Types of Bankruptcy in Pennsylvania and New Jersey
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Types of Bankruptcies in PA and NJ
Most people are already familiar with phrases like “filing for bankruptcy” or “declaring bankruptcy.” What some people may not realize is that there are different types of bankruptcy that people can file. These are separated under various chapters of the United States Bankruptcy Code. Before you file for bankruptcy in Pennsylvania or New Jersey, it’s important to choose the best bankruptcy chapter for your situation. There are major differences between each chapter of bankruptcy, and each can have different short-term and long-term impacts on your financial situation. This short informational guide will help you understand the key differences between the most common types of bankruptcy in New Jersey and Pennsylvania.
If you’re considering bankruptcy, contact the Philadelphia bankruptcy lawyers at Sadek Bankruptcy Law Offices, LLC, for a free bankruptcy consultation. Call us in Pennsylvania at (215) 545-0008 or in New Jersey at (856) 890-9003.
How Many Types of Bankruptcy Are There Under the Bankruptcy Code?
Under the U.S. Bankruptcy Code, there are six primary types of bankruptcy, each designated by a different chapter of the Code. These types of bankruptcy filings include:
- Chapter 7 Bankruptcy
- Chapter 9 Bankruptcy
- Chapter 11 Bankruptcy
- Chapter 12 Bankruptcy
- Chapter 13 Bankruptcy
- Chapter 15 Bankruptcy
Which Bankruptcy Chapter Is Right for My Situation?
When determining which bankruptcy chapter is best for your financial situation, there are several factors you should consider.
The type and extent of your debts and assets play a crucial role in determining which chapter to file under. If you have significant non-exempt assets you wish to protect, Chapter 13 might be more appropriate. This chapter allows you to keep your property while repaying debts over time, meaning you could keep your car, home, or other personal property throughout the process.
In contrast, if you have limited assets and overwhelming unsecured debts, Chapter 7 may be the most suitable option. This chapter involves the liquidation of non-exempt assets in order to discharge eligible debts quickly.
Your current income and future earning potential can also make a difference. More specifically, having too much disposable income could limit your bankruptcy options. Chapter 7 requires you to pass a “means test” to qualify. The means test compares your family’s current monthly income to the median income for your state in order to determine whether or not you have the means to pay your creditors back.
If your income is too high, it means that you have the ability to pay your creditors back, and makes you ineligible for liquidation. This can leave Chapter 13 as your only option, which will require you to repay creditors over a three to five-year period, depending on your income.
The best way to understand which bankruptcy chapter is best for you is to speak with a dedicated PA or NJ bankruptcy lawyer. Sadek Law’s legal team strives to help our clients understand bankruptcy basics so they can make informed decisions about bankruptcy filing.
Most Common Types of Bankruptcy in PA and NJ for Consumers
Depending on your needs, you have a few potential options for filing for bankruptcy, known as “chapters” of bankruptcy. This is because they are named after various chapters of the U.S. Bankruptcy Code under federal law.
The two most common options are Chapter 7, a liquidation bankruptcy, and Chapter 13, a repayment plan.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as straight bankruptcy or liquidation, provides individuals and businesses with a fresh financial start by eliminating most unsecured debts. In this process, a court-appointed trustee sells or “liquidates” certain non-exempt assets to repay creditors. After liquidation, the remaining eligible debts are typically discharged, meaning the debtor is no longer legally required to pay them.
Many Chapter 7 exemptions allow filers to keep essential property while clearing burdensome debts from credit cards, medical bills, and unsecured loans. Working with an experienced Chapter 7 lawyer ensures that you understand which assets qualify for exemption, that your petition is filed correctly, and that you take full advantage of available legal protections throughout the process.
Chapter 13 Bankruptcy
Commonly referred to as a wage earner’s plan or reorganization plan, a Chapter 13 bankruptcy allows individuals with a steady income to reorganize their debts into a structured repayment plan approved by the court. Under this plan, you make affordable monthly debt payments over a period of three to five years, giving you the opportunity to gradually pay off what you owe without losing valuable assets such as your home or vehicle.
Unlike Chapter 7, Chapter 13 emphasizes restructuring debt to make repayment more manageable. This form of bankruptcy is ideal for those who have fallen behind on mortgage or car payments but wish to retain their property. Working with an experienced Chapter 13 lawyer like those at Sadek Bankruptcy Law Offices, LLC ensures your repayment plan is properly structured, feasible, and approved by the bankruptcy court.
Chapter 7 vs. Chapter 13 Bankruptcy
Chapter 7 and Chapter 13 have several features in common, but also have significant differences.
- Offer a fresh start and relief from debt
- Provide relief from the automatic stay
- Offer solutions for both businesses and individuals
- Satisfy your existing debts through liquidation or repayment
- Stop the repossession of your vehicle
- Stop foreclosure on your home
- Prevent creditor harassment and phone calls
- Eliminate your medical debt
- Protect certain assets through applicable exemptions
These are just a few of the many benefits of bankruptcy that both Chapter 7 and Chapter 13 bankruptcy offer. To learn more about how each chapter can help you, don’t hesitate to reach out to our team. We are always happy to help, and no question is too small.
