A Chapter 11 case is initiated when a petition under Chapter 11 of the Bankruptcy Code is filed in the Bankruptcy Court. A Chapter 11 case may be initiated by a debtor (a voluntary Chapter 11) or a creditor (an involuntary Chapter 11). In addition to the petition, a case filing fee must be paid to the clerk when the petition is filed.

In most Chapter 11 cases, the debtor assumes the status of a Debtor in Possession (DIP) and continues to run the business in that capacity until confirmation of a Chapter 11 plan. In some cases, a Trustee will be appointed by the court to run the debtor's business and perform the other fiduciary duties of the debtor. While the case is pending, a DIP is generally also responsible for accounting for property; examining and objecting to claims; filing required monthly operating reports; employing attorneys, accountants, appraisers, auctioneers, and other professionals to assist with case; and filing tax returns.

First day orders are orders the debtor wants the bankruptcy court to enter as soon as the petition is filed or as soon as possible after the petition is filed. First day orders often involve administrative or noncontroversial matters such as orders relating to the appointment of professionals, the use of pre-existing bank accounts, establishing adequate assurance of payment to utilities, allowing the payment of wages and benefits, even if a portion covers the prepetition period. First day orders are also used to ensure that business operations may continue and may include orders to obtain post-petition financing or use cash collateral.

In some Chapter 11 cases, a Trustee may be appointed to fulfill the duties of the debtor, including managing the debtor's property, operating the debtor's business, and filing the debtor's plan of reorganization. A Trustee can be appointed by the Court at any time prior to plan confirmation if requested by any party in interest or the US trustee, and if there is "cause" (fraud, dishonesty, gross mismanagement, or incompetence of the debtor) or if it is "in the interest of creditors, any equity security holders, and other interests of the estate" to appoint a Trustee.

In general, a debtor may not use prepetition lines of credit to fund ongoing business operations and must rely on funds generated from post-petition operations and new extensions of credit. "Cash collateral" (cash in which a creditor has a security interest and the proceeds of collateral in which a creditor has an interest) may not be used by the debtor in post-petition business operations without prior consent of the creditor or authorization of the Court. Post-petition extensions of credit and sales on credit to debtors in possession ("DIP financing") are typically allowed, but such credit arrangements are subject to the limitations and requirements provided in the Bankruptcy Code.

A Chapter 11 plan may be filed at the same time as the petition or at a later date. Typically, only the debtor may file a plan for the first 120 days after the filing of the petition, and if the debtor files a plan within such 120-day period of exclusivity, no other plan may be solicited during the first 180 days after the filing of the petition. The 120- and 180-day periods are known as the debtor's plan exclusivity and solicitation periods. After the debtor's plan exclusivity period has expired, any creditor may file a plan. If a Trustee is appointed, the debtor's exclusivity immediately terminates. More than one plan may be filed and accepted, but only one plan may be confirmed by the court.

Plan acceptance is determined by the voting of creditors with allowed claims, and shareholders with allowed interests. A plan is accepted by a class if it is approved by more than 1/2 of the total claims, and at least 2/3 of the claims, based on the creditors actually voting, in that class. A plan is accepted by a class of interests if it is approved by at least 2/3 of the interests actually voting.

Cram down is a process by which the Court may confirm a plan that has not been accepted by every class of claims and interests. In general, a court may &cram down" a class and order confirmation even if a class votes to reject the plan, as long as at least one class has accepted the plan, the plan does not discriminate unfairly, and the plan is "fair and equitable."

The cram down of a secured claim is a term of art used to describe reducing or entirely eliminating a creditor's secured claim. While cram down cannot be used with respect to a residential mortgage as long as there is some value in the collateral on account of the secured claim, particularly in the commercial context, the Bankruptcy Code allows the debtor to reduce the outstanding amount of its secured claims to the value of the collateral. In such circumstances, the creditor will have additionally an unsecured deficiency claim in the amount which is the difference between the total amount owed and the reduced secured claim.

The requirements for confirmation are set out in Section 1129 of the Bankruptcy Code. Essentially, each creditor under the plan must receive more than it would receive in a Chapter 7 liquidation of the debtor, each class must vote to accept a plan or at least one class who is impaired must vote to accept the plan, and the plan must properly classify claims and interests. Confirmation also requires the debtor to prove it has the financial feasibility to make the payments required under the plan, and that it will not need to reorganize its financial affairs in the future. The plan must also propose to satisfy administrative expense claims in full on confirmation, which are debts incurred after commencement of the bankruptcy proceeding, and must treat priority claims in accordance with the applicable statutory requirements.

