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Credit counseling prior to personal bankruptcy

Many of the Hackettstown residents who come to us here at our offices here at Jonathan Stone Attorney at Law are initially only concerned about what form of personal bankruptcy they should file: Chapter 7 or 13? Yet we counsel them that before they start getting too deep into their plans, they should first seek credit counseling. Like them, you might assume that this is something that we recommend to clients. Yet again like them, you might be surprised to learn that this is not a recommendation; rather, it is a requirement under federal law. 

Per the U.S. Bankruptcy Code (as shared by the Cornell Law School), no debtor may file for bankruptcy without first having gone through credit counseling within the previous 180 days. You must meet with the credit counselor and create a budget that would allow you to pay off your current debts. Your income and the other assets available to you are secondary in this evaluation because its main purpose is to see if it feasible for you to pay off all your liabilities on your own. Once that budget has been established, you must include it in the paperwork you file with the court in your bankruptcy case. 

Understanding the role of the debtor in possession

It might be difficult for business owners in Hackettstown to consider filing for bankruptcy simply because they do not want to lose control of their companies. Even in situations where a Chapter 11 case could help alleviate their financial struggles and allow their operations to continue, the thought of the use of their business assets and properties being at the discretion of an outside party (such as a bankruptcy trustee) may be enough to scare them away from the process altogether. Those same business owners will likely be relieved to know that law allows them to retain control of their bankruptcy cases through the role of the "debtor in possession." 

According to Section 1101(1) of Chapter 11 of the U.S. Bankruptcy Code (as shared by the Cornell Law School), a debtor in possession is a debtor that acts in the role of the trustee in his or her bankruptcy case. This allows business owners to manage their cases on their own provided they meet the requirements set by the bankruptcy court. In reality, bankruptcy trustees are only appointed in a limited number of Chapter 11 cases.

Understanding the Chapter 7 means test

A common myth that many in Hackettstown may subscribe to is that bankruptcy laws are easy to exploit. They may hear stories about people accumulating significant assets and then simply filing for bankruptcy to get out of having to pay for them. In reality, the guidelines governing bankruptcy are much more strict than many know. Having any of one's assets and liabilities dismissed is a privilege not everyone qualifies for. While a Chapter 7 bankruptcy may be among the most common forms of personal bankruptcy (indeed, information shared by the American Bankruptcy Institute shows that of all non-business filings in 2017, over 61 percent were Chapter 7), those hoping to file for it must first pass the Chapter 7 means test. 

The means test was designed to keep consumers from abusing personal bankruptcy laws. It essentially identifies if one does not have enough income coming in to settle his or her debts. The means test looks at one's current monthly income for the six months prior to him or her filing for bankruptcy. If his or her income is above the state median for his or her demographic, then it must be determined whether his or her disposable income might be enough to pay his or her debts. 

The advantages of filing chapter 7 bankruptcy

Life may deal its fair share of unappealing cards, but many New Jersey residents could agree that financial stress is one of the most challenging obstacles people face in America today. When it comes to dealing with one's financial woes, there are many paths to solutions; out of those, bankruptcy is one of the most common. Below are some facts about Chapter 7 bankruptcy in particular, including the potential advantages of this plan. 

As most consumers know, financial freedom can take on different meanings, depending on the situation. NerdWallet explains that Chapter 7 bankruptcy is not only the most common, but also the fastest type of consumer bankruptcy. Although some consumers may need to sacrifice certain assets, NerdWallet explains that this is not usually the case with this financial plan. Instead, debtors may find relief under federal court in areas of debt such as medical bills, debts without collateral and personal loans. There are, however, many other places of fine print, and consumers should review the ins and outs of Chapter 7 to find out if this plan is the best fit.

Mythological tales of the bankruptcy filing

There are many people out there who are brave and decide that filing for bankruptcy is the right move for them to clear out their old debts. You may think that it is facetious to call filing for bankruptcy a "brave" act, but given the reputation bankruptcy has, it truly is a huge step to take. There are also many myths surrounding the process of bankruptcy, and we want to dispel a few of them today.

The first is that people who file for bankruptcy have "failed." This couldn't be further from the truth. In many bankruptcy cases, the people who file have been overwhelmed by a sudden financial cost. This usually happens with a medical emergency, where the medical bills and the debt associated with the cost leave the individual with no way to adequately cover them.


The Law Offices of Jonathan Stone
490 Schooley's Mountain Road
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Hackettstown, NJ 07840

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