- Chapter 7 can take as little as six months to complete, while Chapter 13 requires a period of three or five years to complete.
- Chapter 13 allows for the discharge of a few additional debts than Chapter 7.
- Chapter 7 requires a bankruptcy trustee to liquidate (sell) your assets, while Chapter 13 allows you to keep your property.
- Chapter 13 requires you to make monthly payments to your bankruptcy trustee, whereas Chapter 7 does not require you to make payments.
- Both chapters can halt foreclosure proceedings, but Chapter 13 can stop foreclosure by allowing you to catch up on mortgage payments.
- The filing fee to declare Chapter 7 bankruptcy is $338, while the filing fee to declare Chapter 13 bankruptcy is $313.
- If you have too much income, you might be prevented from filing Chapter 7.
While both chapters can alleviate financial problems by erasing or restructuring debt, they differ in terms of the procedures and regulations that apply.
Common Types of Bankruptcies for Businesses in Pennsylvania & New Jersey
“Personal” or “consumer” bankruptcy refers to bankruptcy for individuals and married couples. As the name implies, “business bankruptcy” is bankruptcy for business entities.
Depending on what type of business you operate, how much debt the business has incurred, and what your goals for the business are, it may be appropriate to file Chapter 7, Chapter 11, or, if you are a sole proprietor, Chapter 13.
Chapter 7 for Businesses
If your business is structured as a corporation, partnership, LLC, or sole proprietorship, you may file a Chapter 7 business bankruptcy in PA or NJ. Similar to a regular Chapter 7 filing, Chapter 7 business bankruptcy allows you to eliminate many of your business debts. However, it will also result in liquidation and ultimately the closure of the business.
Chapter 11 for Businesses
If you wish to keep the business open during and after the bankruptcy, you will need to file Chapter 11, which involves long-term debt restructuring. Chapter 11 bankruptcy often involves a corporation or partnership. In addition to adhering to the court-approved reorganization plan, businesses must ensure that they meet all financial obligations. This includes federal income and payroll taxes.
Chapter 13 for Businesses
Similar to Chapter 11, Chapter 13 allows businesses to continue operating while their cases are pending. However, Chapter 13 is unfortunately not a filing option for most business entities. The only type of business that may file Chapter 13 is a sole proprietorship, in which case the sole proprietor keeps the company’s assets while paying off debts gradually.
Chapter 12 for Businesses
Chapter 12 bankruptcy is specifically designed for family farmers and fishermen, enabling them to restructure and manage their debts to maintain operations. It is similar to Chapter 13 but provides more favorable terms and flexibility to address the unique challenges and seasonal cash flows of farming and fishing operations.
Less Common Types of Bankruptcy in Pennsylvania and New Jersey
In general, the average bankruptcy case would be a Chapter 7 or Chapter 13 filing. However, some specific cases require other, rarer bankruptcy chapters. Below are some of the other bankruptcy chapters you may be able to file under in Pennsylvania or New Jersey.
Chapter 9 Bankruptcy
Chapter 9 bankruptcy is a form of reorganization specifically designed for municipalities, such as cities, towns, villages, and public entities like school districts. It allows these governmental entities to restructure their debts while continuing to operate and provide essential services. This chapter helps ensure public services remain uninterrupted while addressing financial challenges.
Chapter 12 Bankruptcy
Chapter 12 bankruptcy allows family farmers and fishermen with a regular annual income to achieve debt relief under the Bankruptcy Code. Chapter 12 bankruptcy is often more flexible than a Chapter 13 filing, allowing for higher debt ceilings and less stringent eligibility criteria. This specialized form of bankruptcy helps ensure that farmers and fishermen with seasonal income fluctuations can restructure their debts effectively while continuing their livelihoods.
Chapter 15 Bankruptcy
Chapter 15 bankruptcy allows international companies that operate in both the U.S. and other countries to file for bankruptcy. It facilitates cooperation between U.S. federal courts and their foreign counterparts, protecting the interests of all parties involved while ensuring the fair and efficient administration of cross-border insolvencies. It allows foreign debtors to access U.S. bankruptcy courts in order to manage their U.S.-based assets and liabilities in conjunction with proceedings in their home countries.
Can Bankruptcy Eliminate Debt?
Yes, bankruptcy can eliminate eligible debts. However, debt elimination depends on both the type of debt you have and the type of bankruptcy you file.
Types of Debt Bankruptcy Can Eliminate
Both Chapter 7 and Chapter 13 bankruptcy can discharge certain unsecured debts. This means that bankruptcy can provide debt relief for certain consumer debts, credit card debts, medical bills, and more. For Chapter 7 bankruptcy, this occurs after the liquidation process. For Chapter 13, discharge occurs after you pay the owed money through your repayment plan.
