A petition under Chapter 7, also known as a liquidation proceeding, allows you to permanently rid yourself of certain debts in exchange for transferring property to the bankruptcy trustee. This process, known as discharge, is limited—you cannot discharge child support obligations, and student loan arrearages and tax debts can be permanently dismissed only in rare situations. You will have to give up some of your assets but can claim some property as exempt, including a certain amount of equity in a home or car, as well as some personal property.
Under revisions to the bankruptcy law enacted in 2005, anyone seeking to file under Chapter 7 must now submit to a “means test” to determine eligibility for discharge. The means test looks at your income and assets and determines whether you have the resources to fully repay your creditors over a three-to-five-year period. If you do, you cannot file under Chapter 7 but must go through Chapter 13.
Known as a “debtor’s reorganization,” Chapter 13 allows you to negotiate new payment arrangements with your creditors. You will have to work with creditors to put together a plan, which must be approved by the bankruptcy court. If you honor your commitments under the plan, you won’t have to worry about creditor harassment during the term of the bankruptcy.
With a Chapter 13 petition, there’s no need to relinquish any of your property. Accordingly, even if you qualify to discharge assets under Chapter 7, you may opt for Chapter 13, if you want to keep all your property.
At the office of Howard N. Sobel, we work closely with people in New Jersey in personal bankruptcy filings. Contact our office online or call us at 856-424-6400 to set up a free initial consultation (on selected cases). We are currently available only by phone, text message, and videoconference. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.
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