In plain terms, personal bankruptcy
is a legal tool used to provide relief to people who can’t meet their financial
obligations. It’s a way for them to wipe the proverbial slate clean of debt and
start fresh – or gain some breathing room to repay their debts.
If you’re struggling with debt, or
you’ve lent money, or you’re providing goods or services on credit, Attorney Douglas Mitchell
wants to make sure you understand the basic concepts of personal bankruptcy in
The most common types of bankruptcy
for individuals are Chapter 7 and Chapter 13.
In a Chapter 7 bankruptcy, debtors
have all or part of their debts discharged after the bankruptcy trustee sells
off liquid assets (those that can be converted easily to cash) and uses the
proceeds to repay some of the debt. Not all of a debtor’s assets need be sold,
however; some can be kept by the debtor as “exempted” property.
To determine what of their property
is exempt, debtors can choose between the exemptions set out either in New
Jersey state law or in federal bankruptcy law.
Generally, New Jersey’s bankruptcy
exemptions protect household furnishings, clothing, and retirement accounts. If
debtors own a home or vehicle, they’ll often choose to avail themselves of the
federal exemptions, because New Jersey’s exemptions do not exempt
homesteads or motor vehicles.
Not everyone can file for Chapter 7
bankruptcy. To be eligible for a Chapter 7, debtors must either (1) earn less than
the median income for their state and family size or (2) pass the “Means Test,”
which considers gross income and expenses.
In a Chapter 13 bankruptcy, debtors
repay all or part of their debt through a 3 to 5 year repayment plan. If the
bankruptcy court approves the plan, the debtor makes planned payments to the
bankruptcy trustee, who distributes funds.
It’s important to note that a
Chapter 13 bankruptcy does allow the debtor to keep non-exempt property. Also
important, during the course of the repayment plan, creditors generally cannot
garnish wages, real estate, or property.
7 versus Chapter 13: Which Bankruptcy Is Right for Me?
If you’re considering bankruptcy in
New Jersey, experienced bankruptcy attorney Douglas Mitchell can help assess
your situation, explore your options, and create an action plan to help you get
control of your financial future. Contact Mitchell Law Offices today.