Understanding Chapter 7, 11 and 13 bankruptcy options

New Jersey residents should understand the difference between Chapter 7, Chapter 11 and Chapter 13 bankruptcy options.

While residents in Morristown and throughout New Jersey are aware of the general positive direction of the nation's economy when compared to a few years ago, there is still no shortage of people struggling to make ends meet, especially after the recent recession.

Recovering after a job loss or pay cut can be tough. These situations can make it hard to stay current on mortgage payments, credit card bills and other financial obligations. If things progress far enough, the ability to file bankruptcy may offer the best route for relief and a fresh start. Before proceeding, however, it is important to understand which type of plan best suits a situation.

Liquidation under a Chapter 7 bankruptcy

A Chapter 7 bankruptcy is commonly referred to as the liquidation option. It is also the most commonly filed form of bankruptcy for individual debtors. The United States Courts website indicates that a Chapter 7 bankruptcy is a simpler and faster way of discharging debts versus other bankruptcy plans. A Chapter 7 plan can be completed in roughly three months in many cases.

Under a Chapter 7 plan, a debtor's assets can be sold and the proceeds used to pay creditors. However, it is important to note that both federal and state legislation provide exemptions for select assets up to specified value limits that can be retained by the debtor. Examples are jewelry, automobiles and other personal items. People with limited assets can often benefit the most from Chapter 7 bankruptcy plans to help with debt relief.

As noted by the American Bankruptcy Institute, there are some debts that fall outside the scope of a Chapter 7 plan. Student loans, child support and even select taxes cannot be included in this form of bankruptcy.

Repayment under a Chapter 13 bankruptcy

A Chapter 13 bankruptcy is often referred to a wage earner plan. Under this form of bankruptcy plan, debts are consolidated and then paid back in a single payment each month. The debtor makes payments to a trustee who distributes the funds to the creditors. In some cases, the creditors agree to receive amounts less than what is owed but still receive some payment. People entering into a Chapter 13 bankruptcy should have income levels sufficient enough to support the repayment.

The repayment period in a Chapter 13 plan spans between 36 and 60 months. Home mortgages are not included in a Chapter 13 and debtors are expected to continue making mortgage payments separate from their Chapter 13 payments each month. All assets are saved and able to be retained by debtors under the Chapter 13 bankruptcy option.

Reorganization under a Chapter 11 bankruptcy

A Chapter 11 bankruptcy is most frequently filed by businesses but can be filed by individuals if the amount of debt owed exceeds the limits of a Chapter 13 plan. The Chapter 11 is another form of repayment and consolidation of debts similar to a Chapter 13.

When to seek help

As soon as debt becomes too much to handle, talking to an attorney who understands bankruptcy and debt relief is a wise choice. Getting legal input along the way can facilitate a better start for a more financially sound future.

Keywords: bankruptcy, Chapter 7, Chapter 13