Difficult financial situations like job loss, divorce, business problems, and illness can be made worse by the existence of debt. It is easy to be overwhelmed with debt, especially in circumstances where a source of income is not readily available. It is even more stressful trying to find ways to seek relief from this financial crisis when you have creditors hounding your every move and seeking to acquire your assets for repayment.
Even with careful planning, when the unexpected happens, you can still find yourself in financial difficulty. Exploring bankruptcy or debt relief can be a viable option for many individuals. If you find yourself in the position of having to file for bankruptcy, it is important to consult with an experienced New Jersey bankruptcy attorney. At Straffi & Straffi Attorneys at Law, our attorneys are well-versed in the nuances of bankruptcy law and can guide you through the process, helping you make an informed decision about the most suitable chapter for your specific situation. Contact us at (732) 341-3800 for a confidential consultation and let us help you towards a brighter financial future.
Different Types of Bankruptcy
Filing for bankruptcy indicates that you are incapable of settling your current debts. Successfully filing for bankruptcy leads to the cancellation of your outstanding debts, giving you a chance to rebuild your financial situation and move forward. Different types of bankruptcy filings are available, each tailored to specific circumstances.
- Chapter 7 Bankruptcy: Commonly known as liquidation bankruptcy, enables the discharge of a majority of debts within a period of four to six months. While many debts can be canceled, certain obligations like family support, certain tax debts, or penalties for criminal actions cannot be discharged.
- Chapter 11 Bankruptcy: Known as business bankruptcy, Chapter 11 offers corporations, and sometimes individuals, an opportunity to reorganize their debts while keeping their operations running. As a “debtor in possession,” the business must create a repayment plan, which is then voted upon by creditors and stockholders. Some businesses may successfully recover and continue operations, while others may dissolve after filing for Chapter 11.
- Chapter 13 Bankruptcy: Referred to as the wage earner’s plan, Chapter 13 allows for the discharge of debts at the end of the process. Both unsecured debts like credit cards and secured debts like mortgages or car loans can be included. If your home is at risk of foreclosure, Chapter 13 may help you save it by incorporating delinquent payments into the plan, while keeping current with monthly mortgage payments. Similarly, a car in danger of repossession can be protected, and better terms with the lender may be negotiated. Additionally, delinquent family support payments can be rolled into the plan under Chapter 13.
In New Jersey, these are the three most common types of bankruptcies. However, businesses may also explore other types of bankruptcy claims, including:
- Chapter 9: Designed for municipalities seeking bankruptcy protection.
- Chapter 12: Intended for farmers or commercial fishermen aiming to reorganize their finances.
- Chapter 15: Pertains to jurisdiction and is usually associated with foreign entities filing for bankruptcy.
Exploring the different types of bankruptcy can be daunting, but with the help of a New Jersey bankruptcy attorney, you can manage this challenging process with confidence. At Straffi & Straffi Attorneys at Law, our team of skilled and compassionate attorneys can provide you with personalized guidance, helping you choose the most suitable bankruptcy option for your specific circumstances. Contact us for a consultation and take the first step towards a fresh start.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is commonly referred to as liquidation bankruptcy. The court assigns a bankruptcy trustee to sell any nonexempt assets owned by the debtor to be used to repay all or some amount of debt.
To file and complete the Official Bankruptcy Form and petition the court for Chapter 7 bankruptcy, the debtor must submit the following details to the court:
- A list of their creditors and how much the debtor owes each one
- The debtor’s source and amount of income
- An inventory of all of the debtor’s property
- A list of their monthly living expenses
The debtor would also have to pass a means test. The purpose of the means test is to ensure that the debtor is not abusing Chapter 7 bankruptcy law to avoid paying their debts, even though they can afford it. The Chapter 7 Means Test in New Jersey takes your average household income for the last six months and compares it to the median income of households of a similar size in the state. If you fall below the threshold, you can proceed with filing for Chapter 7 bankruptcy.
If you don’t meet the requirements, the Bankruptcy Court will look more closely at your income and expenses. The court can also convert your case to Chapter 13 bankruptcy if you have a significant amount of disposable income left over each month that you could otherwise use to pay debts.
Why the Means Test Exists
The means test was introduced as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) to limit the number of high-income individuals who could discharge debts through Chapter 7 bankruptcy. Before the means test, many individuals who had the financial means to pay back some of their debts were still discharging them entirely. Now, the test ensures that those with higher incomes are directed towards Chapter 13, which involves a structured repayment plan.
In New Jersey, this test is especially important because it compares your household income to the state’s median income levels. If you pass the test, you are presumed eligible for Chapter 7. If not, you may need to explore other bankruptcy options, such as Chapter 13.