Individuals can utilize Chapter 11 to reorganize their financial affairs. Typically, an individual will commence a Chapter 11 case only if he or she does not qualify under the provisions of Chapter 7 or Chapter 13, or if there is a strategic benefit to continue to manage property which contains non-exempt equity. The Chapter 11 plan process is expensive, however, and thus, it is typically only higher net worth individuals who utilize this alternative.

A creditors' committee is a group of similarly situated creditors appointed by the United States Trustee's Office to serve in a fiduciary capacity to monitor the affairs of the Debtor, and to protect the interests of all similarly situated creditors. The most typically utilized creditors' committee is an "official committee of unsecured creditors" which is formed from among the twenty largest unsecured creditors shortly after the Chapter 11 bankruptcy filing.

If you are interested in monitoring the affairs of the debtor after a Chapter 11 bankruptcy filing, and are willing to respect your role as a fiduciary responsible for the best interests of all similarly situated creditors, being a member of a creditors' committee is advantageous. Firstly, it provides you with up to date detailed information about the debtor's financial affairs not readily available to other creditors and parties in interest. Secondly, it provides you with the opportunity to play a meaningful role in the debtors' future. Typically, committee members will negotiate with the debtor over the terms of a plan of reorganisation and have significant influence over how creditors vote on any proposed plan. Thirdly, the information obtained in your role as a committee member may be material to your own business relationship with the debtor. Finally, the cost of the professionals employed by a creditors' committee is not borne by the creditors themselves, but is an obligation which the debtor must satisfy.

Conversion refers to the entry of a Court order changing the bankruptcy proceeding from a Chapter 11 case, typically to a Chapter 7. When this occurs, the debtor must immediately stop all of its business operations, a Chapter 7 Trustee is appointed who has the responsibility to assemble and liquidate all of the debtor's assets, and who then uses the proceeds to pay the claims of creditors in accordance with the Bankruptcy Code priorities. Conversion of a Chapter 11 case to Chapter 7 is the "death" of the debtor as an on-going business enterprise.

typically, the debtor proposes a plan outline and makes presentations to the committee to obtain their support, or consider improvements which will result in committee support. A plan must be filed with the Court together with a disclosure statement, which must be approved by the Court as containing adequate information, before the plan is submitted to creditors for voting.

Steps in Development of the Plan:

  • The debtor develops a plan, and may solicit committee input.
  • The debtor prepares a disclosure statement and reorganization plan and files it with the court.
  • Creditors (and sometimes the stockholders) vote on the plan.
  • The Court considers confirmation of the plan, and
  • The debtor carries out the plan by distributing the securities or payments called for by the plan, if the plan is confirmed.

Some companies are so far in debt or have other problems so serious that they can't continue their business operations. They are likely to "liquidate" and file under Chapter 7. Their assets are sold for cash by a court appointed trustee. Administrative and legal expenses are paid first, and the remainder goes to creditors. Secured creditors will have their collateral returned to them. If the value of the collateral is not sufficient to repay them in full, they will be grouped with other unsecured creditors for the rest of their claim. Bondholders, and other unsecured creditors, will be notified of the Chapter 7, and should file a claim in case there's money left for them to receive a payment.

Stockholders do not have to be notified of the Chapter 7 case because they generally don't receive anything in return for their investment. But, in the unlikely event that creditors are paid in full, stockholders will be notified and given an opportunity to file claims.

Chapter 7 is what most people think of when they hear the word "bankruptcy."  Chapter 7 is designed to help people who have simply become overwhelmed by debt by giving them a fresh start. In short, Chapter 7 allows you to inform the Court of your assets, liabilities and debts, and, if you meet the criteria for filing a Chapter 7, all debts you no longer wish to repay will be discharged.

You must be eighteen years old and a legal resident of the U.S. You must have a certificate from a federally approved credit counseling agency. There are no debt limits in Chapter 7. You cannot file Chapter 7 if you received a Chapter 7 discharge within the past eight (8) years.

