Since the United States Bankruptcy Code changed, not as many New Jersey residents qualify to file for Chapter 7 bankruptcy because they have disposable income, which is the money an individual has left after paying for necessities such as shelter, food and health care — just to name a few. As an alternative, these individuals may file for Chapter 13 bankruptcy, which is a reorganization of a person’s debts through a payment plan overseen by a trustee who works for the bankruptcy court. The benefits to filing a Chapter 13 bankruptcy are numerous.

The trustee in a Chapter 13 filing has some latitude when it comes to the amount of an individual’s payments. It can take up to five years to complete a repayment plan, but in the end, creditors are not allowed to request that the filer repay any remaining balance on the account. In addition, secured property can be surrendered if the filer no longer wants to make payments on it. On the other hand, any property an individual makes payments on can be kept during the course of the bankruptcy.

Of course, all of a person’s disposable income will go toward paying debts during the course of the payment plan. The bankruptcy will remain on a New Jersey resident’s credit report for up to 10 years. This could affect the filer’s ability to obtain additional credit such as new credit cards or a mortgage.

However, over time, this situation will rectify itself, and a person can once again obtain credit, but perhaps at a higher rate for a while. These inconveniences are only temporary, but the satisfaction of being entirely — or almost — debt free after completing the repayment plan might just make it worth it. Filing for Chapter 13 bankruptcy can provide an individual with the freedom to make decisions regarding his or her financial circumstances.

Source: FindLaw, “Pros and Cons of Declaring Bankruptcy under Chapter 13“, July 18, 2014