NJ Chapter 13 Bankruptcy Basics

Bankruptcy does not necessarily mean debtors are stripped of all their possessions and thrown out on the street. Chapter 13 bankruptcy filings for example are designed simply to restructure payments over a period of time so the debtor can retain his/her assets.

Although not as common as a Chapter 7 bankruptcy filing in New Jersey, a Chapter 13 bankruptcy is the next most popular.  While the Chapter 7 deals with the liquidation of assets, Chapter 13 deals with a “reorganization” of the individual’s finances.

In a Chapter 13 case, instead of turning over the property for a trustee to sell (like in Chapter 7), the debtor submits a payment plan and makes payments for 3-5 years to a trustee.  The trustee then distributes the funds to creditors.

Discharging Debt in Bankruptcy Chapter 13 New Jersey

In both Chapter 13 and a Chapter 7 filings, the debtor discharges debt. The obligations (debt) no longer must be repaid for typical consumer debt such as credit cards balances and bills for medical services. The difference between the two filings is the way the debtor obtains the discharge.

In a Chapter 13 case, the debtor basically reorganizes his/her finances.  The nuts and bolts of this reorganization in the payment plan.  When Chapter 13 is filed, the debtor must list their assets and liabilities as well as their income.  Chapter 13 filers utilize a “means test” to determine whether a Chapter 7 or Chapter 13 is appropriate.

The Chapter 13 Bankruptcy NJ Payment Plan

Payment plans are the heart of Chapter 13 bankruptcy in New Jersey.  The payments can last from 3 to 5 years and can include repayment to “unsecured” creditors such as credit cards.  Taxes, family support, and past mortgage balances are also paid as are car and house payments and sometimes attorney’s fees.

The idea is to help make the payment more practical by stretching out payment over a period of time and eliminate the need to sell property as in Chapter 7 filings.

Why Chapter 13?

Chapter 13 can provide bankruptcy protection even if they make too much money to qualify for a Chapter 7 case or if the debtor received a Chapter 7 discharge previously.  A main feature allows the plan to repay past due amounts owed on homes, automobiles and other secured assets.

Further, Chapter 13 allows debtors to repay past-due income taxes, child support and/or alimony payments over 36-60 months.  This is a major advantage.  In certain instances student loan payments can be restructured to make them more manageable.

Finally, Chapter 13 allows the debtor to protect certain property that would normally have to be surrendered under Chapter 7.  Attorney’s fees can also be “financed” by the payment plan instead of a up front payment.

Call Us For More Information

For more information on Chapter 13 bankruptcy, consult with a seasoned NJ bankruptcy attorney.  We are here to help you in your time of trouble.  For every problem, there is a solution.  Give us a call now to discuss your options.