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Chapter 7 Bankruptcy

In a chapter 7 bankruptcy, the debtor declares all assets owned at the beginning of the case. This collection of assets is called the "estate." The debtor also declares who all of his or her creditors are. The bankruptcy trustee assigned to the case determines whether the estate has any assets that would be available for liquidation to creditors in order to repay any of the debts owed.

Most debtors get to keep all of their property in a chapter 7 case because bankruptcy law permits people to retain certain types of assets up to a certain value. The categories of assets that the debtor is permitted to keep are called "exemptions."  For example, a chapter 7 debtor with equity in his or her home can keep the property as long as the value of the equity is less than what is called the "homestead exemption," currently slightly more than $23,000 in the state of New Jersey. So, a chapter 7 debtor without a lot of equity in their home can keep their house as long as they continue to make the regular mortgage payments. 

It is very important that a debtor be honest about his or her assets and liabilities. For the most part, a debtor who is honest during the process has a good chance of having his or her debts "discharged" or forgiven within six months of the beginning of the case. However, when a debtor omits something, either accidentally or intentionally, the process can change dramatically and the debtor's discharge may be at risk.

Certain types of debts cannot be discharged in bankruptcy. The most common of these are recent taxes, spousal and child support and many forms of student loans. Please speak with someone in our office regarding your questions or concerns about dischargeability. 

Chapter 13 Bankruptcy

Chapter 13 is a special portion of the Bankruptcy Code that permits people to pay a portion of their income over the course of either three or five years in order to discharge almost all of their debts.

Unlike a chapter 7 bankruptcy, which focuses on assets, a chapter 13 bankruptcy focuses on income. A person with a "regular income," whether through a job, small business, family contributions or government benefits, can use those resources to fund a payment plan.

A chapter 13 bankruptcy is designed to permit the debtor to retain all of his or her property. If a debtor is behind on his or her mortgage, he or she can use the chapter 13 plan to catch back up on overdue amounts. Because of this, chapter 13 is a powerful tool for a debtor who is facing the possibility of foreclosure. At the end of the chapter 13 plan, a debtor will probably have paid out a very small amount to unsecured creditors, but will still probably have all of those debts discharged.

Please call our office to ask questions about the different lengths and formats of chapter 13 bankruptcy plans and whether this option would be appropriate for your financial situation.