Unforeseen events, like a medical crisis or job loss, sometimes overwhelm debtors in New Jersey and leave them unable to pay bills. Poor spending habits might result in crippling debt. Regardless of the reasons behind financial troubles, bankruptcy law sometimes enables people to discharge or reorganize their debts and start fresh.
When thinking about filing for bankruptcy, debtors often worry about the long-term effects on their credit score and credit report. A bankruptcy will appear on a credit report for seven to 10 years. Credit scores also decline. A Chapter 7 bankruptcy filing might reduce a credit score by 200 points. After the initial drop, however, credit scores can recover.
Debtors file personal bankruptcies under either Chapter 7 or Chapter 13 of bankruptcy law. Chapter 7 requires a debtor to sell off nonexempt assets to provide creditors with as much repayment as possible. After liquidation, a court might approve the discharge of credit card balances, personal loans and medical bills. Some debtors still earn too much income to qualify for Chapter 7 and must opt for a Chapter 13 filing. This form of bankruptcy allows someone to keep assets but requires paying back creditors in a new payment plan approved by the court. This situation could lower overall monthly debt payments until the court concludes the bankruptcy and potentially dismisses remaining balances.
An income-to-debt analysis by a bankruptcy attorney might inform a person about which form of bankruptcy to file. Legal counsel could also introduce a client to other approaches to debt relief. The lawyer may be able to renegotiate terms with a creditor to avoid wage garnishment or a home foreclosure.