Spring Valley Rockland County and East Orange Essex County New Jersey Bankruptcy Lawyers and Attorneys

Debt Freedom

A fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial "fresh start" from burdensome debts. The Supreme Court made this point about the purpose of the bankruptcy law in a 1934 decision:

"[Bankruptcy] gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt."

- Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).

This goal is accomplished through the bankruptcy discharge, which releases debtors from personal liability from specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts.

Types of Bankruptcy:

Chapter 7 Bankruptcy

Chapter 7, entitled Liquidation, contemplates an orderly, court-supervised procedure by which a trustee takes over your non exempt property, reduces them to cash, and makes pays creditors.  They debtor' s has the right to retain certain exempt property like equity in the home, their IRA, 401K, pension income, social security, tools, lower value automobiles and other property.  You need to consult with us regarding what you can keep in a bankruptcy filing.

In most Chapter 7 cases, if the debtor is an individual, he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts.

Amendments to the Bankruptcy Code enacted in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require the application of a "means test" to determine whether individual consumer debtors qualify for relief under Chapter 7. If a debtor's income is in excess of certain thresholds, the debtor may not be eligible for Chapter 7 relief.

Chapter 13 Bankruptcy

Chapter 13, is a repayment plan whereby you may pay a percentage of you debt. It is entitled Adjustment of Debts of an Individual With Regular Income.

Chapter 13 is often preferable to Chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a "plan" to repay creditors over time usually three to five years.

Chapter 13 is also used by consumer debtors who do not qualify for Chapter 7 relief under the means test. At a confirmation hearing, the court either approves or disapproves the debtor's repayment plan, depending on whether it meets the Bankruptcy Code's requirements for confirmation.

Chapter 13 is very different from Chapter 7 since the Chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor's anticipated income over the life of the plan.

  • Unlike Chapter 7, the debtor does not receive an immediate discharge of debts.
  • The debtor must complete the payments required under the plan before the discharge is received.
  • The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect.
  • The discharge is also somewhat broader (i.e., more debts are eliminated) under Chapter 13 than the discharge under Chapter 7.

Chapter 12 Bankruptcy

Chapter 12, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income, provides debt relief to family farmers and fishermen with regular income.

The process under Chapter 12 is very similar to that of Chapter 13, under which the debtor proposes a plan to repay debts over a period of time – no more than three years unless the court approves a longer period, not exceeding five years. There is also a trustee in every Chapter 12 case whose duties are very similar to those of a Chapter 13 trustee. The Chapter 12 trustee's disbursement of payments to creditors under a confirmed plan parallels the procedure under Chapter 13.

Chapter 12 allows a family farmer or fisherman to continue to operate the business while the plan is being carried out.

Chapter 11 Bankruptcy

Chapter 11, entitled Reorganization, ordinarily is used by businesses or individuals that desire to continue operating a business and repay creditors concurrently through a court-approved plan of reorganization or individuals with close to a million dollars of secured debt.

The Chapter 11 debtor usually has the exclusive right to file a plan of reorganization for the first 120 days after it files the case and must provide creditors with a disclosure statement containing information adequate to enable creditors to evaluate the plan.

The court ultimately approves (confirms) or disapproves the plan of reorganization. Under the confirmed plan, the debtor can reduce its debts by repaying a portion of its obligations and discharging others. The debtor can also terminate burdensome contracts and leases, recover assets, and re-scale its operations in order to return to profitability.

Under Chapter 11, the debtor normally goes through a period of consolidation and emerges with a reduced debt load and a reorganized business.