Simply put, bankruptcy is the federal court procedure designed to assist individuals and businesses with eliminating debt and paying creditors. New Jersey residents file two types of bankruptcy most often. The first is liquidation (Chapter 7), and the second is reorganization (Chapter 13).
In Chapter 7 bankruptcy, some of an individual’s assets may be sold to pay his or her debts. Fortunately, an individual might be surprised that he or she does get to keep certain property that will not be sold. The major benefit of a Chapter 7 is that any debts that do not secure a piece of collateral — such as a credit card debt — are erased. The filer also gets to choose whether to keep property that is secured by a loan. There are some debts that cannot be discharged, however, such as taxes, alimony and child support.
In a Chapter 13 bankruptcy, the individual filer must earn enough money to be able to fund a repayment plan administered and monitored by the court. It could take three to five years to complete the plan. The amount of the payments is calculated based on a person’s income, amount of debt and what a creditor holding unsecured debt may have received if the consumer had filed a Chapter 7 bankruptcy. As for secured debts, it may be possible to keep the property, even if the payments are delinquent. One caveat — there is a cap on the amount of secured and unsecured debt the filer may have.
Before an individual can file a Chapter 7 bankruptcy, he or she must meet certain qualifications. First and foremost, the filer cannot be making enough money to make payments under a Chapter 13 bankruptcy. In order to qualify for a Chapter 13, the filer must have steady disposable income that can be put toward a payment plan and be under the debt limits.
It should be noted that this is only a general discussion of the bankruptcy process. Every person in New Jersey’s situation is unique.
Source: FindLaw, “Bankruptcy Definition: What Exactly Is It?” July 26, 2014