Understanding the differences between Chapter 7 and Chapter 13

If you're currently trying to figure out how to overcome serious financial problems, you're definitely not alone in your struggle. Many New Jersey residents are facing similar situations. The good news is that there are often multiple options available to help you get your financial life back on track. In fact, some options may not only provide a means for immediate debt relief, but may help you lay the groundwork for a stronger financial future.

Sometimes, people need a way to wipe the slate clean and start fresh. However, it can be difficult to know what path to choose if you aren't really aware of what types of debt solutions are available in your particular situation. For this reason, it often helps to speak with someone who is well versed in the laws that govern such matters. You may be eligible for several different debt relief plans; which one you choose may greatly influence your financial status down the line.

Bankruptcy options

Filing for bankruptcy is often a valuable financial tool that not only helps you eliminate debt, it can get you started toward rebuilding a strong financial portfolio. The following information explains Chapter 13 and Chapter 7 bankruptcy programs and outlines how one differs from the other

  • You can file Chapter 7 bankruptcy as an individual or as a business owner. Chapter 13 is not an available option for businesses.
  • Chapter 7 could require complete liquidation of assets. If you file Chapter 13, you may be able to retain ownership of your home, your car and other assets as well.
  • Many people refer to Chapter 13 as the "working man's" bankruptcy. This is because you must have reliable income and earn the same or more than the New Jersey average annual income to qualify for application.
  • If you earn the same or less than the state median, you may not be eligible for Chapter 13, but may be able to file under Chapter 7 instead.
  • Chapter 7 bankruptcy typically remains on your credit report for 10 years. Chapter 13, on the other hand, may fall off your report after seven years.
  • Chapter 13 allows you to continue to pay back debt with disposable income. The program allows you to restructure your monthly payment plans to make payments more feasible given your current circumstances.

A person may file under Chapter 13 and later convert to Chapter 7. Reasons for this might include a sudden inability to continue making payments, such as losing your job or suffering a medical emergency.

Most financial crises are temporary. You may be able assess the events that prompted your crisis to help you understand how to avoid similar problems in the future. You may also be able to access debt relief options, such as bankruptcy to help you overcome your current money problems and move toward restored financial stability.

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