Chapter 7 versus Chapter 13: What's the difference?

If things haven't been going so well financially for you, you may feel as though you're swimming upstream. The good news is that most financial problems are resolvable. The key to finding a viable solution often lies in knowing what options are available and who can help you to lay out a plan that resolves debt issues and gets things back on track. Whether your money problems occurred over time or came about suddenly due to an unexpected circumstance, you can be proactive in exploring options to find a solution. 

Several factors can cause added stress, such as possible foreclosure on your home, creditors hounding you or other extenuating circumstances. What works for one person may not be the best solution for another. This is why it often helps to rely on experienced guidance. Many New Jersey residents choose to file for Chapter 7 or Chapter 13 bankruptcy in similar situations as the one you're now facing. If you think that's an option in your case, it's critical that you understand the differences between these two types of debt relief. 

Basic facts that may lead to your solution 

As with most debt relief programs, there are eligibility requirements you must fulfill before filing your application. In fact, you may qualify for one type of bankruptcy but not another. The following list explains some of the main differences between Chapter 7 and Chapter 13, which hopefully includes useful information that applies to your situation: 

  • Income is definitely a determining factor. To qualify for Chapter 7, your income must fall below a certain level. 
  • The majority of bankruptcies filed in New Jersey and elsewhere are Chapter 7 bankruptcies.  
  • Of the two, Chapter 7 is generally a much simpler process.     
  • Another major difference between these two forms of debt relief is that primary assets, such as your home, vehicle, etc., will likely have to be returned to your lender if you're filing Chapter 7. 
  • Chapter 13 often includes a court-ordered, restructured payment system that allows you to retain ownership of your main assets, such as those mentioned above.  
  • Debts, such as alimony, student loans and child support, are not dischargeable through Chapter 7. You will still be responsible for outstanding debt in these areas if a balance exists when your Chapter 13 bankruptcy is over.  
  • Outstanding balances with other non-support debts are erased after Chapter 13 is over.  

Understanding the differences between Chapter 7 and Chapter 13 can be confusing, which is why it helps to discuss a particular situation with someone who has gone through the process or helped others navigate the debt relief system in New Jersey.       

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