Possibly. Chapter 7 is not designed to stop a foreclosure. In Chapter 7, you may ask to keep a home and continue making mortgage payments following the case – BUT- it is always the mortgage company's decision. Despite what you wish to do (keep the home or give it back), the mortgage company can veto your request and take the home. Make no mistake – people routinely file Chapter 7 under the appropriate circumstances and successfully reaffirm their mortgage debt and keep their homes. Consider the following scenarios to determine the likelihood that you will be able to keep a home in a Chapter 7:

  • Is your home scheduled for sale at a future foreclosure auction? If so, then it is extremely unlikely that your mortgage company would allow you to keep your home. If your mortgage company has already gone to the trouble and expense of starting formal foreclosure proceedings, then they are not likely to give you another chance to catch-up. You should strongly consider Chapter 13.
  • Are you barely behind on your mortgage (no foreclosure is scheduled yet)? If so, then there is an even chance your mortgage company will let you keep your home. To maximize this chance, you MUST catch your mortgage up before filing the case.
  • Do you owe significantly less than your home is worth, meaning you have equity in the home? If so, then you may not be able to keep your home in Chapter 7. The trustee assigned to your case has the power to sell any asset that contains equity and use the proceeds to pay back a portion of your creditors.
  • Are you current on your mortgage? If so, then it is extremely likely that your mortgage company will allow you to keep your home. Again – very likely, but not absolutely guaranteed. Contact your mortgage company before filing and ask if they will allow you to keep the home.

If you do not receive your discharge, then none of your debt is wiped out by the Court.

Think of Chapter 13 as a debt consolidation / repayment plan. It is designed to help people save a home from foreclosure or a car from repossession. In short, Chapter 13 establishes a monthly payment-plan that will catch up your mortgage and/or pay off your car note. Chapter 13 also prevents your creditors from taking any action against you while you complete the payment plan. At the end of the case, after having completed the payment-plan successfully, your mortgage will be current and your car paid-in-full. Chapter 13 may also wipe out all or a portion of your unsecured debt, depending upon your income and other factors.

Chapter 13 is designed to help you stop a foreclosure or repossession, so that you can keep your house and car, and Chapter 7 is not. Chapter 13 gives you the added benefit of stopping a foreclosure and repossession in return for additional responsibility during the case – namely you must be able to service the monthly payment plan established by Chapter 13 and you must commit to the case for three to five years. Chapter 7 neither provides such a benefit nor requires such responsibility, and is therefore relatively short by comparison. Chapter 7 cases only last four to six months and do not require monthly payments to the Chapter 13 Trustee.

You must be eighteen years old and a legal resident of the U.S. You must have a certificate from a federally approved credit counseling agency. Your debt must fall within a certain range. This range is adjusted periodically. In general, you cannot have more than approximately $1 million in secured debt, debts for which you have pledged collateral, and you cannot have more than approximately $330,000 in unsecured debt, debts for which you did not pledge collateral . . . credit cards, medical bills, etc.

Generally, yes you can. But the answer really depends on a number of factors.

Generally you can, but a car lease is treated very differently than a car purchase. Keep the following points in mind:

  • There is no guarantee that you can keep a leased car. It is ultimately the Court's decision. Generally, if you can show the Court that you can afford to pay the lease with your other obligations, then you will be allowed to keep the lease.
  • The balance of the lease does not become part of your Chapter 13 plan payment. You must be able to afford the lease payments on top of your other obligations under the case.
  • Chapter 13 will not be able to reduce the terms of your lease. Usually car leases will end before your 3-to-5-year Chapter 13 completes. If so, you must return the vehicle as required by the lease. If you wish to lease another vehicle, you must first get permission from the Court. If the new lease is reasonable and necessary, and if your budget can support the payments, then the Court may grant permission.

You MUST complete all payments required under you Chapter 13 plan within 5 years in order to receive your discharge. If you fall behind, you should contact your attorney immediately. Generally you will have to either catch your payments up or increase your monthly Chapter 13 payment to cover the months you missed. If you miss too many payments then your case will be dismissed.

Your ability to keep your home during a Chapter 13 depends upon your ability to make both your Chapter 13 plan payments AND all monthly mortgage payments that come due during your case. If you fall behind on your mortgage payments, even though you may be current on your Chapter 13 plan payments, your mortgage company has the right to ask the Court for permission to foreclose on your property. If your mortgage company makes such a request, it can typically be defeated – but only if you can afford to catch up on the mortgage payments you missed.

