The Implications of Bankruptcy for a Cosigner

What is the Potential Impact on a Cosigner if You File a Bankruptcy Petition?

It is fairly common practice, when an applicant doesn’t have sufficient credit history or fails to qualify for a loan, for the lender to extend credit anyway, if a family member or someone else co-signs on a note. What happens, though, when the applicant encounters financial difficulties and chooses to file for bankruptcy protection? What are the implications for the co-signer?

The Effect of Bankruptcy on the Obligations of a Co-Signer

When a debtor files for bankruptcy protection under Chapter 7, there is no protection extended to the co-signer who remains liable to pay the amount due. A Chapter 7 filing will only discharge the obligation of the debtor. The automatic stay of collection efforts does not protect the co-signer from a lawsuit..

There are ways that you can protect a co-signer in a Chapter 7 bankruptcy. First, if the loan is a mortgage or auto loan, you can get or remain current on payments and keep paying. For auto loans or leases (the most common co-signer situation) you can opt to reaffirm the debt (but you have to do this so it is presented to the court before your discharge) This means that you waive the right to discharge that debt and confirm that you accept personal responsibility to pay it after the bankruptcy is final. If you do this and keep making payments on the debt even after the bankruptcy is final, action against the co-debtor is unlikely.

Chapter 13 offers much more protection to co-signers and guarantors on non-business “consumer debt” such as auto loans or leases. In Chapter 13, the automatic stay extends to co-signers and co-debtors under what is known as the “co-debtor stay.” While the stay will end when the Chapter 13 period expires, your co-signer will have protection for the three-to-five year term of the Chapter 13 reorganization.

A creditor may seek to have the stay lifted with respect to a co-signer under limited circumstances, including :

  • A determination that it was the co-signer who actually received the benefit of the debt
  • The creditor will suffer “irreparable harm” if the stay is not lifted
  • The Chapter 13 plan does not call for payment in full by the end of the reorganization period

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. To set up a meeting, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



The Simplest Chapter 7 Bankruptcy Filing

For many, simply the word “bankruptcy” conjures up visions of mountains of paperwork, complex filings, meetings with creditors and hearings in bankruptcy court. After the 2005 revisions to the bankruptcy laws, with the mandate that anyone seeking to permanently discharge debt under Chapter 7 submit to a “means test,” it may seem that the days of a “simple bankruptcy” are over. You may have to determine which debts qualify for discharge, as well as what assets are exempt from sale under state or federal laws.

Nonetheless, in our experience there are few situations where you cannot achieve some form of relief. Properly handled with experienced and careful guidance, there should be no reason a person in financial difficulty could not quickly and effectively complete a Chapter 7 bankruptcy, and get a fresh financial start. Difficulties are often caused by careless or inexperienced attorneys, or by debtors who are not truthful and candid with their chosen bankruptcy counsel. That said, even if the process takes longer than expected, you will benefit from the automatic stay, which goes into effect immediately, preventing creditors from calling, writing or taking legal action to collect a debt.

Here are the conditions that will make it easiest for you to file and complete a bankruptcy with little or no difficulty:

  • Your household income is less than the state median—Typically, if your income is below state median, you are free to file either Chapter 7 or Chapter 13, and do not need to undergo the complex calculations set forth in the means test.
  • You own little or no assets—If you have significant assets, you will have to determine what assets you can keep and which may be sold to satisfy your creditors. If you have few assets, chances are good you will be able to keep everything.
  • You have complicated or unusual secured debt (mortgage, car note or any obligation secured by collateral.
  • Your creditors have no basis for an allegation of fraud or other wrongdoing against you—such claims, including allegations of fraud happen rarely, but when they do, they take a long time to resolve.
  • You are not the owner of a business or active investment.
  • You have not repaid family members in the past year, or sold or transferred property of substantial value for less than it was worth.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



Non-Business Exemptions from the Means Test

Exemptions from the Bankruptcy Means Test

Under the substantial revisions to the federal bankruptcy laws in 2005, Congress changed consumer eligibility for discharge of debt under Chapter 7, requiring that applicants qualify by passing a “means test.” The means test looks at income and debt, and disregards your claimed actual current income and expenses in determining whether the you have the “means” to pay creditors. Instead the “Means Test” applies a formula based on what the IRS uses in calculating what payments it will accept for repayment of unpaid taxes. If the formula shows a calculated ability to pay creditors in excess of a certain monthly amount, you are then ineligible for Chapter 7 and instead must repay creditors over a three-to-five-year period, with the minimum repayment being calculated under a variation of the Chapter 7 Means Test formula.

