Bankruptcy Options for New Jersey Homeowners Facing Foreclosure

For New Jersey homeowners facing foreclosure, navigating the financial landscape can be stressful and overwhelming. Understanding the available bankruptcy options can provide a lifeline and help you regain control of your financial situation. This article explores the two main forms of bankruptcy—Chapter 7 and Chapter 13—and how they apply to homeowners in New Jersey.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to discharge most unsecured debts, such as credit card debts and medical bills. This option can be particularly appealing to homeowners who have little to no equity in their property and are looking for a fresh start. However, it’s important to note that Chapter 7 does not automatically stop foreclosure proceedings, unlike Chapter 13.

When filing for Chapter 7 bankruptcy, homeowners can benefit from an automatic stay, which temporarily halts foreclosure actions and gives them time to catch up on missed payments. Nevertheless, if the home has significant equity, the bankruptcy trustee may sell the property to pay off creditors, making this option less favorable for homeowners wanting to keep their homes.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also known as a "wage earner's plan," offers homeowners a more structured approach to manage their debts while retaining their property. This option is ideal for those who have a regular income and wish to keep their home. Under Chapter 13, homeowners can propose a repayment plan to make up missed mortgage payments over three to five years, all while the foreclosure process is paused.

During the repayment period, homeowners can catch up on their mortgage and other debts, allowing them to keep their home and create a more manageable financial future. Additionally, Chapter 13 can help eliminate second mortgages or home equity lines of credit under certain conditions, further easing the financial burden.

Eligibility Requirements

Eligibility for bankruptcy varies by type. To qualify for Chapter 7, individuals must pass a means test which assesses their income relative to the state median. If your income is too high, Chapter 13 may still be an option, as it does not have the same means test requirement.

For Chapter 13, the amount of debt plays a crucial role in eligibility, as there are limits on the amount of secured and unsecured debt a person can have. As of 2023, secured debts must be below approximately $1,257,850, and unsecured debts must be under $419,275.

Consulting a Bankruptcy Attorney

Given the complexities of bankruptcy laws and the significant implications of foreclosure, it’s essential for New Jersey homeowners to consult with a qualified bankruptcy attorney. They can provide personalized advice based on your unique situation, help you understand the best option for your financial circumstances, and guide you through the filing process.

Conclusion

Facing the threat of foreclosure can be daunting, but bankruptcy options such as Chapter 7 and Chapter 13 can offer New Jersey homeowners a path towards financial recovery. By understanding these options and seeking legal counsel, individuals can make informed decisions that align with their goals and circumstances, ultimately helping them to safeguard their homes and secure a better financial future.