If your Chapter 13 fails then there are several key points to understand:

  • No debts will be wiped out by the Court
  • You will receive credit for any money paid to creditors through your Chapter 13 plan, but you will be responsible for the balance
  • Any foreclosure, repossession or garnishment stopped by the Chapter 13 may be resumed
  • If your car note was being treated through your Chapter 13 plan, then, as discussed above, it was likely being repaid at reduced terms. Further, the monthly amount your car creditor received varied during the Chapter 13 plan and may be well below your contract payment. If your case had completed successfully, repayment under those reduced terms would be final. If your case fails before completion, then your original contract terms snap back into place and you can be held responsible for the difference between what the car creditor received during your Chapter 13 and what it was due under the original contract.

Chapter 11 is a reorganization plan typically used by businesses and corporate entities. Think of it as a Chapter 13 for a business or corporation. Individuals generally do not use this chapter.

The Trustee is an independent fiduciary, usually an attorney, appointed to administer your case. It is the job of the Trustee to collect your Chapter 13 plan payments, to review the feasibility of your petition and plan, to monitor claims filed by your creditors, and to make recommendations to the Court regarding the stability of your case. Think of the Trustee as the gatekeeper to completing a successful bankruptcy.

That depends on which chapter you file. The average Chapter 7 case lasts between four and six months. Chapter 13 cases, by law, must last between three and five years.

Unlikely. However, in both Chapter 13 and Chapter 7 cases, the Court will automatically schedule a hearing referred to as a "341 Meeting of Creditors" as soon as the case is filed. You must attend this hearing to complete your case. In Chapter 13 cases, the Court will schedule one additional automatic hearing referred to as a "Confirmation Hearing." Generally, only your attorney will attend this hearing.

Credit counseling is a requirement added to the bankruptcy code in 2005. Basically, before anyone may file bankruptcy they must undergo credit counseling with a federally-approved agency and receive a completion certificate. During the case you must then undergo a second credit counseling course, known as "Financial Management", and receive a completion certificate. If you do not take the second course before the end of your Chapter 13 or no later than 45 days following your first court date in Chapter 7, your case will fail.

No. You are required by law to list all assets, liabilities and debts.

Yes. You are required to report any ownership you have in property, regardless of whether it is full ownership or partial.

Yes. Many people routinely file this type of case. Just understand that your spouse will have to report his/her income in your petition because, in the eyes of the Court, you two are a combined household unit. However, reporting your spouse's income does not make them a party to the case. Also, the bankruptcy will only discharge your portion of any joint debts. If the two of you are jointly obligated on the mortgage to a home you want to surrender, then the bankruptcy will absolve you of any obligation to pay, but your spouse will still be responsible. Similarly, if you are servicing a car under your case at reduced terms, then the case will render the repayment final as far as you are concerned, but will be able to seek the difference between what you paid under the case at reduced terms and what was owed under the original contract from your spouse.

No. However, If you are both joint debtors on debts you are servicing through your case, then they may be reported as "in bankruptcy" on both your credit report and his – but, again, he will not have a bankruptcy filing on his personal record.

No. They cannot call or write or otherwise contact you.

By law they MUST stop all collection efforts while your case is active.

Yes – you MUST report all income, of any kind, to the Court.

Bankruptcy will negatively affect your credit and will remain on your report for 7 to 10 years. However, most people that require bankruptcy usually have credit scores low enough that the impact from the bankruptcy makes little difference.

Yes. A common misconception about bankruptcy is that you cannot use credit after a case is over. On the contrary, you are free to use credit just as you were before you filed the case as soon as the case is completed. You must simply (1) do so responsibly, and (2) accept the fact that some lenders (not all) may treat you differently because of the bankruptcy.

Yes. The filing of either chapter automatically suspends most other legal proceedings. That suit must remain suspended until your bankruptcy concludes, or until the Court allows the suit to resume. If the debt in question is discharged, then the suit will not resume.

Your creditors cannot sue you to collect on your debt while you have an active bankruptcy case pending.

Yes. As mentioned above, a bankruptcy will suspend most active legal proceedings – including garnishments.

Only in extremely limited circumstances.

No. Your alimony/child support will not stop you from filing bankruptcy, but it will survive the case.

Not in a Chapter 7. However, under Chapter 13 you may be able to cramdown your secondary mortgages.

