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Consumer Debt: I Can't Pay My Bills. What to Do? A New Jersey Bankruptcy Attorney's View

May 22, 2020 | Posted In Recent News by Ed Wiercinski |

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 Help You Navigate New Bankruptcy Trends

In New Jersey, there is ongoing 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. Although it's hard to believe, many creditors are continuing and increasing collection activity during the pandemic, and if they already have a judgment (meaning they have sued you and won in Court), they are aggressively moving toward seizing money in your bank accounts and seizing a portion of your wages.

It is also expected that there will be even more 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. Unfortunately after collecting a fee from you each month, some of these companies put the remaining fees in an account, and as that account grows, they then contact the creditor to see if they will take a reduced amount to settle the account.

It's important to note, though, that 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. During this time, the creditor will continue to report your non-payment each month to the credit bureaus, which lowers your credit score. Also, creditors can initiate lawsuits against you and get a judgment that they can now collect by way of seizing a portion of your paycheck and bank accounts. Yes, they can take money from 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 increasing 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 report to the IRS the difference between what you owed and what they settled for (the IRS calls this a “forgiveness of debt tax”) at the end of the year. You must pay Federal taxes on that difference when filing your next tax return.

Declaring Bankruptcy May Be Your Best Option

Filing a Chapter 7 or Chapter 13 bankruptcy will stop any collection activity by a creditor via telephone calls, collection letters, threats to sue, filing lawsuits, getting a judgment against you in a lawsuit, and/or taking money from your bank accounts or paycheck. If you file a Chapter 7 bankruptcy, there will be no money paid at all to 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, and no continuing interest or late fees will be charged. Lastly, there will be no additional money (for the difference between what your debt was and what the settlement companies may have reduced it to) due to the IRS when you file your income tax return in the next year.

Seek Legal Guidance from a Skilled New Jersey Bankruptcy Attorney

Consumers and small business owners are encouraged to find out about their options under the Federal Bankruptcy Code from a New Jersey Chapter 7 and Chapter 13 bankruptcy lawyer as we continue to go through and exit this historic time.

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 they need to know their rights for debt relief through Bankruptcy.

To schedule a free, confidential and no-obligation consultation at Helmer, Conley and Kasselman, call us at 609-281-8581 or tell us how we can help online today.

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