New Jersey Bankruptcy Law: Key Differences Between Chapter 7 and Chapter 13
When considering bankruptcy in New Jersey, it’s essential to understand the two most common types: Chapter 7 and Chapter 13. Each chapter offers distinct advantages and procedures tailored to different financial situations. Below, we’ll explore the key differences between these two forms of bankruptcy under New Jersey law.
Chapter 7 Bankruptcy
Chapter 7, often referred to as liquidation bankruptcy, is designed to eliminate most unsecured debts, providing a fresh financial start. Here are some of the key characteristics:
- Eligibility: To qualify for Chapter 7, debtors must pass the means test, which compares their income to the state median income. If your income is below the median, you may qualify for Chapter 7.
- Process Duration: The Chapter 7 bankruptcy process typically takes about three to six months from filing to discharge.
- Asset Liquidation: In Chapter 7, non-exempt assets may be sold by a bankruptcy trustee to pay off creditors. However, New Jersey has exemptions that protect certain assets like personal property and a portion of home equity.
- Debt Discharge: Most unsecured debts, like credit card debt and medical bills, can be eliminated. However, some debts, such as student loans and tax obligations, are generally not dischargeable.
Chapter 13 Bankruptcy
Chapter 13, conversely, is known as a reorganization bankruptcy. It enables individuals to keep their property while developing a repayment plan to settle debts over a fixed period, usually three to five years. Here are the features of Chapter 13:
- Eligibility: Unlike Chapter 7, Chapter 13 does not require passing a means test. However, there are limits on the amount of secured and unsecured debt you can have. As of 2023, the unsecured debt limit is approximately $465,275, and the secured debt limit is about $1,395,875.
- Process Duration: The repayment plan must be proposed to the court, and typically lasts three to five years, providing a structured method to pay off debts without losing property.
- Asset Protection: Chapter 13 allows debtors to retain their assets since debts are restructured rather than liquidated. This is beneficial for those with significant assets they want to protect.
- Debt Repayment: Debtors are required to make monthly payments based on their income levels and expenses, which are then distributed to creditors under the court-approved plan.
Key Considerations in New Jersey
When deciding between Chapter 7 and Chapter 13 bankruptcy in New Jersey, consider the following:
- Nature of Debt: If most of your debts are unsecured and you don’t mind liquidating some assets, Chapter 7 may be the right choice. Conversely, if you have significant assets you wish to protect and steady income, Chapter 13 could be more beneficial.
- Credit Impact: Both types of bankruptcy significantly impact your credit score. However, Chapter 7 remains on your credit report for ten years, while Chapter 13 stays for seven years.
- Future Financial Goals: Consider your long-term financial goals. A Chapter 13 bankruptcy may be preferable for those looking to manage monthly payments while keeping their property.
Conclusion
Understanding the differences between Chapter 7 and Chapter 13 bankruptcy is crucial for making informed financial decisions in New Jersey. It's advisable to consult with a qualified bankruptcy attorney who can help analyze your unique situation, guide you through the filing process, and ensure you choose the most beneficial option. Whether you need immediate relief from debt or a structured repayment plan, New Jersey bankruptcy law offers paths tailored to your financial circumstances.