You will be required to notify your Trustee if you become entitled to an inheritance within six (6) months of filing a bankruptcy. If it is enough to pay off your case, then your case will complete and any excess will be returned to you. If it is not enough to pay off your case, then it will be taken and applied to your case.

These types of accounts must be listed on your bankruptcy petition but are exempt, completely immune from seizure by the Trustee.

A "discharge" occurs when your bankruptcy completes successfully (i.e. – you have met all requirements). In Chapter 13, the discharge is an order from the Court wiping out and absolving you of all debts you were not required to pay through your Chapter 13 plan (except student loans), and rendering all debts repaid under the plan paid-in-full. In Chapter 7, the discharge is an order from the Court wiping out and absolving you of all debts other than taxes, alimony/child support, student loans and any debt you successfully reaffirmed. On the other hand, a "dismissal" occurs when you fail to complete your bankruptcy successfully. A dismissal is an order from the court terminating your case without a discharge – meaning no unpaid debt is wiped out or absolved.

That depends on the chapter you filed and whether you finished your case successfully (receiving a discharge) or unsuccessfully (receiving a dismissal). Consider the following scenarios:

  • You filed a Chapter 7 and completed the case successfully. In this event the Court issues a discharge (which is an order wiping out your debt). The only debts that survive this discharge are taxes, alimony/child support, student loans and any debt you successfully reaffirmed.
  • You filed a Chapter 7 and failed to complete the case successfully. In this event the Court issues a dismissal (which is an order terminating your case with no discharge). All of your debts survive the case.
  • You filed a Chapter 13 and completed the case successfully. In this even the Court issues a discharge wiping out all debt you were not required to repay through your Chapter 13 plan. All debts you paid through your plan (your house note and your car note) survive the case either paid-in-full or current. Any delinquent tax or alimony/child support debt will have been paid though your Chapter 13 plan and you will be current. Any student loan debt you may have will survive the case.
  • You filed a Chapter 13 and failed to complete the case successfully. In this event the Court issues a dismissal of your case with no discharge. Your creditors will give you credit for all amounts paid through your Chapter 13 plan, but you will be responsible for the balance. A specific danger here is your car note. As mentioned above, Chapter 13 usually repays car notes at reduced terms. If the case completes successfully, then that repayment is final. However, if the case terminates prematurely then the contract terms snap back into force and you will be responsible for the difference between what the creditor received under the Chapter 13 plan (at reduced terms) and what the creditor was entitled to receive under the original contract.

The essential elements of a real estate sale contract include a description of the property being sold, the condition of title required at closing, the purchase price and how the purchase price is to be paid, escrow provisions, to the extent a deposit is being held by an escrow agent, the deliveries required at closing, provisions respecting apportionments and brokerage commissions, the warranties and representations of each party, a merger provision, an allocation of closing costs, including the mansion tax, notice and application of law provisions, default remedies, contingencies, risk of loss, 1031 exchange considerations, environmental matters provisions, and limitations of liability, if applicable.

The realty transfer fee is imposed upon the recording of deeds evidencing transfers of title to real property in the State of New Jersey. The realty transfer fee is required to be paid upon the recording of deeds conveying title to real property in New Jersey. The realty transfer fee is calculated based on the amount of consideration recited in the deed or, in certain instances, the assessed valuation of the property conveyed divided by the Director’s Ratio. Payment of the realty transfer fee is a prerequisite for recording the deed. The realty transfer fee is usually collected at the real estate closing by the legal representatives or title insurance agents responsible for recording the deed at the county registry offices. 

The mansion tax is a 1% additional realty transfer fee imposed by a statute upon the buyer of residential and certain types of commercial properties, which can be allocated as a seller responsibility by agreement. The mansion tax is separate and apart from the realty transfer fee paid by a seller.

Industrial Site Remediation Act ("ISRA") and the subsequent Site Remediation Relief Act ("SRRA") constitute the New Jersey statutory scheme which imposes a burden upon a property owner and in some circumstances others, to obtain proof of a clean environmental status of an industrial site in connection with a triggering event. Among the triggering events is the execution of a real estate sale agreement. If the use of the property from and after December 1, 1983, involved a NAICS which is subject to ISRA, compliance with the statute's approval procedures is mandatory. Failure to comply with ISRA can result in a $25,000 per day fine and the ability of a purchaser to subsequently void a sale transaction.

