Bankruptcy: The Difference Between Chapter 7 & Chapter 13
Everyone is familiar with the word “bankruptcy,” but not everyone knows exactly what type of protection it offers and who should file for it. Simply put, bankruptcy is the process by which an individual or corporation liquidates or reorganizes debts, in an effort to eliminate or repay them. Upon applying for bankruptcy protection, a judge will order an automatic stay, which prohibits creditors from taking any further action in collecting a debt. Best of all for people in debt, all phone calls and letters from creditors must immediately cease. Based on the situation of the individual or corporation, there are different types of bankruptcies which can be applied for.Chapter 7 Bankruptcy
In a chapter 7 bankruptcy, you are asking that the court eliminate your eligible debts. In exchange for the vacating of debts, the bankruptcy trustee may take an asset of yours (which is not exempt from collection), and then sell that property, and distribute those funds to your creditors.
For those who have unsecured debt (any debt where a creditor does not have any interest in the property) like a personal loan, credit card debts, and medical bills, Chapter 7 protection may be ideal. Chapter 7 may also be ideal for those seeking to rid themselves of a car payment or a mortgage. However, to do so under Chapter 7, they must also be willing to surrender the property.Chapter 13 Bankruptcy
For those who feel, in time, they will be able to pay their debts, Chapter 13 may be a good option. This is for people who want to keep their homes out of foreclosure and their car from being repossessed. When you file for a chapter 13 bankruptcy, you file a repayment plan with the court, outlining a plan to pay all or a portion of your debts over time. Your payment plan will vary based on your income, the amount and type of debt held and the property you own.
If a person is not eligible to have their debt wiped away with a Chapter 7 protection, or has some personal property which they’d like to protect, a Chapter 13 bankruptcy is ideal. A person who is approved for a Chapter 13 bankruptcy will have to make monthly payments to a bankruptcy trustee, which may last anywhere from three to five years.
Everyone has a different financial situation, so no two individual cases are the same when it comes to bankruptcy. Determining if you need to file for bankruptcy, and what type you should file for is not a decision you should make on your own. There are volumes of rules on bankruptcy and eligibility; you need to talk with an experienced bankruptcy lawyer to understand your options and make prudent choices regarding your own financial health.
Contact the New Jersey bankruptcy attorneys at Goldstein Law Group, for a free consultation today or call us at (732) 967-6777.