Should I File Chapter 7 or Chapter 13 Bankruptcy?

should i file bankruptcyIt can be difficult to discern the difference between the two major types of bankruptcy in New Jersey. The first is Chapter 7 bankruptcy and the second is Chapter 13 bankruptcy. Each type of bankruptcy applies to its own distinct set of circumstances. Contact your NJ bankruptcy attorney for help knowing which one is right for you.

Chapter 7 Bankruptcy

Another term for filing a Chapter 7 bankruptcy is a liquidation action, due to the fact that it results in the loss of personal property. A debtor must meet certain standard to be able to file a Chapter 7 bankruptcy petition in NJ. If the monthly income of the client is greater than the average in his or her area, there is a presumption of abuse and a test is instituted to see how much monthly income is available to pay off the debt. In this form of bankruptcy, all assets are placed with the bankruptcy estate. Some items may be negotiated out for sentiment or other value. However, many of the items will be sold to creditors. Any debt left after this mass sale is let go permanently, which leaves the debtor clean for a new start.

Chapter 13 Bankruptcy

This type of bankruptcy can be seen as a reorganization of assets and debts. It covers personal loans, credit card debt, and some income tax debt. The debtor gets to keep some of his or her assets, while simultaneously paying off the money owed. This is done through a negotiated plan that can be 3-5 years in length. Also, interest rates are renegotiated that allow the client to catch up on late payments. Phone calls from creditors will stop due to the fact that they were brought to the table for negotiations. A trustee is appointed to take these payments and deliver them to creditors according the designed layout. A judge must confirm the final plan and make sure it will work properly.

Two of the main differences between the two forms of bankruptcy are the time frame and the ability to retain personal assets. Chapter 7 allows debt to be wiped away instantly, however, this comes at the cost of many valuable possessions. Chapter 13 ends debt over a longer period of time, but allows the debtor to keep many of his or her items.

Determining which type of bankruptcy you are eligible for – and which suits you personally – is something that you should discuss carefully with your bankruptcy attorney. Proceeding without qualified legal guidance can result in a loss of more personal property or assets than necessary.

In general, if you have valuable property, than Chapter 13 may be the way to go. Filing Chapter 13 stops any home from being foreclosed as long as the terms agreed to are met. Chapter 7 is typically for lower income individuals looking for a fresh start. No money comes out of pocket, it is simply paid for with possessions. Notably, any money earned from selling items that does not need to go toward debt goes to the individual. Often Chapter 7 only takes about 3 months.

Before you file bankruptcy in NJ, consult with the bankruptcy lawyers at Villani & DeLuca. Serving all of New Jersey, Villani & DeLuca will help assess your financial situation and provide qualified, legal advice for your bankruptcy needs.