As we approach the end of May the job outlook for many seems to be getting worse. As of May 16th there were an additional 2.4 million Unemployment claims in the US. As many more people are unable to pay all their monthly bills, they will be forced to choose which ones to pay. Most will choose in the following order: food, housing, utilities, medical, auto, and then credit cards and unsecured personal loans.
Our New Jersey Bankruptcy Lawyers Offer Guidance to New Bankruptcy Trends
In New Jersey there is continuing collection activity by unsecured creditors (these are companies you owe for debts not tied (secured) to homes and cars) like credit card debt, personal loans, and payday loans. Many Creditors are continuing, and though hard to believe, increasing collection activity during the pandemic, and if they already have a judgment (they have sued you and won in Court) they are aggressively moving for seizing money in your bank accounts and seizing a portion of your wages.
It is also expected that there will be even more increased activity on TV and Internet / social media sites advertising for companies who promise “Debt Settlement” or “Debt Consolidation”. Many of these companies promise they will get you out of debt with a small percentage paid back on your current balance to each creditor. Some of these companies unfortunately after collecting a fee from you each month, they put the remaining fees in an account and as that account raises they then contact the creditor to see if they will take a reduced amount to settle the account. Until a Creditor is paid, they will continue assessing interest each month, currently the maximum interest allowed to be charged to you from a credit card company in NJ is 30%, as well as late fees, all the time reporting each month your non-payment to the Credit Bureaus lowering your credit score. Also the creditors can initiate lawsuits against you and get a judgment that they can now collect by way of seizing a portion of your pay check and bank accounts, YES they can take money in your bank account even the current stimulus funds. What these debt consolidation / settlement companies CANNOT do is: stop the amount you owe the creditor from going up due to more interest and late fees, stop lawsuits, stop taking what is owed from your paycheck, and stop taking money from your bank account. Finally if these companies are able to reduce the balance owed to any creditor, that creditor must now report at the end of the year to the IRS the difference between what you owed and what they settled for (the IRS calls this a “forgiveness of debt tax”), and that difference you must pay Federal taxes on when filing your next tax return.
Declaring Bankruptcy May Be Your Best Option
Filing a Consumer Bankruptcy either Chapter 7 or Chapter 13 will: Stop any collection activity by a creditor whether that be telephone calls, collection letters, threats to sue, filing lawsuits, getting a judgment against you on a lawsuit, taking money from your bank accounts, taking money from your paycheck. If you file a Chapter 7 bankruptcy there will be no money paid at all to all unsecured creditors like credit card companies, personal loans, payday loans, repossessions etc. If you file a Chapter 13 there will be a percentage (many times a very small percentage) paid back to your unsecured creditors based on your income and expenses with no continuing interest or late fees charged. Finally there will be no additional money due to the IRS in the next year when you file your income tax return for the difference between what your debt was and what the settlement companies may have reduced it to.
Discussing your options with a New Jersey Chapter 7 and Chapter 13 bankruptcy lawyer as we go through and upon exiting this never before seen in history event, will allow Consumers and Small Business Owners to be informed of their choices and options under the Federal Bankruptcy Code. It continues to be the hope of all involved with Creditor /Debtor Rights that the private debt collection companies, mortgage companies, credit card companies, utility providers, Car lending companies, unsecured Loan providers, cell phone carriers, internet / cable providers etc. will offer options to help all Consumers and Small Business Owners catch up on late payments or restructure payments, however if they do not then all Consumers and Small Business Owners need to know their rights for Debt Relief through Bankruptcy.