What Happens to Your Debt After a Bankruptcy Filing in New Jersey?
Filing for bankruptcy is a significant decision that can have lasting effects on your financial future. If you are considering bankruptcy in New Jersey, it's essential to understand what happens to your debt once you file. This guide will walk you through the process and implications of bankruptcy filing in the state.
When you file for bankruptcy in New Jersey, the type of bankruptcy you choose—Chapter 7 or Chapter 13—will determine how your debts are handled.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, allows individuals to discharge most of their unsecured debts, including credit card debt and medical bills. Here’s what to expect:
- Automatic Stay: Once your bankruptcy petition is filed, an automatic stay goes into effect. This stay halts all collection actions against you, offering you immediate relief from creditors seeking payments.
- Asset Liquidation: In New Jersey, a bankruptcy trustee will review your assets to determine which can be sold to pay creditors. However, many individuals can retain essential assets through exemptions.
- Discharge of Debts: Most unsecured debts can be discharged, meaning you are no longer legally obligated to pay them. This process typically takes four to six months from the filing date.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is designed for individuals with a regular income who wish to keep their property while repaying a portion of their debts over time. Here’s how it works:
- Debt Repayment Plan: You will propose a repayment plan to pay back all or a portion of your debts over three to five years, based on your income level and expenses.
- Protection from Creditors: Similar to Chapter 7, filing for Chapter 13 triggers an automatic stay, preventing creditors from initiating collection actions during the repayment period.
- Discharge of Remaining Debts: After you complete your repayment plan, any remaining unsecured debts may be discharged, giving you a fresh financial start.
Non-Dischargeable Debts
It's important to note that not all debts are dischargeable in bankruptcy. In both Chapter 7 and Chapter 13, debts like student loans, child support, alimony, and certain tax obligations typically remain your responsibility even after bankruptcy.
The Impact on Your Credit
Filing for bankruptcy will impact your credit score. A Chapter 7 bankruptcy can stay on your credit report for up to 10 years, while a Chapter 13 bankruptcy can remain for up to 7 years. This may affect your ability to qualify for new credit and can result in higher interest rates. However, many individuals find that eliminating overwhelming debt allows them to rebuild their credit more effectively over time.
Consulting a Bankruptcy Attorney
It’s advisable to consult with a bankruptcy attorney who specializes in New Jersey law. They can help you understand your specific situation, determine which type of bankruptcy is best for you, and guide you through the filing process. An attorney can also help you navigate issues that arise, such as potential asset liquidation and repayment plans.
In conclusion, understanding what happens to your debt after filing for bankruptcy in New Jersey is crucial for making informed financial decisions. Whether you choose Chapter 7 or Chapter 13, bankruptcy can provide relief from overwhelming debt and pave the way for a fresh start.