An LSRP is a Licensed Site Remediation Professional established under the SRRA who oversees the ISRA compliance process upon a triggering event involving an industrial establishment.

There is a current dispute as to whether of an LSRP to report known environmental contamination to the state DEP. One way to avoid this uncertainty is to mandate in a sale agreement the use of a non-LSRP for the performance of environmental due diligence.

A gross lease obligates a tenant to pay one monthly amount for rent, while a net lease typically includes a base rent obligation, plus additional monthly rent obligations for taxes, insurance, and operating expenses or common area expenses. A net lease protects the landlord by obligating the tenant to pay additional charges which may increase over time.

Most savvy commercial developers take the position that a lease option is only of benefit to the tenant, as it gives the tenant sole control over the decision to continue in occupancy or not.

Summary dispossession proceedings are an exception to the general rule in New Jersey that corporations must be represented in court by a licensed attorney.

An assignment case begins with the assignor corporation drafting two original deeds of assignment for the benefit of creditors and delivering those deeds to the chosen assignee. The assignee then records those deeds with the surrogate of the appropriate county and the registrar of deeds and mortgages in that county, thereby commencing the assignment proceeding.

Typically, assignment cases are utilized when the principal of a business is prepared to form a new corporation and buy the assets of his previous company unencumbered by the debts of that business. In circumstances where the sale is approved by a chancery judge in an assignment proceeding, there is the prospect of obtaining a court order blessing the transaction as being free and clear of the debts of the selling entity, similar to a Section 363 sale in Bankruptcy Court.

While the differences between the two alternatives are too great to itemize in a short answer, the first difference is in a bankruptcy, a Chapter 7 trustee gets appointed by the United States Trustee's Office from among a pre-existing panel in the State of New Jersey consisting of approximately 30 trustees. In an assignment proceeding, the assignor corporation gets to select its own fiduciary. Moreover, in a Chapter 7 case, immediately upon commencement of the bankruptcy proceeding, the operations of the debtor corporation must cease, and while a Chapter 7 trustee has the legal authority to obtain a Bankruptcy Court order authorizing the trustee to continue business operations, that circumstance is extremely rare. In an assignment proceeding, particularly when a sale transaction is envisioned from the outset, the assignee will typically obtain a court order authorizing the prospective purchaser to "manage" the business operations of the assignor corporation pending subsequent approval of a sale transaction, and thus, there is no disruption in operations and going-concern value is maintained.

An assignee is responsible for liquidating the assets of the assignor corporation, identifying the claims against the assigned estate, conducting an assignee's examination of the principal of the assignor corporation, and ultimately obtaining approval of a final report and making distributions to creditors as approved by the court.

Just like a bankruptcy trustee, an assignee can pursue avoidable preferences and fraudulent conveyances in order to generate proceeds for the benefit of creditors of the assigned estate. However, particularly as concerns avoidable preferences, there are major differences between the provisions of the Bankruptcy Code and the provisions of New Jersey's assignment for the benefit of creditors laws. For example, in the bankruptcy context, the avoidable preference look back period is ninety days, or one year if the transferee is an insider. In the assignment arena, the look-back period is one hundred twenty days, and a necessary element to the successful prosecution of a preference in an assignment case is proving an actual intent to prefer.

As with a bankruptcy trustee, an assignee receives payment from the proceeds of the liquidation of the assets of the assigned estate. The assignee receives commissions which are capped pursuant to New Jersey State Statute in the amount of 20%.

There is a general consensus that utilizing a state court assignment for the benefit of creditors proceeding may allow for a greater degree of flexibility than a bankruptcy proceeding, where a Chapter 7 trustee is appointed. An assignment case is also less likely to generate creditor objections, because of unfamiliarity with the process.

The short answer is no. While there are similarities, secured claims in an assignment proceeding are subordinate to the assignee's commissions, and there is a potential for different treatment in assignment cases when it comes to the competing interests of an alleged secured taxing authority creditor and a bank secured creditor.

  • Section 523(a)(5) of the Bankruptcy Code states that a debtor cannot discharge a domestic support obligation under any circumstances.

  • Section 523(a)(15) of the Bankruptcy Code states that an obligation to a spouse, former spouse or child of a debtor that is incurred in the course of a divorce or separation or in connection with a separation agreement or divorce decree is not dischargeable.

