Legal Question in Bankruptcy in New Jersey

Re: chapter 7

When a debtor files a personal bankruptcy case he/she is required to list all of his/her creditors (i.e., people and companies to whom he/she owes money). The debtor does not have the option of just scheduling some and omitting others. At the meeting of creditors held in the case, at which the debtor must testify under penalty of perjury, the chapter 7 trustee will inquire whether the debtor has listed all of his/her debts in the schedules to the petition. So a debtor who is properly completing the schedules must list all creditors.

However, a mortgage is a somewhat special situation because the mortgage has a lien (as the result of a mortgage) on real estate. Even if a debtor files chapter 7 bankruptcy, the debtor will only wipe out his/her personal liability with respect to the mortgage (such as, for example, a deficiency, or claim based on a prissory note by second mortgage holder that gets wiped out by foreclosure of 1st mortgage). The chapter 7 bankruptcy does not eliminate the mortgage. The bank holding the mortgage comes out of the bankruptcy still holding the mortgage on the property. So if a debtor files chapter 7, he/she will need to continue making mortgage payments to keep the house.

If a debtor owns a house and has equity in excess of the available exemption under state law then chapter 13 would often be a better option than chapter 7 bankruptcy in such situation.

For further information regarding personal bankruptcy, chapter 7, and chapter 13, please free to visit the Frequently Asked Questions (FAQs) and Blog postings on our website at www.starrandstarr.com.

The foregoing is not intended as legal advice for your specific situation. Facts and circumstances not disclosed in your brief posting may materially affect your rights. You should consult with a bankruptcy attorney.

Best regards,