When facing overwhelming debt in New Jersey, bankruptcy can provide a much-needed fresh start. However, the bankruptcy process can be confusing, and determining the best path for your unique situation is crucial. In New Jersey, individuals typically have two primary options: Chapter 7 and Chapter 13 bankruptcy. Both offer relief, but they operate quite differently. This blog post will help you understand the core differences between these two types of bankruptcy and identify which may be the right choice for your financial situation.
Chapter 7 Bankruptcy: A Quick Debt Discharge
Chapter 7, often called “liquidation bankruptcy,” is designed to eliminate most types of unsecured debt relatively quickly, typically within four to six months. It’s a good option if you:
- Have mostly unsecured debts like credit cards, medical bills, and personal loans.
- Don’t own a lot of valuable assets that could be sold to pay creditors.
- Need a fast debt relief solution.
Eligibility for Chapter 7
To qualify for Chapter 7 in New Jersey, you must generally pass a “means test,” which assesses your income and expenses against state median income levels for your household size. If your income is below the median, you’re usually eligible. If your income exceeds the median, you may still qualify if your disposable income (income minus allowable expenses) is low enough to suggest you cannot realistically repay your debts.
How Chapter 7 Works
In a Chapter 7 case, a bankruptcy trustee is appointed to oversee your case. The trustee gathers and potentially sells non-exempt assets to repay creditors. However, New Jersey law provides exemptions that allow you to protect certain property from being sold, including your primary residence, a motor vehicle, household goods, and more. The aim of Chapter 7 is to provide a fresh financial start by discharging eligible debts, meaning you’re no longer legally obligated to repay them.
Chapter 13 Bankruptcy: A Repayment Plan
Chapter 13 bankruptcy, also known as a “wage earner’s plan,” allows individuals with a regular income to keep their assets while repaying their debts through a structured plan. It typically involves a repayment period of three to five years. Chapter 13 is often the better choice if you:
- Have a steady income but are struggling to keep up with debts.
- Want to protect valuable assets like your home or car from foreclosure or repossession.
- Need to catch up on missed payments for secured debts like mortgages or car loans.
How Chapter 13 Works
In a Chapter 13 case, you work with a bankruptcy attorney to develop a repayment plan that outlines how you will pay back a portion or all of your debts over the three to five-year period. This plan must be approved by the bankruptcy court and is based on your income, expenses, and ability to pay. Creditors are legally prohibited from contacting you or attempting to collect debts during this repayment period, states the United States Courts. Once you successfully complete the repayment plan, remaining eligible debts are discharged.
Key Differences Summarized
| Feature | Chapter 7 Bankruptcy | Chapter 13 Bankruptcy |
|---|---|---|
| Eligibility | Primarily based on income (means test) | Requires regular income and meets specific debt limits |
| Debt Treatment | Discharges (eliminates) most unsecured debt quickly | Restructures debt; repay portion or all over time |
| Asset Treatment | Non-exempt assets may be liquidated to pay creditors | Assets are protected; you keep your property if you stick to the plan |
| Duration | Typically 4-6 months | Typically 3-5 years |
| Credit Impact | Stays on credit report for 10 years; offers quick debt relief | Stays on credit report for 7 years; potential for improved credit rebuild |
Choosing the Right Path
The best bankruptcy option for you depends on your individual financial circumstances, including your income, assets, and types of debts. Consulting with a knowledgeable New Jersey bankruptcy attorney is the most crucial step in making an informed decision.
At Rudikh & Associates, LLC, we offer comprehensive guidance on both Chapter 7 and Chapter 13 bankruptcy options. We will evaluate your unique situation, explain the benefits and drawbacks of each chapter in detail, and help you determine the best course of action to achieve a fresh financial start.
Contact Rudikh & Associates, LLC today for a consultation to discuss your bankruptcy options in New Jersey.