The vast majority of people in New Jersey and across the country work hard to fulfill their financial obligations. Unfortunately, unforeseen circumstances can easily derail a person’s best intentions. For example, a lost job or serious medical condition can result in debt that may be difficult — if not impossible — to overcome. For many of these people, seeking Chapter 7 bankruptcy may be their best option.
If a Chapter 7 petition is successful, it can clear away a person’s unsecured debt. Debt that can be liquidated includes medical bills, credit card debt and unsecured personal loans. Most student loans, child and spousal support and court fees, among others, cannot be cleared. The process takes approximately four to six months to complete, starting with the completion of a mandatory credit counseling course before filing.
Once a petition is filed, the court places an automatic stay on debt, stopping creditors from collecting payment, foreclosing on a home or evicting the petitioner, among other actions. The court will also appoint a trustee who will review the petitioner’s finances and sell nonexempt property to pay creditors. To be successful, the petitioner’s average income must be less than the median average for a family of the same size or the person must pass a means test, which looks at whether there is sufficient disposable income to pay partial payments.
Being granted a Chapter 7 bankruptcy can have significant consequences on a person’s life. While it can clear unsecured debt, it can also have an impact on the petitioner’s credit score. Fortunately, he or she can begin work to reestablish credit. For those struggling with debt, careful consideration is necessary, usually with the guidance of an attorney with experience regarding such cases. For many in New Jersey, such protection is the only way to start with a clean financial slate.