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What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

Filing for bankruptcy can be seen as an intimidating and frightening thing for many people. While this may be true, it is important to know that often times, an individual who files for bankruptcy is a middle-class citizen with a job, home, and children. It is also crucial to know that individuals in these situations do have options. When facing bankruptcy, an experienced attorney can provide you with your best options and guide you through the process.

Chapter 7 Bankruptcy

To file for Chapter 7 Bankruptcy, the income of your family has to be less than the average family income in the county which you live. When filing for Chapter 7, some assets will not be taken from you and you are able to keep them. This may include assets such as bank accounts, pension plans, automobiles, IRA’s and your house. Chapter 7 Bankruptcy also discharges most of your debt. This means you might not have to pay credit card debt, personal debt, medical bills, automobile repossessions, or foreclosures.

Chapter 13 Bankruptcy

Chapter 13 Bankruptcy exists for families that earn above the average income for their county and have assets/value to their home. To file for Chapter 13 Bankruptcy, you must have a regular income and disposable income at the end of each month. In addition to this, your unsecured debts cannot exceed $360,000, and your secured debts cannot exceed $1,310,000.

For you to keep their assets under Chapter 13 Bankruptcy, you must be under the protection of the Bankruptcy Court. This requires you to create a “plan” to pay your debts over the course of 3-5 years. This plan gives you time to catch up on your payments without creditors seizing your assets. When the payment of the plan is completed, any outstanding debt may be discharged.

Non-Dischargeable Debt

While some debts are able to be discharged, other debts will not be. “Non-dischargeable” debts are payments that debtors are still required to pay after filing for Bankruptcy. This may require payment for student loans, child support, recent income taxes, restitution ordered by a Criminal Court, fraud debts, and civil judgments for injuries due to wrongdoing or driving while intoxicated.

Automatic Stay

When bankruptcy is filed, the Bankruptcy Court enforces what is known as the “Automatic Stay.” The Automatic Stay provides debtors with some relief, as it prohibits creditors from all collection activities. This may include lawsuits, collection calls/letters, bank restraints, foreclosures or repossessions. There are some benefits of the Automatic Stay that can help you while you are paying off your debt:

  • It is filed immediately

  • Collectors cannot pursue debts

  • Prevents harassment

  • Gives you room to breathe while recovering stability

Contact Our Firm

If you or a family member is considering filing for bankruptcy and need the help of a skilled attorney, contact Velasco Law Office today.

Juan C. Velasco, Esq. is a trusted attorney who concentrates on bankruptcy, family law, real estate, and estate matters who has been serving the New Jersey area for over 25 years. If you are in need of experienced legal counsel, please contact Velasco Law Office and we will be happy to assist you.