New Jersey residents dealing with personal financial challenges who have made the decision to file for bankruptcy have taken the first step toward getting their finances in order. However, people are frequently unsure of which chapter is best for them.
In general, there are two choices: Chapter 7 and Chapter 13. Both have benefits. Still, not all circumstances are the same and people need to have a firm grasp of which chapter will suit them as they try to clear overwhelming debt and start over with a clean financial slate. Being well-versed in the basics of Chapter 7 vs. Chapter 13 is key from the outset.
How do Chapter 7 and Chapter 13 differ?
A of the primary factors that determine whether a person should file for Chapter 7 or Chapter 13 include employment status, the type of debt and the presence of valuable property. Chapter 7 is a liquidation bankruptcy whereas Chapter 13 is more of a repayment plan.
Under Chapter 7, unsecured debt like credit cards and medical expenses can be eliminated. The person’s property will be assessed to determine if it is exempt or nonexempt. For example, if they own a home, it could be taken and sold to repay creditors. If they have a newer automobile, that too would be part of the liquidation.
Those who use Chapter 7 are doing so because they do not have valuable assets. There is also the means test to check and see their income and if they could potentially repay their debts. If they do, the case would likely be changed to a Chapter 13.
A Chapter 13 is beneficial for those who own property they want to retain and would otherwise lose in a Chapter 7 liquidation. People who own a home and are behind on their mortgage, for example, could retain the property through Chapter 13.
With Chapter 13, those who have a consistent source of income will have a payment plan. It lasts for either three or five years. The payments will be sent to a trustee who will in turn pay the creditors. With Chapter 7, the discharge of debts happens relatively quickly. Under Chapter 13, the plan must be completed before there is a discharge.
Choosing wisely between Chapter 7 and Chapter 13
Bankruptcy is a smart way to get out of burdensome debt. Still, there are inevitable questions about the process that should be answered before proceeding. Making the right choice is crucial and knowing the details can make the road easier.
