According to the 2005 Bankruptcy Act, all states must adhere to federal guidelines for bankruptcy. There are three District Bankruptcy Courts in the state of New Jersey. These courts typically hear cases from any of the four main types of bankruptcies: Chapter 7, Chapter 11, Chapter 12 and Chapter 13.
Chapter 7 bankruptcy is sometimes referred to as "straight bankruptcy." This is the type of debt relief that eliminates the most debt and is especially attractive to those with a high debt to low income ratio. Non-dischargeable debts like student loans, child support and back taxes may not be eliminated, but unsecured debts such as medical bills and credit card debt can be minimized greatly.
A different type of bankruptcy is found in Chapter 13. A petitioner may file for Chapter 13 to reorganize and repay debt, typically over a period of 3 to 5 years. The court will monitor payments and as long as they are being made, a debtor will be allowed to keep many of their assets such as a home or car. Other non-exempt assets may be liquidated to repay outstanding debts.
Chapter 11 is also a debt repayment plan, except the petitioners are businesses that wish to remain in operation, but seek debt relief. The repayment period is usually 3 to 5 years as well. Family businesses such as farming and fishing can file for Chapter 12. Here the businesses' assets are protected as long as payments are being made as agreed upon in court.
Before filing for bankruptcy, all petitioners are required to undergo credit counseling within 6 months of submitting their plea. Some find the counseling helpful and are able to organize their debts on their own, while others choose the route of debt relief through bankruptcy. If the second option is chosen, there is a specific course of action to complete bankruptcy.
First, it is necessary to determine for which type of bankruptcy a petitioner is eligible. This is done by way of a Means Test. The Means test compares the debtor's income over the last 6 months with the income of the rest of the wage earners in New Jersey. If the individual filing for bankruptcy's income is lower than the median, he or she can file for Chapter 7 or Chapter 13. Those with a higher income have Chapter 13 as their only option.
Gathering paperwork for court is the next step of the process. These documents may include, but are not limited to: 2 years of tax statements, records of recent major financial transactions, vehicle titles, property deeds, loan information, a list of all debts, an inventory of all assets and monthly expenses. Chapter 13 also requires a debt repayment summary detailing how debts can be paid off in a timeframe of 3 to 5 years.
This paperwork, the debt repayment summary, and all necessary forms are bundled together in what the court refers to as "the schedule." Many people find it helpful to hire legal aid when filing for bankruptcy while others choose to file on their own. There is a fee of $306 for Chapter 7 and a filing fee of $281 for Chapter 13. Of course, any attorney fees are the responsibility of the petitioner.
After the court has received the schedule, an automatic stay is issued to halt any foreclosure proceedings and to keep creditors from having direct contact with the debtor. A court appointed trustee reviews the case and determines which non-exempt assets can be used to repay debt. Additionally, the trustee holds a 341 meeting to allow negotiation of terms between the creditors and debtor. If no terms can be agreed upon, a judge will intervene.
Lastly, each petitioner must complete the court assigned financial management course. Those who have filed for Chapter 13 must continue making payments as detailed in their repayment summary.
There are three locations in the state of New Jersey for bankruptcy proceedings. One can be found in Camden, another in Newark, and lastly in Trenton. Each court shares jurisdiction for all counties of the state.