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The Right Bankruptcy Choice For You

It is important to understand the difference between Chapter 7 and Chapter 13 before filing for bankruptcy. Although some lenders may view Chapter 13 as a more “responsible” form of bankruptcy, both forms affect your credit score equally. To determine which form makes the most sense for you, we look at a number of factors, including:

  • Your level of unsecured debt (credit cards, medical bills, etc.)
  • Your income relative to the state median income
  • If you are current on your home and car payments
  • If you are accruing penalties from the IRS for tax debt
  • Whether you have enough income to start a repayment plan

Every situation is unique and requires analysis to determine which form of bankruptcy makes the most sense. However, the way in which each form of bankruptcy works may influence your decision.

The Basics Of Chapter 7 Bankruptcy

Chapter 7 is also known as liquidation bankruptcy. It allows you to wipe out unsecured debt (debt that does not have attached collateral like a home or a car). After filing for bankruptcy protection, the court will appoint a trustee to your case. The trustee’s job is to sell or liquidate your nonexempt property. The money from selling your property is then used to provide partial payment to your creditors. Types of debt that can be eliminated in Chapter 7 include:

  • Credit cards
  • Medical bills
  • Utilities
  • Payday loan debt
  • Personal loans

One of the key differences between Chapter 7 and Chapter 13 is that you must qualify for Chapter 7. There are two different ways to qualify. If your income is less than the median income for other households of the same size in New Jersey, you will qualify. If your income is greater, you can still qualify if you pass the New Jersey Bankruptcy Means Test. If you do not qualify for Chapter 7, you can still file for Chapter 13 bankruptcy protection.

The Basics Of Chapter 13 Bankruptcy

Chapter 13 is sometimes referred to as debt reorganization. It provides relief from creditors, stops IRS penalties and requires that you submit a plan to repay your debt over a three- to five-year period. Many people use Chapter 13 as a way to get caught up on house payments and avoid foreclosure. It can also be used to get caught up on car loan payments to avoid repossession, pay back taxes and get caught up on child support. Your payment goes to the trustee who then distributes the money to your creditors. If you have enough income to enter a repayment plan, Chapter 13 may be the right choice for you.

Contact Law Office of Michael P. McGuire, LLC, Today

If you have decided to file for bankruptcy and need help determining which form of bankruptcy is right for you, set up an initial consultation by calling Law Office of Michael P. McGuire, LLC, at 732-704-7331 or by filling out our online contact form.