This can be a real problem where your actual expenses do not leave you with enough left over income to pay the calculated minimum payment.

There are some instances where the means test will not apply. For example, if the majority of your obligations (including taxes and mortgage debt) are “non-consumer” debts arising from or incurred in a business or investment, you don’t have to submit to the means test. In addition, you may be able to sidestep the means test if:

  • You are a disabled veteran whose obligations arose mostly when you were on active duty or were engaged in any activity related to or promoting homeland security or defense. The bankruptcy rules require that your disability be rated at 30% or higher, and that you have been discharged because of your disability. In addition, your disability must have been sustained in the line of duty.
  • You are in the military reserve or a member of the National Guard, and you were called to active duty after September 11, 2001. You must have been on active duty or involved in a homeland defense activity for 90 days or more. If you qualify, you will be exempt from a means test while on active duty and for 540 days after discharge.

The Means Test is a complication that is not always easy to apply. Yet careful planning—and in some cases, proper timing—can make a huge difference. This is an area where early planning and advice from a qualified and experienced bankruptcy lawyer are critical.

Contact Our Office

At Neuner & Ventura, LLP, offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. Let us help you minimize the stress, anxiety and confusion that come with a personal bankruptcy filing.

For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



The Income Side of the Means Test

The Income Component of the Bankruptcy Means Test

Man paying billsUnder the “Means Test established by the 2005 revisions to the federal bankruptcy laws, certain people needing bankruptcy protection may be disqualified from a Chapter 7 bankruptcy, and in a Chapter 13 bankruptcy must make calculated minimum payments to unsecured creditors over a required five year period. The Means Test was intended to catch people with high income and abnormally high expenses and force them to pay based on the same formula that the IRS uses in calculating repayment plans for those who owe federal taxes.

The Means Test does not apply if one of the following is true:

  1. Your debts are primarily business or business related debts;
  2. You are a disabled veteran and your debts occurred primarily while you were on active duty in the armed forces, or in the armed forces reserves or National Guard or within 540 days after the end of that service
  3. Your “current monthly income” based on the past 6 months is less than the median income in the state where you life, for your size household.

“Current monthly income” under the Means Test is the average monthly gross income for the six month period prior to the filing of your petition. This includes all forms of income (other than Social Security), whether taxed or not, such as:

  • Gross wages, tips and salaries, including bonuses and commissions (before payroll deductions)
  • Gross business or investment income
  • Income from retirement plans
  • Disability payments other than Social Security disability
  • Regular contributions by others to cover household expenses

Generally, the court or the trustee will look at the total gross income for the six month period and divide by six.

Once your current monthly income is calculated, the bankruptcy court or the trustee will compare your average current monthly income with the median in your state, also taking into account your household size. (The median is the number at which half the households earn more and half earn less). If you fall below the median, you automatically pass the means test.

If your income exceeds the median, you may still be able to discharge debts through Chapter 7, but the computation will be far more complex. At that point, a complicated multi-part formula of allowed expenses is applied. If after deducting the allowed expenses, the amount remaining (called “disposable income”) is at or below what is allowed (again based on a multi-part formula), you can still qualify under Chapter 7.

Needless to say, this is an area where experienced and qualified legal advice is essential.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know the personal challenges that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney.

For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



Inherited IRA’s are not part of a bankruptcy estate in New Jersey, Bankruptcy Court holds

In a personal  bankruptcy of an individual, money and assets held in certain qualified trusts  are “excluded” and do not become part of the Debtor’s bankruptcy estate that, if not exempted, becomes available for sale by a trustee to pay creditors. Qualified pensions are a common example. Excluded assets need not be exempted to be retained by the debtor in bankruptcy.

As we previously reported, in 2014 the Supreme Court in Clark v Rameker held that under Wisconsin law, an inherited IRA was not an IRA that would fit into the generous federal exemption for IRA’s. The reason was that unlike normal IRA’s the money in these accounts could be access and used at any time without tax penalty. At the time, we questioned whether this would hold true in New Jersey, which has a statute protecting inherited IRA’s from claims of creditors or a bankruptcy trustee. N.J.S.A. 25:2-1(b).

