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Chapter 7 Bankruptcy

There are three basic forms of bankruptcy. Chapter 7, Chapter 11, and Chapter 13. Chapter 7 is the most common form of bankruptcy, also called the liquidation bankruptcy. In a Chapter 7 bankruptcy you apply to the court for relief from all of the unsecured debt which you incurred in good faith. This would include credit cards, medical bills, personal loans, etc.

Secured debts, like car payments and mortgage payments, are not dischargeable in a Chapter 7 bankruptcy unless you are willing to give up the collateral, e.g., the car or the house. Although a Chapter 7 bankruptcy is called the “Liquidation Bankruptcy”, it is rare for someone to lose any property in a Chapter 7 bankruptcy. This is so because you are entitled to keep certain property in spite of the fact that you are filing for bankruptcy. We call this “Exempt Property”. The policy reason for being able to keep certain property is that the purpose of bankruptcy is to give you some relief from your creditors so that you can be a productive citizen, and not be put out on the street in a cardboard box. If that were the case, you would only become a burden on the other taxpayers. Bankruptcy is a federal law, however, each state has it’s own set of exemptions. Therefore, it is important to seek legal advice from an experienced, local attorney.

Due to recent Bankruptcy Act reforms, not everyone is eligible for a Chapter 7 bankruptcy. Not only can you not have an excessive amount of assets, but your income must fall within certain parameters. I will tell you so and we can proceed from there. If you have excessive assets, or your income is above the allowable threshold, you will not be allowed to file for a Chapter 7 bankruptcy, but could file for a Chapter 13 bankruptcy. All bankruptcies are permitted to appear on your credit history report for a period of ten years. You can only obtain a discharge of bankruptcy once every six years

For many years, Chapter 7 was by far the most common form of bankruptcy. As a result of the Bankruptcy Reform Act, Chapter 13 bankruptcy filings are on the rise.

My practice focuses on exploring alternatives to bankruptcy. If after reviewing for individual circumstances I believe that a Chapter 7 or Chapter 13 bankruptcy is your best alternative, I will tell you so, and we can proceed from there.

Disclaimer: Although I am an attorney licensed to practice law in the State of New Jersey, the information on this website is for general information purposes only and is not to be construed as legal advice. Every situation is different and there are many exceptions for every legal principal or rule. You must consult with an attorney licensed to practice law in your jurisdiction for help and advice. If you reside in the State of New Jersey, I can provide you with legal advice, however, it needs to be done in person, by telephone, or by video conferencing.