BANKRUPTCY: SHOULD I FILE FOR CHAPTER 7 OR CHAPTER 13?
Filing bankruptcy can be a very scary proposition for many people. There are so many rules and regulations to follow and various standards to meet which determine which type of bankruptcy will best suit your needs.
For individuals, there are two basic filing options, Chapter 7 and Chapter 13. A third option should also be considered: is bankruptcy itself the best solution for your situation? Through careful analysis of your particular circumstances, it may be that NOT filing is your best course of action.
The Means Test
If you have decided to file, you must determine which type of bankruptcy to pursue. The means test is used to determine whether you qualify for Chapter 7 or whether you must use Chapter 13. The purpose of the test is to determine whether your current income exceeds the median monthly income of a similarly sized household in your state. If it does, you cannot file Chapter 7 bankruptcy but must file Chapter 13 bankruptcy instead.
Chapter 7 Bankruptcy
Many people prefer filing Chapter 7 bankruptcy because it discharges most of their debt.
- Debtor is freed from personal liability on discharged debts
- Most debt is dischargeable
- Debtor keeps most future income acquired
- No limit to the amount of debt at the time of filing
- Debts are not repaid
- Quick process
Chapter 13 Bankruptcy
If you do not qualify for a Chapter 7 bankruptcy because of the means test, or because you wish to repay your debt (which has its own advantages), you may file a Chapter 13 bankruptcy. This creates a repayment plan of your debts over a three to five year period.
- Home foreclosure process permanently stops
- Car repossession process stops
- Debtor keeps nonexempt property
- Certain debts not dischargeable under Chapter 7 can be discharged
- Non-dischargeable debts can be repaid
- Co-debtors protected from liability for joint debts
As you can imagine, there are disadvantages to either course of action and the required paperwork can be overwhelming. Contact an experienced New Jersey bankruptcy attorney if you have any questions about whether you should choose a Chapter 7 or Chapter 13 bankruptcy or whether you should file at all.
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