On February 25, 2015, New Jersey Bankruptcy Judge Michael Kaplan held in In re Andolino,  2015 Bankr. LEXIS 577, that an inherited IRA is excluded from the bankruptcy estate. Clark, he held, did not address this issue. Under New Jersey law, any “qualified trust” is protected, and includes any “trust created, qualified or maintained” under section 408 of the Internal Revenue Code.  Since the IRA which Mr. Andolino inherited was a qualified trust when created, and remains so even after he inherited it from his mother, it cannot be included in a bankruptcy estate.

The opinion has been submitted for publication, so it should become persuasive if not binding on other New Jersey Bankruptcy courts. Since the reasoning and the statutory basis are clear, logical and persuasive, we expect most courts at least in New Jersey will follow it.



Even the big guys are guilty of making matters worse through denial-Detroit’s bankruptcy experience is an object lesson for many others

As you know the City of Detroit filed a Chapter 11 bankruptcy, and after a lengthy and expensive process, is emerging from Chapter 11, ostensibly with its finances in order and its future brighter. A recently reported interview with the now-retired bankruptcy judge who handled the bankruptcy suggests that in the years leading to its bankruptcy, Detroit’s city fathers fell victim to a common malady, namely desperation and denial, and that this led to expensive mistakes.

According reports of an interview given by Judge Steven Rhodes, the city made an expensive and ill-considered deal to try to fend off  the pension default that ultimately was a major impetus to its bankruptcy filing. The suggestion is that the City would have been better off had it simply bit the bullet earlier.

This syndrome of denial and “kicking the can down the road” is, in my experience, all to common, and leads to desperate and ill-considered attempts to stop the inevitable bankruptcy.

A common example is the business owner who borrows money against her home (or from the IRS by not handing over employee withholding trust funds) to keep a failing business alive. To be sure, saving a viable business and carrying it through a temporary rough patch is not a bad thing. The problem is that too often, there has been no effort to find out what is causing the problems, and no effort to deal with those problems.

Another face of this is the refusal to even consider the option of bankruptcy as an alternative until quite late in the game. Sometimes by the time this is considered, the situation has gone from bad but cureable to desperate and incurable.

Our advice to business owners is to always consider all the options, and to do so earlier rather than later. An early bankruptcy might solve critical problems that will only get worse and save the business, whereas later matters have gotten out of hand, and the once-saveable business is doomed.

Individuals are just a guilty of this. I cannot count the number of times I have seen couples  whose solution to mounting credit card debt caused by income that was not enough to cover their spending was to borrow against home equity or emptying retirement accounts.  The underlying problem is still there, and like Detroit, they are just “kicking the can down the road”

The lesson of Detroit is that financial problems do not get solved unless one gets to the source. Short term solutions, such as borrowing more money to meet a cash flow deficit, just delays the inevitable and makes matters worse.

It is never too soon for people or businesses in financial trouble to engage in careful and broad based planning. All choices and options should be considered.



Can Bankruptcy Help You If You Owe Money Because of a Car Accident?

Can You Use Bankruptcy to Discharge a Judgment against You Resulting from an Accident?

Car accidentThough most judgments and settlements in motor vehicle accident cases are paid and defended by insurance companies, it is possible to have personal liabilities that are not covered by insurance. For example, you may not have any insurance coverage, or not enough coverage. In some cases, the insurance company, rather than defending, may “offer the policy limits” to the defendant. If the damages are more than that amount you may end up on the receiving end of a collection action.

Most insurance will not cover suits arising from an assault or other intentional tort, such as a bar fight.

So the first line of defense is making sure you are insured. But if you are not covered, a bankruptcy discharge may provide you the relief you need. But not all such debts are dischargeable.
Debts arising from death or personal injury caused by illegal operation of a motor vehicle boat or aircraft while drunk or under the influence of an illegal drug cannot be discharged in any bankruptcy. If there is insurance, the insurer will still have to pay, but anything the insurance does not pay will still be your liability after your bankruptcy discharge.