Chapter 13 may discharge certain types of debt that Chapter 7 cannot discharge. This includes property settlement debts from divorce or separation proceedings, debts incurred while trying to pay non-dischargeable tax obligations, and debts owed for willful and malicious injury to property.
Bankruptcy may also discharge certain secured debts. However, secured debt discharge can be risky. If the secured creditor has a valid lien on your property, they may be able to collect the secured property if the debt is discharged.
Types of Debt Bankruptcy Can’t Eliminate
You cannot get rid of all your debts through bankruptcy. Common examples of nondischargeable debts include child support obligations, alimony, and recent tax debts. Bankruptcy court also cannot discharge debts owed for death or personal injury caused by drunk driving.
While most student loans do not qualify for discharge, courts may grant discharge if paying the debt would cause undue hardship. You can read more about how the Department of Education evaluates undue hardship on our website.
What Is the Bankruptcy Process in PA and NJ?
The bankruptcy process in Pennsylvania and New Jersey is largely the same, but residents of each state would need to file with their local courts. The steps of the bankruptcy process include:
- Filing a Bankruptcy Petition
The legal process starts with the debtor filing a petition in bankruptcy court, along with detailed financial information. This can be voluntary or involuntary (filed by creditors).
- Automatic Stay
Filing initiates an automatic stay, halting most collection activities against the debtor, including lawsuits and wage garnishments, offering temporary relief.
- Trustee Appointment
The United States trustee appoints a bankruptcy trustee to oversee the case. In Chapter 7 bankruptcy in PA, the trustee liquidates non-exempt assets to pay creditors. In Chapter 13, the court-appointed trustee helps create a repayment plan for the debtor to pay off debts over three to five years.
- Meeting of Creditors
A 341 meeting is held where the debtor answers questions from the trustee and creditors about their finances.
- Plan Confirmation or Asset Liquidation
In Chapter 7, the trustee liquidates non-exempt assets and distributes the proceeds to creditors. In Chapter 13, the court confirms the repayment plan detailing how the debtor will pay creditors.
- Discharge of Debts
If the court decides the creditor has met all of the necessary criteria, the bankruptcy judge issues a discharge. This releases the debtor from personal liability for most of their debts.
Why Choose Sadek Law for Your Personal or Business Bankruptcy Case?
At Sadek Bankruptcy Law Offices, we do more than just help you file for bankruptcy. We help you understand and improve your credit report, choose the right chapter of bankruptcy to file, guide you through the filing process, and explain how to achieve financial independence. Our dedicated team of attorneys is well-equipped to help you seek relief from crushing debt through various types of bankruptcy cases.
Highly Knowledgeable About Bankruptcy Laws
If you are unsure of whether your debts qualify for bankruptcy or if you are unsure of which chapter is right for you, our attorneys are here for you. We will carefully evaluate your unique situation and help you craft a course of action that works best for you. With our decades of experience in bankruptcy law, you can rest assured that we will work hard to ensure your case proceeds as smoothly as possible.
Strong Representation in Bankruptcy Court
We understand that appearing in the United States courts can feel intimidating, but our attorneys are here to help. Our bankruptcy lawyers are known for their strong client representation in bankruptcy court. We’re committed to advocating vigorously on your behalf, ensuring that your rights are protected throughout the process. Let us handle negotiations and court proceedings so you can focus on getting your personal or business finances back on track.
Representation Throughout East PA and South NJ
At Sadek Bankruptcy Law Offices, we handle bankruptcy cases in both New Jersey and Pennsylvania. Our Pennsylvania bankruptcy lawyers can help you file in Philadelphia County, Berks County, Bucks County, Chester County, Delaware County, Lehigh County, Montgomery County, and Northampton County.
Our New Jersey bankruptcy lawyers are proud to serve the residents of Atlantic County, Burlington County, Cape May County, Camden County, Cumberland County, Gloucester County, Mercer County, and Salem County.
To learn more about the benefits of filing for Chapter 7 or Chapter 13 bankruptcy in Pennsylvania or New Jersey, call us. The PA and NJ bankruptcy attorneys of Sadek Bankruptcy Law Offices offer free initial consultations to help you determine the best course of action, at no cost to you.
Considering Filing Bankruptcy? Contact a Pennsylvania and New Jersey Bankruptcy Attorney at Sadek Law
At Sadek Law, we understand that choosing the right type of bankruptcy is a critical decision that impacts your financial future. Our experienced attorneys are here to guide you through the nuances of Pennsylvania and New Jersey bankruptcy laws. We want to ensure you choose the path that best suits your unique situation. Whether you’re considering Chapter 7 or Chapter 13, we are dedicated to providing you with knowledgeable and compassionate legal representation.
Start your journey towards financial recovery with confidence. Contact us today to schedule a consultation with an experienced bankruptcy attorney on our team. Residents of Pennsylvania can call us at (215) 545-0008, and residents of New Jersey can call us at (856) 890-9003.