How the Means Test Determines Eligibility
The means test evaluates your ability to repay debt based on your income and expenses over the past six months. It’s a two-part process that begins by comparing your income to New Jersey’s median income levels. If your income is below the median, you automatically qualify. If it’s above, the test goes further by calculating your disposable income after deducting certain expenses.
Key aspects of how the means test works:
- Calculating Your Income: The test requires you to average your household income over the six months preceding your bankruptcy filing. This includes all forms of income, such as wages, rental income, and other earnings.
- Comparing to New Jersey’s Median Income: The New Jersey median income levels are updated regularly and depend on the size of your household. For example, a household of four will have a higher median income threshold than a single individual.
- Allowable Expense Deductions: After calculating your income, the test allows you to deduct specific living expenses from your income. These include necessary expenses such as:
- Housing and utilities: Based on IRS guidelines for your region.
- Transportation costs: Including car payments and fuel costs.
- Food and clothing: Necessary living costs determined by national standards.
- Health care costs: Expenses such as insurance premiums and medical bills.
- Final Disposable Income Calculation: After all deductions, your remaining disposable income is calculated. If it falls below a certain amount, you qualify for Chapter 7. If it exceeds the allowed threshold, you may need to file for Chapter 13 instead.
This process makes sure that Chapter 7 bankruptcy is reserved for individuals who genuinely cannot afford to pay their debts, while giving a structured path (Chapter 13) to those who can pay back at least a portion.
Median Income Limits for New Jersey
Once you have calculated your average monthly income, the next step is to compare it to the median income levels for New Jersey. The state’s median income levels are updated regularly, and they vary depending on the size of your household. For instance, as of 2025, the median income limits in New Jersey are as follows:
- 1-person household: $87,010 annually
- 2-person household: $108,065 annually
- 3-person household: $130,324 annually
- 4-person household: $157,479 annually
- 5-person household: $166,379 annually
- 6-person household: $175,279 annually
- 7-person household: $184,179 annually
- 8-person household: $193,079 annually
- 9-person household: $201,979 annually
If your average annual income, based on the six-month average, is below these thresholds for your household size, you automatically pass the means test. However, if your income exceeds these limits, the means test will continue to the next stage, where your expenses will be deducted to determine whether you can still qualify for Chapter 7 bankruptcy.
What Happens After Filing Chapter 7 Bankruptcy?
Filing a petition for Chapter 7 Bankruptcy automatically stays any collection orders or lawsuits from creditors to the debtors. The expected timeframe to get your debts discharged is 6 months after the conclusion of your debt counseling, as required by the court.
The court will assign a bankruptcy trustee responsible for discharging the debtor’s nonexempt assets. Nonexempt assets may include a vacation home, any valuable collections, and jewelry, among others. Exempt property is assets considered necessary for living. This usually includes a primary residence, tools of a trade, personal possessions, and a car (provided that it is not in equity).
Any funds gathered from the sale of nonexempt assets will be used to pay off a portion of the debtor’s unsecured debt (ie. credit card bills, medical bills, etc.). In New Jersey, it is possible to protect certain nonexempt assets from liquidation and bankruptcy trustees can also forego selling nonexempt assets if they are not worth much in value or would be too difficult to sell.
It is important to remember that not all debt can be discharged through bankruptcy. Debt from child support, income taxes, alimony, and federal student loans are not dischargeable under the US Bankruptcy Code.
Chapter 7 will remain on your credit score for 10 years from the date the petition was filed. You will also be unable to file another Chapter 7 bankruptcy for 8 years after a prior discharge or Chapter 13 for the next 4 years. Due to this, it is important to get the help of a qualified New Jersey bankruptcy attorney to evaluate your financial situation. Your bankruptcy attorney should help you in exploring your options before applying for bankruptcy and assist in preparing your requirements in petitioning the Bankruptcy Court.
What Assets Do You Lose in Chapter 7?
In Chapter 7 bankruptcy, also known as liquidation bankruptcy, many of your assets may be sold to pay off creditors. This process involves a bankruptcy trustee who oversees the sale of your assets to settle your debts. Not all assets are treated equally in this scenario. Typically, non-exempt assets that can be sold include items like non-primary residences, additional vehicles, investments, and valuable collections such as art or jewelry.
Primary residences can sometimes be exempt, especially if the equity in the home does not exceed state or federal exemption limits. Similarly, essential personal items such as clothing, household goods, and tools necessary for your occupation are typically protected to some extent. However, luxury items, secondary properties, and stocks or bonds are likely to be liquidated.
Business assets are also vulnerable in Chapter 7 filings. If you own a business, equipment, and other assets that are not essential to your personal life or basic operations may be liquidated. The specifics can vary greatly depending on the set of exemptions you select when filing a Chapter 7 bankruptcy and the particular details of your financial situation. It is important to remember that while you can select either the federal or state exemptions, you may not mix the exemptions and can only use all the exemptions from either set.
