be reached at 1 (866) 503-5655 for a free consultaion.

What Can I Accomplish with a Chapter 13 bankruptcy filing.

A chapter 13 requires monthly trustee payments. The payments must be made for at least 36 months and no more than 60 months. The amount of the payments, must be no less than the debtor’s monthly disposable income.

Why would a person file a chapter 13 and not a chapter 7.  If a person does not meet the criteria for a chapter 7 and has too much monthly disposable income, he must pay back a portion of the debt. Also, an individual may wish to save a house or auto from repossession / foreclosure, which requires a monthly payment to a trustee. Additionally, a person may wish to pay a creditor through a chapter 13 plan, that is not dischargeable in a chapter 7. Furthermore, there is certain debt that may be dischargeable in a chapter 13 that is not dischargeable in a chapter 7, such as certain type of marital debt. Similar to a chapter 7, immediately upon the filing, no creditor may pursue the debtor for the collection of any debt.

A chapter 7 does not prevent repossession of an auto or foreclosure of a house if the person is behind with their monthly payments. A chapter 13 can prevent a repossession and a foreclosure action, by paying back the payment arrears, through the monthly trustee payments, while continuing to make regular monthly payments on the auto and/or house. When the chapter 13 is completed, the pre filing arrears should be cured and the property is no longer in danger of loss.

Also, in New Jersey, a chapter 13 bankruptcy can permanently strip away a second mortgage from the debtor’s house. This is called avoiding the lien. A debtor can avoid the second mortgage if the present market value of the house is less than the mortgage payoff of the first mortgage. ANew Jerseychapter 7 case does not permit second mortgage lien avoidance.

Based on various factors, a person may be able to pay their entire auto balance, plus a fair rate of interest, through a bankruptcy plan. This can reduce your monthly auto payment by lengthening the years of the financing. Also, under certain circumstances, a person can keep their auto by paying the value of the auto, plus a fair rate of interest, through the plan. This will allow a person to keep the auto and reduce the amount that is paid.

In addition to the above, a person may be able to eliminate all or a portion of their unsecured debt (ie. credit card debt), depending on their monthly disposable income and asset values.

The Law Offices of Robert Manchel limits their practice to bankruptcy law. Please contact the New Jersey bankruptcy attorney, Robert Manchel, at 1 (866) 503-5655, for bankruptcy information.

If a person meets the chapter 7 criteria, he can discharge all debt except the following type of debt: students loans, unless undue hardship; debt incurred by fraud; certain taxes; condo. fees due after the filing and before transfer of the property, etc.

Also, after a discharge, a judgment lien cannot attach to a house purchased after the discharge. Although a discharge does not eliminate the judgment lien from the debtor’s present house, in most cases, the lien may be reduced or eliminated, by filing a separate motion with the court, requesting same.

Typically, the debt that is discharged is unsecured debt, such as credit card debt and personal loans. Discharging a debt means that the creditor may never attempt to collect the money from the debtor, personally. Secured debt (i.e. auto. financing, mortgage) may be discharged, as well. However, if the monthly payment is not made after the filing, the creditor can apply to the state court to repossess or foreclose on the property and take the collateral, such as a house or car.

In addition to the discharge and the fresh start aspect of a chapter 7 case, the law permits the debtor to keep a certain amount of personal property and real estate. In the vast majority of cases, the court or trustee will not take your property, unless the value of any property is substantial. The trustee will only take an auto or a house, if the value is substantially more than the payoff of the mortgage / financing. If a debtor is able to fully exempt the equity of any property, the trustee or court will not sell the property.

Immediately upon the filing of any bankruptcy case no creditor may commence or pursue an action to collect a debt. This means that the following actions must stop immediately: wage garnishments; law suits for collection of money; avoid utility termination; require utility restoration; bank account levy; attempt to repossess automobiles; mortgage foreclosure actions; must restore license if suspended due to state surcharges. Bankruptcy only deals with money and money related issues.

Robert Manchel is an experienced New Jersey bankruptcy lawyer, whose practice is limited to bankruptcy law. Please call Robert Manchel at 1 (866) 503-5655 to discuss your situation.