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Paul N. Mirabelli, Esq

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Chapter 7 is basically a liquidation bankruptcy. The debtor is able to retain any exempt property, including houses, cars, personal property, and pension or other retirement accounts, subject to certain limits. Typically, you would file a Chapter 7 bankruptcy only if you had assets that you could protect with a bankruptcy exemption. This is a provision in the bankruptcy code that exempts that property from your creditors. There are certain limits for each of those exemptions. For instance, the house exemption is $25,150, the motor vehicle exemption is $4000, the exemption for household items is $13,400, the jewelry exemption is $1700, and then they have what’s called a wild card exemption. Anything up to $1325 is exempt under the wild card exemption, and if you don’t use your house exemption you get up to $12,575. The life insurance cash value is $13,400 and any personal injury awards are up to $25,000. All of these exemptions are doubled if a husband and wife file together.

What Are The Requirements To File For A Chapter 7 Bankruptcy?

The only requirement to file a Chapter 7 is that your income has to be below the median income for the size of your household. For instance, if the household is a husband and a wife that’s two persons, but if they have children then that would add to the size of the household. If you’re over the median income for your household size, that’s when the means test comes into play. The means test is a combination of using the IRS guidelines for expenses as well as what your actual expenses are to determine if you have any disposable income available to your creditors. If you do have disposable income then you cannot file a Chapter 7, you would have to file a Chapter 13.

What Debts Are Forgiven In A Chapter 7 Bankruptcy?

The debts are not forgiven, they’re “discharged,” which means you no longer have the obligation to pay that debt. Almost all debts are dischargeable, but there are a few exceptions. Student loans are non-dischargeable except under extreme circumstances, and any monies owed to a government agency (such as state or federal taxes) are mainly non-dischargeable depending on their age. Any debts incurred through an act of fraud where you obtained money or property are non-dischargeable.

What Is A Chapter 13 Bankruptcy?

Chapter 13 is a little different from Chapter 7. Chapter 13 bankruptcy is used if you don’t satisfy the means test and they determine that you have disposable income over and above what you would need to pay your reasonable and necessary living expenses. Typically, you would file a Chapter 13 if you had assets that you couldn’t protect with a bankruptcy exemption. This would most often have to do with your house. If a husband and wife own a house and they have more than $50,000 in equity in the house, then they wouldn’t be able to protect the full value of the house with bankruptcy exemption. If they filed a Chapter 7 in that situation, the trustee would sell their house to pay their creditors. They don’t want that to happen so they file a Chapter 13 and they pay back the amount of non-exempt equity they have in their house.

For instance, if they had a house that was worth $100,000 and they had a $25,000 mortgage on it, the exemption would cover $50,000 but that would leave $25,000 in non-exempt equity and they would pay that back through a Chapter 13.

How Long Does A Chapter 13 Bankruptcy Last?

Typically, they run anywhere from 36 months to 60 months but the same rules apply for discharge-ability in a Chapter 13 as in a Chapter 7 and the exemptions are also the same.

What Assets Am I Able To Keep In A Chapter 13 Bankruptcy?

You’re able to keep any asset that’s protected by an exemption. So typically, all of your personal property, your clothing, your furniture, and your electronics are all covered by exemptions. Your car is something you can keep, provided you continue to make the regular payment. You would sign what’s called a reaffirmation agreement, which takes that car loan out of the bankruptcy. Once you file for bankruptcy you don’t have to make the car payments, but eventually, they’ll just repossess the vehicle. To keep that from happening you want to pull that car loan out of the bankruptcy, so you would sign a reaffirmation and keep making the payments and you can retain the car. With a house, typically a husband and wife have up to $50,000 in exemptions that they can use. They also have the right to deduct a 10 percent cost of sale. Unless there is a lot of equity in the property you can probably retain the house. Again, you have to continue to make the regular monthly mortgage payments or eventually they’ll be able to get relief from the automatic stay and start a foreclosure.

What Is The Automatic Stay In A Bankruptcy?

With either Chapter 7 or Chapter 13 you get what’s called an automatic stay. This means that no creditor can try and collect on those debts listed in the bankruptcy petition unless they get a court order saying they have the right to do that. The main exceptions are for child support and alimony. Those types of obligations are not stayed by a bankruptcy either with Chapter 7 or Chapter 13.

What Are The Differences Between A Chapter 7 And A Chapter 13 Bankruptcy?

The difference between them is that Chapter 7 doesn’t involve the repayment of any portion of your debt, while Chapter 13 does. That’s why you want to file for Chapter 7 if you can. To decide which of the two I would recommend for you to file, I would do a financial analysis of your situation taking into account your income, your expenses, the value of your assets in relation to the equity and what exemptions may be available for you to protect those assets. Once I do that analysis, it’s pretty straightforward and easy to make a recommendation as to whether you should go through Chapter 7 or Chapter 13. About 75% of my clients who need to file bankruptcy end up being Chapter 7 and 25% are probably Chapter 13.

For more information on Chapter 7 Bankruptcy In New Jersey, a Personalized Case Evaluation is your next best step. Get the information and legal answers you are seeking by calling (732) 733-2830 today.

Attorney Paul Mirabelli

(732) 733-2830