Consult with an experienced New Jersey bankruptcy attorney to understand which of your assets are at risk in a Chapter 7 bankruptcy. Contact Straffi & Straffi Attorneys at Law today to schedule a consultation.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy, or a wage earner’s plan, refers to the reorganization of the debtor’s finances under the supervision of the court. In a Chapter 13, debtors must draft and adhere to a plan to pay outstanding creditors within 3 to 5 years. The plan must allow repayment to the creditors of at least equal to what they will receive if a different kind of bankruptcy were petitioned. A debtor may also be required to use 100% of their disposable income to repay the debts, if necessary.
A Chapter 13 bankruptcy is the common option for those who make an income higher than the median income for the state. For cases filed between April 1, 2025, and March 31, 2028, New Jersey allows for debt limit of up to $1,580,125 for secured debt and $526,700 for unsecured debt.
The list of requirements submitted to the Bankruptcy Court in Chapter 13 is similar to Chapter 7, aside from the additional submission of a repayment plan. Instead of being in charge of the liquidation of the debtor’s assets, in Chapter 13, the court-assigned bankruptcy trustee is only assigned to collect a monthly debt payment.
As there is no liquidation of assets involved in Chapter 13, a debtor can avoid the foreclosure of their home and keep their assets.
What Happens After Filing Chapter 13 Bankruptcy?
Like in Chapter 7, however, all forms of legal action and collection efforts from creditors will be halted once Chapter 13 is filed. The trustee will act as an intermediary between the debtor and the creditor and while under Chapter 13 protection, creditors will have no direct contact with the debtor.
Chapter 13 allows debtors more wiggle room in terms of repaying their debts. Even though there is no debt discharged in Chapter 13, debtors have more time to find alternative sources of income and may be able to keep their assets instead of liquidating them like in Chapter 7. These conditions apply as long as the debtor can meet the monthly payments.
When completed, Chapter 13 bankruptcy remains on your credit report for up to 7 years from the filing date. The monthly payments required by the court are mandatory and monitored by the court.
Bankruptcy, Chapter 7 vs 13
Chapter 7 and Chapter 13 Bankruptcy are two distinct forms of bankruptcy that serve different purposes and contain different processes.
With Chapter 7 Bankruptcy, a bankruptcy trustee is assigned by the court to sell any nonexempt assets belonging to the debtor to repay part or all of the debt. The debtor’s eligibility for Chapter 7 is determined by a means test, which ensures that the debtor is genuinely incapable of paying their debts. If the debtor has substantial disposable income, their case may be converted to a Chapter 13 bankruptcy. After filing for Chapter 7, a stay is automatically placed on collections and lawsuits from creditors, and the bankruptcy trustee is tasked with liquidating nonexempt assets to pay off unsecured debt. However, not all debt can be discharged, such as child support, income taxes, alimony, and federal student loans. Chapter 7 bankruptcy stays on a credit report for 10 years.
On the other hand, Chapter 13 Bankruptcy, often referred to as a wage earner’s plan, involves the reorganization of the debtor’s finances under court supervision. In this type of bankruptcy, the debtor must create and adhere to a repayment plan spanning 3 to 5 years. Chapter 13 is a common choice for those with an income exceeding the state’s median income.
Unlike Chapter 7, a Chapter 13 bankruptcy doesn’t involve asset liquidation, which allows debtors to keep their assets and potentially avoid foreclosure on their homes. The trustee’s role in Chapter 13 is to collect monthly debt payments rather than liquidate assets. Chapter 13 bankruptcy permits debtors more flexibility in repaying their debts, as long as they can meet the monthly payments mandated by the court. Chapter 13 Bankruptcy remains on a credit report for up to 7 years.
Both Chapter 7 and Chapter 13 are tools that can help individuals navigate financial difficulties, but they serve different purposes and operate differently. Which one is most appropriate will depend on the debtor’s specific circumstances.