If convicted and required to pay restitution or fines as part of a sentence, that amount will be non-dischargeable in either Chapter 7 or Chapter 13. Note however that in New Jersey, motor vehicle insurance surcharges, but not criminal fines or penalties, can be discharged either in Chapter 7 or Chapter 13.

Debts arising from willful and malicious injury to a person or property may become non-dischargeable in a Chapter 7 case if the injured person files a lawsuit in the bankruptcy case seeking such a ruling. There is a limited time for such suits and if the deadline is missed, the debt is discharged. In a Chapter 13 case, no such requirement exists, and if death or personal injury was caused, the debt is not discharged. However, debts for willful and malicious injury to property (eg. vandalism) can be discharged.

A special caution is in order here. To qualify for Chapter 13, the total unsecured debt in a fixed and determinable amount cannot exceed a dollar limit, currently $383,175.00. Once a jury verdict, settlement or judgment is entered specifying the liability, that liability gets added to this total. Thus it may be critical to file a Chapter 13 case while the injury or criminal case is still pending and before any of this happens.
As always, it is best to avoid these types of situations, but if these issues exist,

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. To set up a meeting, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



When Tax Debts Can Be Discharged in Chapter 7

Can You Discharge Tax Debt in Chapter 7?

Tax paperworkIn a Chapter 7 bankruptcy filing, you can discharge certain debts in exchange for the sale of non-exempt property. As a general rule, domestic support obligations, such as child support and spousal support, are not dischargeable, and student loan payments are only rarely dischargeable in cases of undue hardship. The common perception is that tax debts may not be discharged in Chapter 7, but this is not entirely true.

The Discharge of Tax Debts in Chapter 7

Certain types of tax obligations may not be discharged under any circumstances. These include taxes which a debtor is required to collect and submit to the taxing authority, such as excise or sales taxes and money withheld an employee’s pay for taxes or Social Security by such as FICA taxes) that was not in fact paid over.

Income taxes and the interest on them (but not tax penalties for failure to file a return or pay a tax) CAN be discharged providing all the following is true:

  • The tax was not incurred as the result of fraud or of willful tax evasion—If the taxing authority can show any instance of intentional evasion or misrepresentation, the tax cannot be discharged.
  • A tax return for the specific tax year or tax period was actually filed. Substitute returns that the IRS or a taxing authority prepares to estimate the tax due do not qualify.
  • The tax return was timely filed, and the last due date to file the return was more than three years before you filed for bankruptcy. Note this is not the date the return was filed, but the date was last due. Thus, if due to extensions the return was due by October 30 but you filed on September 30, the three year look-back runs from October 30.
  • If the return was filed late, it was filed more than two years before your bankruptcy filing.
  • If the taxing authority issued an assessment of tax liability, that was more than 240 days (plus certain additional time for various reasons) prior to your bankruptcy filing.

Even if your personal liability for a tax is dischargeable, there may be tax liens filed that will survive a bankruptcy unless something is done about them. These liens attach to your property. More about them in a later blog post.

IRS CIRCULAR 230 DISCLOSURE: Pursuant to Treasury Regulations, any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used or relied upon by you or any other person, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax advice addressed herein.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



ing a Chapter 7 Bankruptcy Filing to Keep Your Home

House and calculatorIf you are facing financial challenges, you may be considering filing for personal bankruptcy protection. If you want to keep your home, though, you may be uncertain whether you should file a Chapter 7 or a Chapter 13 petition. While a Chapter 13 is, in most instances, the best approach for restructuring your debt and keeping your residence, there are some instances in which you can use a Chapter 7 petition to protect your home.

The Exemption on the Equity in Your Home

In a Chapter 7 bankruptcy proceeding, a bankruptcy trustee is empowered to sell certain nonexempt assets in exchange for your receiving a permanent discharge of most debts. As part of your “fresh start” in bankruptcy you are allowed to keep for yourself certain assets up to permitted values. (In New Jersey bankruptcies, the federal bankruptcy exemptions are available and are almost always the ones selected by debtors). The trustee looks at a hypothetical sale to calculate what amount of money if any will be available after selling the home, paying the broker and other costs of sale, paying off any mortgages and unpaid real estate taxes, paying his own commission, and paying you the amount you have claimed as exempt. The remaining money for creditors is the “non-exempt equity”.

