Deciding Between Chapter 7 and Chapter 13 Bankruptcy

New Jersey bankruptcy attorneys

Filing for Bankruptcy in New Jersey

When an individual decides to file for bankruptcy, he or she must determine under which specific chapter of the Bankruptcy Code they intend to file for bankruptcy. Although some people may only be eligible for one type of bankruptcy, others may be eligible for multiple types and must decide which form of bankruptcy will best serve their goals and needs.

Chapter 7 Bankruptcy Eligibility Requirements and the Chapter 7 Process

Chapter 7 bankruptcy is a form of liquidation bankruptcy. In Chapter 7 bankruptcy, a debtor’s assets are sold off, or liquidated, to generate funds to pay creditors. The main benefit of a Chapter 7 bankruptcy is that many unsecured debts, such as medical bills and credit card balances, are eliminated at the end of the bankruptcy proceeding.

Because Chapter 7 bankruptcy eliminates the greatest amount of debt, there are greater restrictions on qualifying for Chapter 7 bankruptcy. Generally, a bankruptcy court will look at whether a filer has sufficient disposable income, after paying certain expenses and required debts, to pay back a portion of his or her unsecured debt over a five-year repayment plan. As a result, a filer will more likely be eligible for Chapter 7 bankruptcy if he or she has little or no disposable income. Chapter 7 bankruptcy is available to both individuals and businesses.

Chapter 13 Bankruptcy Eligibility Requirements and the Chapter 13 Process

Chapter 13 bankruptcy is a reorganization bankruptcy. In Chapter 13 bankruptcy, a debtor restructures his or her debt and enters a three to five year repayment plan, which must be approved by the bankruptcy court. The debtor makes monthly payments according to the terms of his or her repayment plan. So long as the debtor complies with the terms of his or her bankruptcy plan, his or her remaining unsecured debt at the end of the repayment plan period is discharged.

A court will examine a filer’s income to confirm that he or she will have sufficient disposable income to make the payments required by the filer’s proposed repayment plan. A person is ineligible for Chapter 13 bankruptcy if he or she has secured and unsecured debts in excess of certain; as of 2019, these limits were $1,184,200 for secured debts and $394725 for unsecured debts. Only individuals can file for Chapter 13 bankruptcy; businesses wishing to undergo a reorganization bankruptcy must file under Chapter 11 of the Bankruptcy Code.

Keeping Property in Bankruptcy

One of the primary concerns of a person filing for bankruptcy is keeping his or her assets. If a person qualifies for both Chapter 7 and Chapter 13 bankruptcy, he or she may prefer a Chapter 13 bankruptcy because he or she will not have to forfeit his or her property for liquidation.

However, even in a Chapter 7 bankruptcy, a debtor is allowed to keep certain assets under federal and state law, including his or her residence (provided it meets certain requirements), personal and household goods up to a certain aggregate dollar value, and retirement accounts and benefits.

What Happens to Debts in Bankruptcy?

Most unsecured debts are charged at the end of a bankruptcy proceeding. Secured debts are typically not discharged; a debtor can either surrender the collateral securing the debt, or agree to continue (or resume) making payments on secured debt to keep the collateral. Certain debts cannot be discharged in bankruptcy in most cases, including tax debts, spousal or child support obligations, or student loan debt. However, in a Chapter 13 bankruptcy, non-dischargeable debts will likely continued to be paid pursuant to the repayment plan.

Contact a Clifton Bankruptcy Attorney for a Consultation in New Jersey Today

If you are struggling with debt, you may need a fresh start financially. An experienced bankruptcy and debt relief attorney can help you explore your options and determine the best course of action for you, your family, and/or your business. The experienced New Jersey bankruptcy lawyers at The Law Office of Silverman & Roedel understand the nuances of New Jersey and federal bankruptcy laws, so we can help you protect your interests. Call us anytime at (973) 772-6411 or fill out the online contact form to schedule a confidential consultation. We have an office conveniently located at 1187 Main Ave., Suite 2C, Clifton, NJ 07011.

The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.