| Chapter 7 | Chapter 13 | |
| Type of Bankruptcy | • Liquidation | • Reorganization of finances |
| Who can file? | • Individuals, spouses, and business entities | • Individuals and spouses only (sole proprietorships included) |
| Cost to file | • $338.00 (Inclusive of $78 Misc. Administrative and $15 Trustee Fee) • Can be waived depending on circumstances | • $313.00 (Inclusive of $78 Misc. Administrative Fee) |
| Eligibility | • Must pass a means test • No Chapter 7 discharge for the past 8 years or Chapter 13 in the past 6 years • No dismissed Chapter 7 or 18 petition from the last 180 days | • Cannot have more than $2.75 million secured and unsecured debt combined (New Jersey) • Must have regular income and have up to date tax filings • No Chapter 13 filing from the past 2 years or Chapter 7 from the past 7 years • No dismissed Chapter 7 or 18 petition from the last 180 days |
| How long it takes to receive a debt discharge | • Three to six months | • Upon completion of repayment plan (3 to 5 years) |
| How long the bankruptcy affects a credit report | • 10 years from filing date | • 7 years from filing date |
| Benefits | • If the debtor is eligible, Chapter 7 is one of the quickest ways to get debt relief •Halts collection orders and lawsuits to debtor from creditors | • Allows debtors to schedule repayments to creditors while retaining assets • Halts collection orders and lawsuits to debtor from creditors |
| Drawbacks | • Nonexempt property assets can be sold by a bankruptcy trustee • Does not apply for secured debt (foreclosures, repossession, etc.) and undischargeble debt (alimony, federal student loans, child support, etc.) | • The court can require the use of up to 100% of the debtor’s disposable income in debt servicing • Repayment plan can be challenging for some debtors • Does not apply for undischargeble debt (alimony, federal student loans, child support, etc.) |
How Much Does It Cost to Convert from Chapter 13 to Chapter 7?
The conversion from Chapter 13 to Chapter 7 bankruptcy is a legal procedure that offers an alternative for those struggling to meet their restructured debt obligations. This process is governed by the Bankruptcy Code, which allows conversion “at any time,” however, it’s highly recommended to consult with a bankruptcy lawyer to ensure that this is the optimal path for your financial situation.
The primary cost associated with this conversion is a nominal fee. When converting your case, you are required to file a “notice of conversion” and pay a conversion fee of $25. This is calculated as the difference between the Chapter 7 filing fee ($338) and the Chapter 13 filing fee ($313). Typically, this process does not require a court hearing and can be completed in a very short time frame.
However, it’s important to note that not everyone is eligible to convert from Chapter 13 to Chapter 7. There are certain restrictions as per federal bankruptcy law. For instance, if you’ve filed a Chapter 7 case and received a discharge in the past eight years, you will need to wait until this eight-year period has passed to be eligible for another discharge.
Furthermore, if you’ve previously converted your case, you’ll need the bankruptcy court’s approval to convert again. This process isn’t as straightforward as filing a notice of conversion and may incur additional costs. Thus, understanding these conditions and costs is crucial when considering conversion from Chapter 13 to Chapter 7.
Filing For Bankruptcy In NJ
Filing for bankruptcy in New Jersey can be a challenging process. To avoid making any mistakes, such as transferring assets to friends or family members or paying off the wrong creditors, it is critical to consult with an experienced New Jersey bankruptcy attorney.
After you speak with a lawyer, you will have to gather all of the necessary paperwork, including your state and federal tax returns for the past two years, proof of income from the previous six months, recent bank statements, valuations or appraisals of any real estate you own, a list of all your assets, and budget information, as well as any additional information as advised by your attorney. Furthermore, you may have to take a credit counseling course from a Department of Justice-approved credit counseling agency within 180 days of filing for bankruptcy.
Once you have collected all the necessary documents and completed the credit counseling course, your lawyer will prepare the bankruptcy petition, which is a detailed account of your financial status, including your assets, income, and outstanding debts. When the petition is submitted to the bankruptcy court, the automatic stay takes effect, providing instant relief by halting all collection efforts, such as phone calls, wage garnishment, lawsuits, and vehicle repossessions. You will then attend a 341 meeting with the Bankruptcy Trustee, where you will testify under oath about your financial situation. Finally, before your debts are discharged, and you are freed from any obligation on qualifying debts, you must finish a debtor education course.
Upon completion of the process, your debts may be discharged. Discharge of a debt entails a permanent release from any obligation to pay it. Bankruptcy erases your eligible debts and relieves you of the responsibility to pay them.
Experienced Legal Guidance from Straffi & Straffi for Your Bankruptcy Options
Facing bankruptcy can feel overwhelming, especially when deciding between Chapter 7 and Chapter 13. Each type serves a different purpose depending on an individual’s financial situation, assets, and income level. Understanding how these options differ is key to making informed decisions about managing or eliminating debt and moving toward financial recovery. Taking the time to explore your options thoroughly can make a significant difference in achieving long-term financial stability.
If you’re unsure which type of bankruptcy may be right for your situation, speaking with an experienced legal professional can help. The New Jersey bankruptcy lawyers at Straffi & Straffi Attorneys at Law can provide personalized guidance and representation throughout the process. Call (732) 341-3800 to schedule a consultation and take the first step toward regaining financial control. With the right legal support, you can approach the process with confidence and a clear plan for your financial future.