  • However, in a Chapter 13 case, debts for equitable distribution, as opposed to alimony and support, are dischargeable.

  • In a Chapter 7 bankruptcy, essentially all marital and domestic relations obligations are not dischargeable, regardless of whether they are support in nature, property divisions or “hold harmless” agreements, provided they were incurred by the debtor in the course of a matrimonial proceeding or a divorce action which resulted in a separation agreement, divorce decree, court order or administrative determination.

  • In a Chapter 13 bankruptcy, past due domestic support obligations owed by a debtor are not dischargeable. However, if a debt created by a separation agreement or judgment of divorce is not in the nature of support, it can be discharged in Chapter 13 without being paid in full.

  • Under bankruptcy law, a “domestic support obligation” is any debt incurred before or after a bankruptcy filing that is owed to or recoverable by a spouse, former spouse, child or governmental unit; and in the nature of alimony, maintenance or support; and established pursuant to the terms of a divorce decree, separation agreement, property settlement agreement, court order or administrative determination.

  • Yes, to the extent you qualify, legal fees incurred by a debtor in a divorce would be unsecured debt and subject to discharge.

  • Generally, attorney’s fees owed by a debtor to a former spouse’s attorney are not dischargeable, if the underlying legal proceeding resulted in the entry of an order or judgment directing payment of maintenance or spousal support to the former spouse.

  • The automatic stay created by a bankruptcy filing bars the commencement or continuation of most legal proceedings, but it has no effect on: (1) a proceeding to establish paternity; (2) to establish or modify a child support order, determine child custody or visitation issues; or (3) dissolve a marriage, except to the extent that such proceeding may seek to determine a division of marital property in which the bankruptcy estate also has an interest. In those situations, the divorce can be granted without first obtaining relief from the automatic stay, but the marital property cannot be divided without obtaining such relief.

  • In addition, the automatic stay also does not prevent the post-petition collection of domestic support obligations such as alimony or child support from any property belonging to the debtor, provided that the bankruptcy estate does not also have an interest in the same property; from automatic wage deduction orders created by a statute or judicial or administrative order; from the interception of debtor’s federal or state income tax refunds, or from the withholding, suspension or restriction of a debtor’s driver’s license or professional or occupational license. As such, the Bankruptcy Court does not offer much protection for someone seeking to avoid the domestic support obligations.

  • The filing of a bankruptcy petition stays the determination of the interests of a debtor in property of the estate, such as equitable distribution of a debtor’s interest in marital assets, any exercise of control over such property, and the assertion of any monetary claims against property of the estate. That said, exceptions to the general automatic stay rule exist. First, the automatic stay does not apply to non-economic aspects of a divorce case, such as the dissolution of the marriage and child custody issues. Second, the automatic stay does not preclude collection of equitable distribution of non-estate property, such as property excluded from the estate, including an ERISA-qualified pension or IRA, exempt property, the debtor’s post-petition earnings, property abandoned by the trustee, or debtor surplus. Third, the automatic stay does not apply to equitable distribution of property titled in the name of the non-debtor spouse. Fourth, the automatic stay does not apply to the commencement or continuation of a criminal action or proceeding against the debtor. Courts have found that, pursuant to this section, the automatic stay does not apply to a proceeding to hold a debtor spouse in criminal contempt. The stay may apply, however, if the primary purpose of the proceeding is collection of support. Moreover, the automatic stay may apply to a proceeding to hold a debtor spouse in civil contempt for failure to make support payments. Many courts view such a proceeding as a device to collect money from the debtor. Fifth, the automatic stay does not apply to the commencement or continuation of an action or proceeding for the establishment of paternity. Sixth, the automatic stay does not apply to the commencement or continuation of an action or proceeding for the establishment or modification of an order for alimony, maintenance, or support. Finally, the automatic stay does not apply to the collection of alimony, maintenance, or support from property not of the estate. Thus, in a Chapter 7 or 11 case, the automatic stay does not apply to proceedings to collect alimony, maintenance, or support from a debtor’s post-petition earnings. Because the Bankruptcy Code provides that a debtor’s post-petition earnings constitute property of the estate, however, the automatic stay applies to those proceedings in a Chapter 13 case. Further, even assuming that the automatic stay applies, a bankruptcy court may, for a variety of reasons, grant relief from the automatic stay, or abstain from hearing a matter to which the automatic stay applies. For example, bankruptcy courts have granted relief from the automatic stay to allow enforcement of a pre-petition divorce judgment. Also, some bankruptcy courts have granted relief from the automatic stay or abstained from a determination of property interests on the basis that a state court, applying principles of equitable distribution, can better determine such interests in a pending divorce proceeding.

