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bankruptcy

Should I File for Chapter 7 or Chapter 13 Bankruptcy?

It can be confusing to determine which bankruptcy will help you achieve your goals. Here is a closer look at the differences between Chapter 7 and Chapter 13 to help you decide which one is right for you.

On Behalf of Veitengruber Law | Jun 28,2022

Bankruptcy is a great debt relief tool. Recently, we took a look at both Chapter 7 and Chapter 13 bankruptcy rules, benefits, and exemptions. It can be confusing to determine which bankruptcy will help you achieve your goals. Here is a closer look at the differences between the two to help you determine which one is right for you.

Eligibility Requirements

Chapter 7

To qualify for Chapter 7 bankruptcy, you must pass the New Jersey means test. You will compare your average household income over six months to the median income of other, similar-sized households in NJ. If you fall below the median household income for NJ, you pass the means test and can proceed with filing for a Chapter 7 bankruptcy. In 2020, the average household income in NJ was $105,705.00.

You also cannot have a previous Chapter 7 discharge within the past eight years or a Chapter 13 within the past six years.

Chapter 13

To qualify for Chapter 13 bankruptcy, you need to prove that you have regular income and can afford to make monthly debt payments. In addition, your unsecured debt cannot exceed $465,275 and your secured debt cannot exceed $1,395,875.

You cannot file for Chapter 13 if you have filed for a previous Chapter 13 in the past two years or a Chapter 7 within the past four years.

Timeframe

Chapter 7

A typical Chapter 7 bankruptcy takes around six months to achieve discharge. Additionally, a Chapter 7 discharge will stay on your credit report for ten years from the date you file.

Chapter 13

Under a Chapter 13 repayment plan, you can discharge your debts in three to five years, depending on your plan. A Chapter 13 bankruptcy will stay on your report for seven years from the filing date.

These are the significant differences between Chapter 13 and Chapter 7. Here are the main pros and cons to further narrow down your decision.

Pros

Chapter 7

The quickest way to get out of debt is through Chapter 7 bankruptcy. The vast majority of those who file for bankruptcy qualify for Chapter 7. Chapter 7 is the best way to get rid of credit card, medical, and personal loan debt within a few months. In addition, a Chapter 7 bankruptcy petition will stall any collection efforts, foreclosure, or other legal actions from creditors.

Chapter 13

Chapter 13 helps you resolve your debts while retaining ownership of the vast majority (if not all) of your assets. You will also have a clear path forward for catching up on secured debt payments for your car or your house. Like Chapter 7, a Chapter 13 bankruptcy will similarly stall other legal actions from creditors.

Cons

Chapter 7

Chapter 7 does not discharge student loans, taxes, or secured loans—like your car loan or mortgage. It also does not protect these assets from foreclosure or repossession. Occasionally, the bankruptcy trustee can sell off non-exempt property to pay off creditors.

Chapter 13

Some bankruptcy filers can find the length and cost of the repayment plan to be challenging. For three to five years, your disposable income will go towards debt repayment, which can be difficult.

If you are struggling with unmanageable debt and unsure what kind of bankruptcy is best for you, Veitengruber Law can help. Schedule your free consultation today.

 

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