Pros and cons of a chapter 13 bankruptcy

A chapter 13 bankruptcy may be available to a wider audience, stop collections, protect third parties and require the repayment of debts.

In New Jersey, residents who find themselves overwhelmed with debt have several bankruptcy options. Often, a person can choose to file a chapter 7, 11 or 13 bankruptcy, but it can be hard to figure out which is right for each unique situation. According to the United States Bankruptcy Court District of New Jersey, each chapter is quite popular with 4,147 consumers filing a chapter 7, seven filing a chapter 11 and 3,062 filing a chapter 13 over the course of a single year.

Serves a wider audience

Not everyone is eligible to file for a chapter 13 just as not everyone is eligible for a chapter 7. However, this particular liquidation is available to people who have a steady income. In some cases, people who make more than the state median will still be able to file for this type of bankruptcy. This is beneficial because people who have a regular income can reassess their debts to create a repayment plan they can truly afford.

Stops collections

Another benefit of this type of personal asset liquidation is that it stops creditors from taking collections actions against the debtor. This means if a person's house is going through foreclosure, filing for a chapter 13 may stop the foreclosure and allow the person to keep his or her home. This type of petition also prohibits creditors from starting collections actions during the determined payback period, which usually lasts three to five years according to the United States Courts.

Protects third parties

Not only can a chapter 13 help a person save his or her house, but it can also free up someone who cosigned a loan. Some consumer loans require the signature of a third party to help ensure the loan will be repaid. A special provision in this bankruptcy petition actually protects anyone who cosigned a loan from financial liability.

Requires the repayment of debts

Even though people with significant debt may pursue a bankruptcy as a way of getting rid of debt, a chapter 13 does not dismiss everything. In fact, most people who file for this type of liquidation are still expected to make payments on their outstanding loans. The difference is that the person is able to create a new repayment plan that spans either three or five years. The new payment plan takes into account the person's income and monthly expenses to create a plan that allows him or her to remain financially stable.

For some New Jersey residents with too much debt to handle, filing for a chapter 13 bankruptcy may be the best option. No matter what type of liquidation a person is interested in starting, it is necessary to work with an attorney familiar with the proceedings to ensure everything is done correctly.