  • The property settlement agreement must clearly state that the obligation is intended for the “support” or “maintenance” of the non-debtor spouse.

  • If the property settlement agreement is clear on its fact that the obligation is a domestic support obligation or in place of a domestic support obligation, then the Bankruptcy Court will look no further and the debt will be deemed non-dischargeable.

Most cases are initiated by the filing of a complaint. A complaint is a pleading that sets forth the plaintiff’s claims against the defendant. In New Jersey, every complaint must be accompanied by a completed and signed Case Information Statement and the appropriate filing fee.

In New Jersey, venue (where a case is filed) in a civil case shall be designated by the plaintiff in Superior Court actions as follows:

  • Actions affecting real property are brought in the county where the affected property is situation;

  • Actions not affecting real property which are brought by or against municipalities, public agencies or officials, are brought in the county in which the cause of action arose;

  • In all other actions, with few exceptions, a case shall be filed in the county in which the cause of action arose, or the county in which any party to the action resides, or in any county where the summons was served on any non-resident defendant. Generally speaking, a corporation is deemed to reside in the county in which its registered office is located or in any county in which it is actually doing business.

A copy of the summons and complaint are served on the defendant by the sheriff, or by a person specifically appointed by the court for that purpose, or by plaintiff’s attorney or the attorney’s agent or by any other competent adult not having a direct interest in the litigation.

While not recommended, an individual can represent themselves in court. This is referred to a proceeding pro se. That said, New Jersey law generally prohibits any business entity, other than a sole proprietorship, from appearing in any court action except through an attorney authorized to practice law in New Jersey.

In New Jersey, a defendant has thirty-five (35) days from service of the Complaint to file an answer. If the defendant does not file an answer, the plaintiff can request the Court enter default and default judgment against the defendant, effectively ending the case. Assuming that the defendant files an answer, the period allotted for discovery will start.

Yes, a counterclaim by the defendant is usually part of the answer, it is served on all other parties in the same manner as an ordinary answer to the complaint. A defendant can also bring claims against another defendant. This is called a cross-claim and must be asserted in the answer to the plaintiff’s complaint. Lastly, a defendant can bring claims against a third-party. This is called a third-party complaint. A third-party complaint must be served on the third-party along with a summons and case information statement.

Discovery is a pre-trial procedure in a lawsuit in which each party can obtain evidence from the other party or parties by means of discovery devices such as a request for answers to interrogatoriesrequest for production of documents, request for admissions and depositions. Discovery can be obtained from non-parties using subpoenas. When a discovery request is objected to, the requesting party may seek the assistance of the court by filing a motion to compel discovery.

The length of the discovery period varies depending on the type of case. That said, the discovery period for most cases filed in New Jersey lasts either 150 or 300 days. However, parties can request that the Court extend the discovery period for “good cause.”

Yes, parties may, prior to the expiration of the discovery period, extend the allotted time period up to 60 days, by letter, copied to all parties, representing that all parties have consented. If the parties do not agree, or if an extension greater than 60 days is needed, a formal motion must be filed with the court.

Any party may take the testimony of any person, including a party, by deposition upon oral examination. In a deposition, the attorneys question a witness under oath to the learn what the witness knows. Deposition testimony is recorded by a court reporter or videotaped.

Interrogatories are a form of discovery in which the parties to a case are required to answer, under oath, a series of written questions relevant to the case.

If a party does not timely comply with discovery requests, the other party may move for an order compelling the discovery or for an order dismissing or suppressing the pleading of the delinquent party, without prejudice.

A legal “motion” is a formal request made to the court. A motion may ask the court to do something or to avoid doing something. Often, a motion is used to settle an argument over a particular point in the case so that the rest of the case can proceed more smoothly. Commonly filed motions include, motions to dismiss, motion to compel or extend discovery, and motions for summary judgment.

court trial, also called a bench trial or a jury trial, is when all the facts of a case are heard, and a judge or jury makes the final decision about the court case. A bench trial is different than a jury trial because a jury trial has a panel of an individual's peers make the final decision.