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The pros and cons of declaring Chapter 7 bankruptcy in New Jersey

Reviewing the advantages and downsides of declaring chapter 7 bankruptcy may help people in New Jersey decide if it is the right option for their needs.

The unexpected loss of a job, a change in earning circumstances and any other number of factors may cause people in New Jersey and throughout the U.S. to fall behind on repaying their debts. In an effort to regain control of their finances, some may consider declaring Chapter 7 bankruptcy. A debt relief option not to be taken lightly, understanding the advantages and downsides of filing for this type of protection may help people determine if it is the path best suited for their circumstances and needs.

Basically, Chapter 7, also called a consumer or liquidation bankruptcy, allows an individual to keep so-called exempt property, which includes assets and items from a list allowed by law. Exempt property in total constitutes that which might comprise a modest household.

If the debtor also owns property that is nonexempt, it would be sold to pay off the person's debts (called liquidation), but many people do not have any nonexempt property, so all of their eligible debts are discharged without requiring liquidation. This is called a no-asset case.

(If a party owns nonexempt property and has regular income, to avoid property liquidation, he or she should instead consider a Chapter 13 reorganization bankruptcy under which nonexempt property will not normally be liquidated. Rather, debts will be paid down under a three-to-five year repayment plan approved by the court, after which most of what is still owed is discharged.)

Pro: Quick resolution

Compared to other debt relief options, declaring Chapter 7 bankruptcy may allow people to relatively quickly resolve their financial challenges. Depending on the circumstances, some cases may be finalized within a few months of filing. An efficient recovery may help filers get back on track so their debts do not continue to pile up while they are struggling.

Con: Negative effects on credit

Although they are a step toward achieving a fresh financial start, bankruptcy declarations may adversely affect people's credit. Further, the bankruptcies may stay on debtors' credit reports well after they have gotten back on track. With few exceptions, Chapter 7 bankruptcies remain on filers' credit reports for up to 10 years after their filing dates. This may impact their ability to obtain loans or lines of credit during that time, as well as some employment and other opportunities.

Pro: Stop collection actions

When their petitions for bankruptcy protection are filed, automatic stays for people's debts go into effect. A type of legal injunction, this court order prevents most of the filer's creditors from pursuing any further collection actions against the debtor, including garnishment, foreclosure or lawsuits. Automatic stays generally remain active until the cases are finalized, but there are some situations in which stays may not be issued or may be limited in duration.

Con: Not all debts are dischargeable

The potential discharge of debt draws many to seek Chapter 7 protection. However, certain debts are not eligible for discharge, including child support, alimony, some personal injury or wrongful death judgments, most student loans, and criminal fines and restitution. Consequently, people may still have substantial debts after completing the bankruptcy process.

Pro: Reaffirming debts

For personal or business purposes, there may be some debts which people wish to retain after petitioning for Chapter 7 bankruptcy protection. These are usually loans secured by homes, vehicles and other assets, meaning the property financed by the loan is collateral that may be subject to seizure if the borrower defaults.

A filer may be able to keep certain secured assets by reaffirming the associated debts. Through such reaffirmation agreements, which must be approved by the bankruptcy court, filers may promise to repay all or a portion of what they owe in exchange for the creditors' assurance they will not move to repossess the property.

Get legal advice from an experienced lawyer

Filing a bankruptcy petition under Chapter 7 may help people in New Jersey and elsewhere achieve fresh financial starts, but the legalities involved with seeking this protection may be challenging to navigate without legal counsel. Therefore, anyone struggling with overwhelming debt may find it helpful to consult with a legal representative. An attorney can explain all legal options and help the debtor determine a wise course of action. The lawyer will then provide guidance through the legal process.

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PROFESSIONAL ASSOCIATIONS

  • NACBA | National Association of Consumer Bankruptcy Attorneys
  • NACA | National Association of Consumer Advocates
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Goldman & Beslow LLC

Goldman & Beslow, LLC is a Federal Debt Relief Agency by an Act of Congress. We have proudly assisted consumers seeking relief under the U.S. Bankruptcy Code for over 38 years.

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