What Should You Do Before Filing for Bankruptcy in New Jersey?

When debt becomes difficult to manage, bankruptcy may provide a legal path toward financial relief. However, filing for bankruptcy is a significant decision, and what you do before you file can affect how smoothly the process moves forward.

Whether you are struggling with credit card balances, medical bills, collection lawsuits, wage garnishment, or other debts, preparing ahead of time can help you better understand your financial situation and determine whether Chapter 7 or Chapter 13 bankruptcy may be appropriate.

The U.S. Bankruptcy Court for the District of New Jersey encourages individuals considering bankruptcy to carefully evaluate their options and determine which chapter of the Bankruptcy Code they may qualify for before filing.

Here are some important steps to consider before filing for bankruptcy in New Jersey.

1. Take a Complete Look at Your Financial Situation

Before deciding whether bankruptcy is the right option, start by getting a clear picture of what you owe, what you own, and what you earn.

Make a list of your:

• Credit card balances
• Medical bills
• Personal loans
• Mortgage
• Auto loans
• Past-due taxes
• Collection accounts
• Judgments
• Other outstanding debts

You should also identify your income, regular household expenses, bank accounts, investments, real estate, vehicles, and other assets.

Bankruptcy requires extensive financial disclosure. Gathering this information early can also help your attorney evaluate which options may be available.

2. Gather Your Financial Documents

Bankruptcy involves more than simply listing the amount of debt you owe. You will need documentation concerning your finances.

Depending on your circumstances, useful documents may include:

• Recent pay stubs
• Tax returns
• Bank statements
• Mortgage statements
• Vehicle loan statements
• Retirement and investment account statements
• Credit card statements
• Collection notices
• Lawsuit or judgment documents
• Information concerning property you own
• Records of other sources of income

For example, Chapter 13 debtors generally must provide information concerning assets and liabilities, current income and expenses, contracts and leases, recent employer payments, and their most recent tax return or transcript.

Having organized records can make it easier to accurately evaluate your financial circumstances before a case is filed.

3. Understand the Difference Between Chapter 7 and Chapter 13

Two of the most common types of consumer bankruptcy are Chapter 7 and Chapter 13, but they work differently.

Chapter 7 is generally designed to discharge qualifying debts for eligible debtors. Eligibility can involve the bankruptcy means test, which considers financial information including income. The U.S. Trustee Program explains that the means test is used to determine whether individual consumer debtors may obtain relief under Chapter 7.

Chapter 13 generally involves a court-approved repayment plan. It may be appropriate in circumstances where a debtor needs time to address certain debts or does not pursue Chapter 7 relief.

The appropriate chapter depends on factors such as your:

• Income
• Household size
• Types of debt
• Property
• Equity
• Payment history
• Financial goals

Do not assume that Chapter 7 is automatically preferable simply because it may offer a discharge sooner. Your individual circumstances matter.

4. Find Out Whether You Qualify for Chapter 7

If you are considering Chapter 7, eligibility should be evaluated before filing.

The bankruptcy means test uses income and other financial information to determine whether certain consumer debtors may pursue Chapter 7 relief. The applicable median-income figures and expense data are periodically updated, so current figures should be used when evaluating a potential filing.

Having income above New Jersey's applicable median does not necessarily mean that Chapter 7 is automatically unavailable. The full calculation and your circumstances may need to be considered.

A bankruptcy attorney can review your financial information and explain how the applicable requirements affect you.

5. Complete the Required Credit Counseling

This is one step you cannot simply skip.

Individual debtors generally must complete credit counseling through an approved agency before filing bankruptcy. The counseling must ordinarily be completed within the 180 days before the bankruptcy petition is filed. If spouses file jointly, both generally must complete the requirement.

After completing the course, you receive a certificate that is filed with the bankruptcy court.

The U.S. Trustee Program maintains the official list of approved credit counseling agencies, including providers approved to serve New Jersey residents.

Limited exceptions exist, but they apply only in specific circumstances. Failing to satisfy the requirement can result in dismissal of a bankruptcy case.

6. Be Careful About Transferring Property Before Bankruptcy

If you are considering bankruptcy, do not start giving away property or transferring assets to friends or relatives in an attempt to keep them out of the case.

Bankruptcy requires transparency about your finances and transactions.

That means you should speak with an attorney before making unusual changes involving:

• Real estate
• Vehicles
• Bank accounts
• Valuable personal property
• Business interests
• Money transferred to family members

A transaction that seems harmless to you could create complications once your bankruptcy case is reviewed.

The better approach is to disclose your situation fully and determine how bankruptcy law applies to the property you own.

7. Avoid Running Up New Credit Card Debt

If bankruptcy is becoming a serious possibility, be cautious about taking on additional debt.

Using credit cards for substantial purchases or taking cash advances shortly before filing may create questions about whether particular debts should be discharged.

Bankruptcy is intended to provide relief from financial hardship—not to create an opportunity to intentionally accumulate debt immediately before seeking a discharge.

If you are unsure how recent purchases or cash advances could affect your case, discuss them with your attorney before filing.

8. Do Not Automatically Empty Retirement Accounts to Pay Creditors

When bills become overwhelming, some people consider withdrawing retirement savings to keep up with payments.

That decision deserves careful consideration.

Using long-term savings to pay debts immediately before considering bankruptcy could significantly affect your financial future. Depending on the type of retirement account and applicable bankruptcy protections, withdrawing funds may also change how those assets are treated.

Before liquidating retirement assets, discuss the potential consequences with a bankruptcy attorney and, when appropriate, a financial or tax professional.

