Chapter 7 bankruptcy involves the liquidation of specific assets to pay creditors. A portion of the remaining debt ends up being discharged. For many, Chapter 7 is preferable, but they do not meet the means test. New Jersey debtors could still file for bankruptcy under the provisions of Chapter 13. However, Chapter 13 involves adhering to a payment plan.
Chapter 13 and payment plans
Chapter 13 bankruptcy opens the doors to restructuring debt and launching a fresh financial restart. The debtor would present a plan to the court, and the court has the final say on its approval. Those worried about making the monthly costs may feel relief upon discovering the court considers income, assets, living expenses, and other factors when approving the plan. Creditors may have their say in the matter, but the decision rests with the court.
Repayment plans run for three to five years. Once the debtor meets all the payment requirements within the timeframe, the plan concludes.
Additional points about Chapter 13 repayment plans
There are different categories of debt, and each receives a ranking from the court. Unsecured debts, such as credit card obligations, have the lowest priority. Taxes and child support would rank as high-priority obligations. Secured debt falls in the middle.
At the conclusion of the Chapter 13 repayment plan, some remaining debt faces a discharge. The debtor no longer has to pay for any debt that the court discharged.
Be mindful that the debtor must make all payments on time. Missing payments could result in the bankruptcy’s dismissal, meaning collection actions may resume. When the judge dismisses a bankruptcy case, the debtor has no protection from obligations. Anyone unable to make a payment could contact the bankruptcy trustee to discuss the situation.