If there is nothing left for creditors, the trustee will “abandon” the residence by a Notice in the Bankruptcy Court. This abandonment is good for debtors. It means that the trustee is giving them back the property as being of no value to the Trustee.

This is the goal most debtors have. To achieve it, having some reliable proof of value to provide the trustee (and for you to know what the home is really worth) is essential. Just as important, however, is to have a current statement showing the balance due on each mortgage. An experienced and qualified bankruptcy attorney will know how to determine if your home is at risk and to help you protect it if a bankruptcy is needed.

In Chapter 7, another option if the home has too much value, may be to “redeem” the home by paying the trustee, from family loans, retirement funds, or other monies that the trustee has no right to. The amount the trustee will accept will be based, usually, on what would be left in a sale by the trustee.

In these situations, however, a Chapter 13 filing may be the better option. There, you can pay creditors the “equity” they would have gotten from a Chapter 7 trustee by payments over 3 to 5 years. The details of this and which is the better option are too complicated for discussion here. These are matters to take up with an experienced and qualified bankruptcy attorney.

You can still lose your home to foreclosure, even if the Chapter 7 trustee concludes he or she doesn’t want to sell it. The trustee may give up his claim to it, but the mortgage lender can still foreclosure, either after you receive a discharge or after the lender gets an order for “stay relief”. In these situations, Chapter 13 may be the better option. In Chapter 13, you can bring the mortgage current through an approved plan. An option if you want to keep your home is to obtain a personal loan or use retirement funds (which are exempt from bankruptcy) to pay the trustee the amount that would have been received in a sale of the house on the open market.

For many people who are struggling to pay their bills including their mortgage, a Chapter 7 bankruptcy can help them keep their home by freeing them from the burden of paying credit cards or other debts so that more of their available money is left to pay a mortgage.

All these considerations are heavily dependent on the facts of your individual situation. Getting early advice from a qualified and experienced bankruptcy attorney is essential. Early planning can make all the difference in the world.

Contact Our Office

At Neuner & Ventura, LLP, we work hard to alleviate the stress, anxiety and confusion that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call us at 856-596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients Across South and Central New Jersey



The Impact of Bankruptcy on Jointly Owned Property

Family in car lot, looking at red car.If you face a mountain of debt and have concluded that the only way you can get a fresh start is through a personal bankruptcy filing, you may concerned about the impact of a bankruptcy on jointly owned property. What if you are named on the bank account of a parent or elderly relative as a convenience to facilitate the payment of their bills? What if you had a parent or friend co-sign a loan for you?

Creditor or Trustee access to Jointly Held Property

The simple reality is that (with few exceptions) any property in which you have any ownership interest is potentially subject to being used to pay creditors in a bankruptcy proceeding, unless you can properly exempt it. The good news is that the amount of the jointly held property available to the bankruptcy court will typically be only your individual interest.

In New Jersey, money in a joint bank account is presumed to belong to each account owner in the same proportion as each contributed money to the account, unless there is clear and convincing evidence of an intent to make a gift.

A common situation we see is where an elderly parent adds a child as a joint account holder “for convenience” so the child can help manage the money or pay bills. If you are the child and can document that the money all came from the parent without an intent to make a gift, a trustee will probably leave it alone. But if you have not filed a bankruptcy, the bank account could be subject to a bank levy by one of your judgment creditors without notice. Then the account is frozen until you or your unhappy parent can go to court (weeks later) to show that the money is not yours.

We recommend against this arrangement. Parent and child should go to the bank and make arrangements for the child to have signature authority on the account under a power of attorney.

Another potentially troublesome situation arises where a parent takes title to a car that a minor child bought or is paying for using her own money. Usually this is done “for insurance purposes”. The car is still an asset of a bankruptcy estate, and is still subject to a sheriff’s levy ordered by an unpaid judgment creditor. In a bankruptcy, we have generally been able to protect the car under the theory that the car is “legally but not beneficially” owned by the parent.

These types of situations are just some of the examples that can arise. If you are facing financial difficulties, we counsel against keeping your money or assets in joint names with others. However, before transferring things around, you need to get qualified legal advice that can come from such transfers if done improperly.

Contact Our Office

Let us help you minimize the stress, anxiety and confusion that come with a personal bankruptcy filing. At Neuner & Ventura, LLP, we offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.
Representing Clients across South Jersey



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