Perhaps you have determined that your current financial crisis necessitates a need for immediate debt relief. You might be able to relate to thousands of others in New Jersey whose finances took a big hit after incurring unforeseen medical bills or losing a job. Maybe you tried to get things back on track by cutting spending and selling some of your assets.
If that didn't work, you may have discerned that a more definite plan was in order. Once you decided to file for bankruptcy, you may have learned that there are several different types and are unsure which option is most viable in your particular situation.
Basic facts regarding Chapter 7
There are eligibility factors associated with both Chapter 7 and Chapter 13 bankruptcy. The following list includes information that shows how Chapter 7 is distinct from Chapter 13:
- It is typically a form of complete liquidation of your assets.
- The value of your assets is converted to funds to pay back creditors.
- You have to take a means test before filing for Chapter 7 to determine if your income is lower than the median income in your state.
- The process takes several months to complete.
Chapter 7 is not for everyone, so it is critical that you research the topic before diving in. If you have no way to pay back your debts in the foreseeable future, then it might be the best choice in your situation.
Chapter 13 bankruptcy
This is more of a restructuring plan rather than a complete liquidation of assets. The following facts typically apply to Chapter 13, but not Chapter 7:
- It generally takes several years to fully complete the process.
- Your creditors must agree to your proposed repayment plan.
- You might be able to keep your house, your car and other major assets. It is important to determine which types of debts are dischargeable and which are not. For instance, if you owe child support or the court has ordered you to pay compensation for damages in a personal injury claim, such debts will remain even if you file for bankruptcy.
Again, you will need to meet certain financial criteria in order to take advantage of this bankruptcy option.
Some common ground between them
In both Chapter 7 and Chapter 13 bankruptcy, you can usually discharge your unsecured debts. With the latter, you continue to make payments toward satisfaction of your debt. Once you accomplish your payment plan, debt discharge takes place for any unsecured debt still outstanding.
You can be eligible for one type of bankruptcy without being eligible for the other. It can help to talk about your situation with someone well versed in bankruptcy laws in New Jersey before determining a course of action. Bankruptcy can be a solid solution to many serious financial problems. Filing would indeed remain on your credit score for up to 10 years, depending on which type you file; however, it also allows you to wipe the slate clean and plan a stronger financial future.