9. Do Not Prefer One Creditor Without Understanding the Consequences

You might understandably want to repay a family member or friend before filing bankruptcy.

However, bankruptcy law scrutinizes certain payments made before filing, particularly when one creditor receives preferential treatment over others.

Rather than deciding which creditors to pay based solely on personal relationships, speak with your attorney about your payment history and any significant payments you are considering.

Full disclosure is important.

10. Understand What Bankruptcy May Do About Collection Activity

One reason timing matters is the automatic stay.

Once a bankruptcy petition is filed, the automatic stay generally stops many collection activities. In a Chapter 13 case, for example, creditors generally may not continue lawsuits, wage garnishments, or collection calls while the stay applies. However, there are exceptions, and the stay may be limited in certain circumstances.

If you are currently dealing with:

• Wage garnishment
• Collection lawsuits
• Repossession
• Foreclosure
• Bank levies
• Aggressive creditor activity

tell your attorney immediately.

The timing of a bankruptcy filing can matter when a creditor has already begun taking action.

11. Consider How Bankruptcy Could Affect Your Home and Car

A common fear is that filing bankruptcy automatically means losing your home, vehicle, and everything else you own.

The reality is more complicated.

How property is treated depends on factors including:

• The bankruptcy chapter
• The property's value
• How much equity you have
• Applicable exemptions
• Whether the property secures a debt
• Whether payments are current
• Your overall financial circumstances

The New Jersey Bankruptcy Court specifically warns that bankruptcy can have serious legal and financial consequences, potentially including loss of property, which is one reason it recommends carefully considering your options before filing.

Before filing, understand how the bankruptcy you are considering may affect the assets most important to you.

12. Be Completely Honest About Your Finances

Do not hide an asset because you think it is insignificant.

Do not leave out a creditor because you would prefer to repay them privately.

And do not assume a financial transaction is too old or too small to mention to your attorney.

Bankruptcy documents require substantial financial disclosure, and accuracy is essential.

Tell your attorney about:

• All property
• All debts
• All income sources
• Pending lawsuits
• Expected inheritances
• Business interests
• Recent property transfers
• Significant payments
• Money owed to you
• Other relevant financial interests

Your attorney can determine what is legally relevant. Providing complete information allows that analysis to happen before documents are filed with the court.

13. Protect Sensitive Personal Information

Bankruptcy filings involve substantial financial information, but court documents also become part of the judicial record.

The U.S. Bankruptcy Court for the District of New Jersey cautions filers to protect sensitive information. For example, Social Security and financial account numbers generally should be limited to the required digits, while minor children's names and dates of birth receive specific privacy treatment. The court warns that its staff does not review filings to remove sensitive information that was improperly included.

This is another reason bankruptcy paperwork should be prepared carefully.

14. Talk to a Bankruptcy Attorney Before Making Major Financial Decisions

You do not necessarily need to wait until creditors are taking legal action to discuss bankruptcy.

In fact, getting advice earlier may give you more time to understand your choices and avoid decisions that could complicate a future filing.

The Bankruptcy Court for the District of New Jersey strongly encourages debtors to obtain competent legal counsel, noting that bankruptcy involves complicated legal and financial consequences.

An attorney can review your:

• Income
• Debts
• Property
• Recent financial transactions
• Collection activity
• Eligibility for Chapter 7
• Potential Chapter 13 options

You can then make an informed decision about whether bankruptcy makes sense for you.

What Should You Bring to a Bankruptcy Consultation?

The more information you provide, the easier it may be to evaluate your situation.

Consider gathering:

• Recent tax returns
• Recent pay stubs
• Bank statements
• Mortgage information
• Vehicle loan information
• Credit card statements
• Collection notices
• Lawsuit documents
• Information about property and assets
• A list of monthly household expenses
• Information about garnishments, liens, or judgments

Do not worry if you do not have every document immediately. Start with what you have and ask what additional information will be needed.

What if You Need to File Bankruptcy Quickly?

Sometimes people begin considering bankruptcy only after a creditor has already taken serious action.

The District of New Jersey provides procedures addressing circumstances in which an individual must file quickly. Even an immediate filing requires certain essential documents and information, including a bankruptcy petition, Social Security number statement, required credit counseling documentation or an applicable claimed exception, and a creditor list.

If you are facing an imminent foreclosure, repossession, garnishment, levy, or another urgent collection action, tell your attorney about the deadline immediately.

Preparation Can Make a Difference

Bankruptcy can offer meaningful relief, but it should begin with a clear understanding of your financial situation.

Before filing, take the time to organize your records, understand your debts and assets, complete required credit counseling, and learn whether Chapter 7 or Chapter 13 may better fit your circumstances.

Most importantly, avoid making significant financial moves simply because you assume they will help your bankruptcy case.

Getting guidance before taking action can help you avoid preventable mistakes.

How the Law Office of Stuart M. Nachbar, P.C. Can Help

At the Law Office of Stuart M. Nachbar, P.C., Stuart Nachbar helps individuals and families in Livingston and throughout New Jersey understand their options when debt has become overwhelming.

Whether you are considering Chapter 7 or Chapter 13 bankruptcy, the first step is understanding where you stand. Stuart Nachbar can review your debts, income, assets, and financial circumstances, explain the bankruptcy process, and help you determine an appropriate path forward.

The firm also provides service to military members and their families, helping those who serve understand how bankruptcy rules may apply to their individual circumstances.

If you are struggling with debt and considering bankruptcy, contact the Law Office of Stuart M. Nachbar, P.C. at 973-834-8058 to schedule a consultation.