Chapter 7 vs. Chapter 13 Bankruptcy

By: Jonathan Cohen

The majority of individuals and married couples file either Chapter 7 or Chapter 13 Bankruptcy.I’d like to briefly discuss the differences in the two because our clients and friends are often confused about which is more applicable to their specific situation.>

What Is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy is a complete discharge from unsecured debts like credit card and medical debts. This means that the creditors receive no repayment from the debtor (the person filing for Bankruptcy). The debtor can retain all property that is exempt under the Bankruptcy Code and decide whether or not to walk away from secured debts such as a leased or financed car or home.

The client appears with me in front of a bankruptcy trustee approximately 6 weeks from when their case was filed in the Trenton Courthouse of the United States Bankruptcy Court for the District of New Jersey, which serves my clients in Monmouth County, Ocean County, and Middlesex County. The appearance date is assigned by the Bankruptcy Court.

This hearing is called a 341 Meeting/Meeting of the Creditors. No need to panic, your creditors are not showing up to this meeting. Approximately 90 days after the appearance in Trenton, the case is discharged. Discharge means that the client has a clean slate from the debts that they wanted to walk away from in bankruptcy.

Think of Chapter 7 as a way to be completely free from debt in a matter of months. Debtors are eligible to file another Chapter 7 Bankruptcy 8 years from the date their previous Chapter 7 was discharged.

A debtor who is over the median income but whose debt is over 50% non-consumer debt (i.e. business lines of credit, business credit cards, investment properties) is eligible to file a Chapter 7 Bankruptcy and walk away from all of their debt.

What Is Chapter 13 Bankruptcy ?

Chapter 13 Bankruptcy is a reorganization and repayment of anywhere from a small portion of one’s debts to a restructuring and repayment of all of their debts without interest or late fees accruing during a period of 36 to 60 months.

If a debtor is over the median income determined by the Internal Revenue Service they will typically be a Chapter 13 Bankruptcy. Approximately a month from when the case is filed the debtor appears with me at the Standing Chapter 13 Trustee’s office in Robbinsville, New Jersey on a Thursday for the 341 meeting meeting. I appear without my clients at a Confirmation Hearing in the Bankruptcy Court several weeks after the 341 meeting. At the Confirmation Hearing the Chapter 13 repayment plan is approved by the bankruptcy trustee and a bankruptcy judge.

Chapter 13 Bankruptcy can also be used to: wipe out an unsecured second mortgage, modify home mortgages through the United States Bankruptcy Court mortgage modification program, lower the interest rates on financed vehicles and/or pay back only what a vehicle is worth (not the loan balance), and to catch up on missed mortgage or rent payments.

A debtor who would otherwise qualify for a Chapter 7 Bankruptcy but was discharged from a prior Chapter 7 less than 8 years ago would file a base plan Chapter 13. A base plan Chapter 13 would result in a repayment to creditors of approximately $100.00 a month for 36 months regardless of the amount of debt included in the bankruptcy.

Contact us today if you’d like help with filing for either a Chapter 7 or Chapter 13 Bankruptcy in the Monmouth, Ocean, or Middlesex County areas.