What Happens to Your Debts After Bankruptcy in New Jersey?
Filing for bankruptcy can be a daunting decision, but it can also provide a much-needed fresh start for individuals struggling with overwhelming debt. In New Jersey, understanding what happens to your debts after declaring bankruptcy is crucial for planning your financial future.
When you file for bankruptcy in New Jersey, the type of bankruptcy you choose will significantly impact your debts. The two most common forms of bankruptcy for individuals are Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, also known as liquidation bankruptcy, most unsecured debts can be discharged, meaning you are no longer legally required to pay them. Unsecured debts include credit card debts, personal loans, and medical bills. However, it’s essential to note that some debts are non-dischargeable, including:
- Alimony and child support
- Most student loans
- Some tax debts
- Debts incurred through fraud
In this process, the bankruptcy trustee may sell your non-exempt assets to pay off creditors. New Jersey has specific exemptions that allow debtors to protect certain assets, such as a portion of home equity and personal property.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a reorganization plan that allows individuals to keep their assets while paying off debts over a three to five-year period. Instead of discharging your debts immediately, you agree to a repayment plan, structured based on your income and obligations.
During this time, many unsecured debts may be discharged at the end of the repayment period, and your secured debt (like mortgages or car loans) can be restructured. This can significantly help if you're behind on payments but want to retain your property.
The Automatic Stay
One significant benefit of filing for bankruptcy in New Jersey is the automatic stay provision. This means that once you file, creditors must stop all collection actions against you, including lawsuits, wage garnishments, and collection calls. This temporary relief can give you the breathing room needed to assess your financial situation.
Credit Impact After Bankruptcy
Bankruptcy will impact your credit score, which can remain on your credit report for seven years (Chapter 7) or up to ten years (Chapter 13). However, many individuals find that their credit scores rebound significantly after filing as they begin to rebuild their financial stability.
Rebuilding Your Finances
After bankruptcy, it is crucial to develop sound financial habits. Focus on budgeting, saving, and understanding credit. Secured credit cards or small loans can also help rebuild your credit if managed responsibly.
Consulting with a financial advisor or credit counselor can provide tailored strategies to improve your financial health moving forward.
Conclusion
Understanding what happens to your debts after bankruptcy in New Jersey can empower you to make informed decisions about your financial future. Whether you opt for Chapter 7 or Chapter 13, navigating the process with awareness ensures that you can regain control of your financial life.