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How a Chapter 13 bankruptcy differs from a Chapter 7 bankruptcy

Many New Jersey residents become overwhelmed by debt and decide to file for bankruptcy. However, knowing which form of bankruptcy to file can present a challenge. Significant differences exist between the two main chapters of bankruptcy filed by individuals -- Chapter 7 and Chapter 13.

Chapter 7 bankruptcy seems to be more well-known. This form of bankruptcy is usually easier and faster than a Chapter 13. However, it does not eliminate all debts and mostly centers on unsecured debt such as medical bills and credit card debt. However, it may not be the best way to deal with secured debts such as a mortgage.

The goal of a Chapter 13 bankruptcy is to reorganize a person's finances. A trustee supervises the repayment of debts over the course of anywhere from three years to five years. An individual must prove the ability to pay all or a portion of his or her debts within that period.

During a Chapter 13, creditors are not allowed to conduct any collection activities regarding an individual's debts. Lawsuits, harassing phone calls and other collection efforts are prohibited for the duration of the bankruptcy without express permission of the court. This "stay of execution" also applies to anyone who may have co-signed for the person who filed.

Several factors will determine whether a New Jersey resident should file a Chapter 7 or Chapter 13 bankruptcy. Understanding the benefits and requirements of each type of bankruptcy can help make that determination. Ultimately, however, regardless of which form is chosen, when it is over, the filer will have a clean slate on which to rebuild his or her financial life.

Source:, "The Different Degrees of Bankruptcy, Explained", Lynnette Khalfani-Cox, June 19, 2014

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