If your financial situation feels like it’s out of control, you’re probably stressed out and losing sleep. If debt collectors have been harassing you or you are worried about wage garnishments, or about losing your home or retirement savings, it’s time to see if bankruptcy is a solution for you. Filing for bankruptcy can help you regain control of your finances.
Bankruptcy is the process in which consumers and businesses can eliminate or repay some or all of their
debts under the protection of the federal Bankruptcy Court, and still keep most or all of their property.
Bankruptcy immediately stops wage garnishment, harassing phone calls, foreclosure proceedings, lawsuits, and all other collection efforts, and then sets up a plan to get you out from under the debt. It is important to note that bankruptcy doesn’t work on all types of debts. It can eliminate many kinds of debts, such as credit card debt, medical bills, and unsecured loans, but it will not wipe out child support, spousal support obligations, and education loans (usually) or most tax debts.
We can help you decide if filing for bankruptcy is the right move and which type of bankruptcy you are eligible to file. Generally speaking, bankruptcies can be divided into two types - liquidation and reorganization.
Chapter 7 Bankruptcy
This is in the liquidation category because the Trustee in Bankruptcy takes and sells (liquidates) any non-exempt property to pay back some or all of your debt. You get to keep the property that is protected (exempt) under federal or state law which often includes your home.
Not everyone is eligible to file for a Chapter 7 bankruptcy. In order to qualify for Chapter 7 liquidation, you have to pass a “means test.” If your income is below the median income for families in New Jersey, based on Census Bureau statistics, you probably will be eligible. However, if you're above the median income and your disposable income is sufficient to fund a Chapter 13 repayment plan, you might not be allowed to use a Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
This is a reorganization bankruptcy. It is also called the “wage earner” bankruptcy. To be eligible to file a Chapter 13, you must have a reliable source of income that you can use to repay some portion of your debt. A repayment schedule of 3 - 5 years is generally set up. A chapter 13 works like a consolidation loan, but with zero interest. The individual makes the plan payments to a trustee who then pays the creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.
An important advantage of chapter 13 is that it gives homeowners the chance to save their homes from foreclosure. By filing under this chapter, homeowners can stop foreclosure proceedings and repay delinquent mortgage debt over time.
Chapter 11 Bankruptcy
This is another reorganization bankruptcy. It is typically used by businesses to reorganize their finances although it can be filed by individuals if their debts exceed the limits for a Chapter 13. This type of bankruptcy can be very time consuming and ultimately very expensive.