Bankruptcy is a tool designed to help people and businesses who are overwhelmed with debt find a financial "fresh start" by liquidating their assets to offset their debts or by proposing a repayment plan. If you're experiencing financial hardship, filing for bankruptcy may be a viable option to remedy your condition, achieve debt relief, and get the financial clean slate you deserve.
The most common bankruptcy options available for individuals and business owners in New Jersey include Chapter 7, Chapter 13, and Chapter 11.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, is designed to help individuals and business owners wipe out most of their general unsecured debts. When you file for Chapter 7, the New Jersey court will appoint a trustee to oversee your bankruptcy case.
The trustee will gather and sell your non-exempt assets. Examples of non-exempt assets include second homes, vacation homes, family heirlooms, second cars, cash, bonds, stocks, bank accounts, and other investments. The trustee will pay all or some of your creditors using the proceeds from the sale of the non-exempt assets.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy, also referred to as reorganization bankruptcy, is designed to help businesses restructure their operations, affairs, assets, and debts. This bankruptcy option gives the company enough time to reorganize their business and pay back their debts gradually while they continue running the business.
In a Chapter 11 bankruptcy case, the creditors will be classified into priority debt creditors, secured debt creditors, and unsecured debt creditors. The proposed reorganization plan must be approved by both the court and the creditors.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, commonly referred to as wage earner's bankruptcy, is available to regular income earners who are overwhelmed with a huge burden of debt. Through Chapter 13, you can repay your debts through a structured repayment plan – usually between three and five years – using your future income or earnings.
In a Chapter 13 case, none of your assets will be liquidated. At the end of your Chapter 13 repayment plan, some of your unsecured debt may be discharged.
Deciding Which Bankruptcy Chapter Is Right for You
When contemplating filing for bankruptcy here in New Jersey, understanding the right option for your unique financial situation is paramount. Here are some vital things to note:
Who Can File?
Filing for Chapter 7 requires passing the bankruptcy means test. In contrast, Chapter 13 is available for individuals who earn a regular income but are overwhelmed with a huge burden of debt. Chapter 11 is available to corporations and large businesses that need time to restructure their affairs and debts.
Who Oversees Your Bankruptcy Case?
A court-appointed trustee will oversee your Chapter 7 or Chapter 13 bankruptcy case. However, this is optional in a Chapter 11 case.
Is a Payment Plan Required?
In a Chapter 7 case, no repayment plan is required. The proceeds from the sale of your non-exempt assets will be used to repay some or all of your creditors. Conversely, Chapter 13 and Chapter 11 require proposing a debt repayment plan to settle your creditors.
What Happens to Your Assets?
Your non-exempt assets will be sold in a Chapter 7 case. In contrast, none of your assets will be sold in a Chapter 11 or Chapter 13 case.
What Happens to Your Debts?
Filing for Chapter 7 will wipe out most of your general unsecured debts. In contrast, Chapter 11 is a reorganization plan for businesses, and filing for Chapter 13 will require you to repay some or all of your creditors.
What's the Effect on Your Credit Score?
Filing for any bankruptcy chapter will have a significant effect on your credit score. However, by maintaining good financial habits, you can improve your credit score and recover financially.
How a Knowledgeable Bankruptcy Attorney Can Help
Bankruptcy is quite common in New Jersey, and it should not be seen as a desperate move. According to the American Bankruptcy Institute's Bankruptcy Filing Trends in New Jersey, there were 14,728 total business and non‐business bankruptcy filings in the state in 2020. These consumers didn't go through the process alone, and neither should you. Therefore, when considering filing for bankruptcy, it is important that you consult with a knowledgeable bankruptcy attorney for proper guidance.
CoffyLaw, LLC has the experience and resources to assist and guide clients through the complexities involved in bankruptcy proceedings. Attorney Emmanuel Coffy and his legal staff can assess your financial situation, explore your possible bankruptcy options, and determine the ideal bankruptcy chapter for your unique condition. Using their extensive legal experience, our attorneys can craft an effective solution to protect your assets and interests and avoid possible pitfalls. Attorney Emmanuel Coffy will guide you through every phase of the bankruptcy process and help you make informed financial decisions.