Typically, a chapter 7 bankruptcy is designed for a person that wishes to discharge (eliminate) certain debt, such as unsecured debt (credit card debt). A person may also discharge secured debt. However, if a person wants to keep the property that is connected with the secured debt, such as a house or auto, the person must keep current with the secured debt payments. If a person is behind with their secured debt payments, such as a mortgage or auto financing, the chapter 7 will not help save them from foreclosure or repossession.
If the debtor meets the criteria of a chapter 7, the debtor is entitled to a discharge. However, a chapter 7 discharge does not discharge certain types of debt. The entire process takes about five months from the filing date to the entry of discharge. In the unusual situation that a trustee sells a debtor’s asset, the asset may be sold at any time after the discharge. No court payments are required to be made in a chapter 7 case.
Typically, a chapter 13 requires a monthly payment to a bankruptcy trustee. The amount of the monthly payment and the creditors that are paid, depends on numerous factors.
A person may file for chapter 13 for a number of reasons. The first reason may be based on the debtors’ inability to meet the criteria of a chapter 7, in that he has substantial monthly disposable income. Under this scenario, the debtor is not able to eliminate all unsecured debt or other type of debt, and must pay a portion of the debt to such creditors, over a certain time period.
A person may wish to file a chapter 13 to help save an auto from repossession or a house from foreclosure. Under this scenario, the debtor, in some fashion, must cure the mortgage and/or auto finance arrears over the life of the chapter 13 plan, through the monthly trustee payments.
A person may wish to file a chapter 13 for the purpose of discharging a type of debt that is not dischargeable in a chapter 7, such as certain debt that is due to an ex spouse. Also, certain debt may be reduced in a chapter 13, that cannot be reduced in a chapter 7.
Similar to a chapter 7, certain debt is not dischargeable in a chapter 13, even though the entire bankruptcy plan is successfully completed.
NJ bankruptcy practitioner, Robert Manchel, may be reached at (866) 503-5655 to discuss your specific circumstances.