How Chapter 7 Really Works When Reaffirming a Vehicle

Protecting Your Car When You File For Chapter 7 Bankruptcy Protection

If you face insurmountable debt, you can seek to permanently discharge debt by filing for protection under Chapter 7. The bankruptcy laws limit the type of debt that can be discharged, and also require that reaffirm the debt on any cars or vehicles on which there is a lease or purchase loan. If you own a motor vehicle that you want to keep but which is subject to a auto loan or lease (and assuming it does not have such a large amount of equity that it cannot be fully exempted from sale by a trustee) you still have to take certain steps to prevent a repossession after your bankruptcy discharge.

Reaffirming Your Car Loan in a Chapter 7 Proceeding

A reaffirmation is essentially a new agreement to repay the amount owed on your vehicle. To reaffirm a car loan, you will be required to sign an agreement stating that, in exchange for keeping your car, you agree to continue to make the payments on the car and to remain fully liable on the debt. In essence, this agreement takes the loan out of the debts that will be discharged. The bankruptcy court will review the proposed reaffirmation to make certain that the payment is one you can afford, and that having the car payment will not impose an unreasonable hardship on you and your family. If your attorney, acting as an “officer of the court” can certify to the court that the loan or lease is one you can afford based on your income and expenses, approval typically happens as a matter of course. If your attorney cannot do this, the Court will schedule a hearing to question you about the loan and to determine if it will nevertheless approve the loan.

You can also rescind a reaffirmation agreement within 60 days or at any time before your discharge, and return the vehicle without any further obligation.

If you do not agree to reaffirm the loan and offer to do so, the auto lender will have the right to repossess the vehicle even if you are current on payments. Many auto lenders, especially Ford Motor Credit, are vigorous about this. So to avoid the risk of repossession, an offer to reaffirm, and the signing of a reaffirmation agreement when presented, are necessary.

You want to be careful about entering into a reaffirmation agreement. By doing so, you are essentially agreeing that you will remain fully personally liable for all payments or money due under the car loan or lease without the protection of a discharge in bankruptcy. So, for example, if 6 months after your bankruptcy discharge you fall behind on payments and the lender repossesses then sells the car, it can still sue you for any unpaid balance or deficiency. For a lease, if you owe money at the lease end, you will have to pay up.

Of course, you are protected by the automatic stay, and the lender cannot call, write or take legal action to collect car payments from you until your discharge or until it gets an order for “stay relief”. But once this hurdle is crossed, you could lose your car even if you are remaining current on payments.

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



Heading for bankruptcy? Paying your children’s college expenses could create “clawback” headaches for them and their college

Many parents in financial difficulty still place a priority on helping their children with tuition and other college expenses. While this is entirely understandable, parents who pay colleges for their adult children could be creating problems for both their children and the colleges if they later file for bankruptcy protection.

Recent reports in the Wall Street Journal and elsewhere have exposed a growing trend: bankruptcy trustees are suing colleges to “claw back” money paid by parents in bankruptcy. This has led the colleges to seek payment from the students, or to withhold transcripts until the money is repaid. It has even spawn a proposed bill in Congress to prevent bankruptcy trustees from filing such suits.

The underlying legal theory for such “claw-back” suits is not that novel. Trustees have the right and indeed the obligation to pursue getting back money or property that a debtor in bankruptcy has “fraudulently” transferred, so the money can be made available to pay creditors (and to pay the trustee and his attorneys). The payment need not have been done with actual intent to defraud creditors. It is sufficient if it was made without the parent/debtor getting “reasonably equivalent value” in return for what is paid, and if the payment was made at a time the parent was insolvent or unable to pay current or anticipated debts.

In essence, the trustees argue, the parents paying the college education expenses of an adult child are making a gift to that child. Gifts are by definition not made for “reasonably equivalent value”. They take away money that could have been used to pay the parent’s creditors.  Love and affection are not considered “reasonably equivalent value”.

If the parent takes out a loan or co-signs a student loan for the child but all the money goes to the child or her college, the effect is the same. It is still an avoidable gift.

Ironically, if the parent making the payment is required to do so under a divorce settlement incorporated into a divorce decree, the problem disappears. Why? Because the parent has a legal duty to pay that is enforceable by the divorcing spouse, and by making the payment the parent is relieved of part of that obligation. This is no different than when one pays a debt that is owed. The corresponding reduction in debt creates reasonable value in exchange.

Generally, in New Jersey, parents do not have a legal obligation (absent a divorce situation) to support their children after they achieve the age of majority or become “emancipated”.

There are ways around this problem for parents in financial difficulty. One option is to file bankruptcy first, then pay the college expenses out of future income or assets that are protected in bankruptcy (such as pensions or profit sharing plans),  after the bankruptcy is over. But for most people in this situation, they and their children need to have a sober and honest discussion about what is practical and in every one’s best interests in the long run.

Careful planning and advice of qualified professionals is a must. These are difficult decisions and should be thought through carefully as part of a broad based plan for getting a “fresh start”. With years of trustee and bankruptcy experience, we have the ability to help distressed parents sort it all out.



Filing Bankruptcy Without Your Spouse

You may have personal financial issues that you brought into a marriage, or that really have little or nothing to do with your spouse. You can file a petition in bankruptcy without including your spouse, but how the two of you will be treated will depend in part on where you live and what property or debt you have together.

Selling Jointly owned property

In New Jersey, Pennsylvania and most states outside the western United States, Florida and Louisiana “community property” between a husband and wife does not apply. This means that unless a divorce has already been filed when the bankruptcy is filed, any property that titled exclusively to you, as well as your rights and interest in jointly owned property becomes part of your bankruptcy estate.

A bankruptcy will generally not remove the claims or interest of your spouse in jointly owned property. However, if the property has enough equity or value that your interest in it cannot fully be protected by exemptions available to you in bankruptcy, it can be subject to sale.

In New Jersey, even property that is held as “tenants by the entireties” (ie as husband and wife) can be sold by a bankruptcy trustee over the spouse’s objection. If that were to occur, the non-debtor spouse has certain rights and protections. First, the trustee has to show the court that the benefit to creditors from a sale outweighs the harm to the non-debtor spouse. If the value is high enough, this will commonly be the case. Secondly, the spouse is entitled to his/her share of the net proceeds after paying costs of sale and any mortgage or valid secured debt. Third, the spouse can outbid the proposed purchaser to buy out the debtor’s interest in the property.

This is a situation that absolutely requires careful consideration and advice from an experienced, knowledgeable bankruptcy attorney.

No Discharge of Joint Debt

If you do file for protection under Chapter 7 without your spouse, any discharge of joint debts will only affect your obligation. Even though your debt is discharged, your spouse will still be required to repay his or her portion.

The flip side of this is that your household income will still have to be used to pay your non-filing spouse’s debts and joint debt. If there is not enough money to do this, a joint bankruptcy filing may be needed.

These are situations that need careful and detailed review by an experienced bankruptcy attorney knowledgeable about both bankruptcy and divorce issues, as well as the process of trustee sales of assets. At Neuner and Ventura LLP, we have that background.

Contact Neuner & Ventura, LLP

To schedule an appointment, call our office 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. There is no cost or obligation for your first meeting.

Representing Clients across South Jersey



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



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