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by Mike
- October 23, 2025
Filing for bankruptcy is a serious financial decision that can provide much-needed relief to individuals facing overwhelming debt. In New Jersey, the two most common types of personal bankruptcy are Chapter 7 and Chapter 13. While both are designed to help individuals regain financial stability, they differ in eligibility, process, and long-term impact. Understanding these Differences Between Chapter 7 and Chapter 13 Bankruptcy in New Jersey can help residents make informed decisions about their financial futures.
The Basics of Bankruptcy in New Jersey
Bankruptcy is a federal process, meaning that most rules are the same across all states. However, each state including New Jersey applies its own exemptions and procedures regarding property protection and local court processes.
When someone files for bankruptcy, an automatic stay goes into effect. This court order immediately stops most collection efforts, including lawsuits, wage garnishments, and harassing creditor calls. From that point forward, the process depends on whether the individual files under Chapter 7 or Chapter 13.
Chapter 7 Bankruptcy: Liquidation for a Fresh Start
What It Is
Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” allows debtors to discharge most unsecured debts, such as credit card balances, medical bills, and personal loans. In exchange, a court-appointed trustee may sell (or “liquidate”) certain non-exempt assets to repay creditors.
Who Qualifies
Eligibility for Chapter 7 is determined by the means test, which compares an individual’s income to the median income in New Jersey. Those whose income falls below the state median typically qualify. Higher-income individuals may still be eligible if they can prove limited disposable income after paying necessary expenses.
What Happens to Property
While Chapter 7 is sometimes associated with asset loss, New Jersey filers can often keep essential property through state or federal exemptions. These can include a primary residence, a vehicle up to a certain value, household goods, and retirement accounts. In most cases, debtors keep all or most of their property.
How Long It Takes
Chapter 7 cases typically conclude within three to six months. Once complete, most remaining unsecured debts are discharged, giving the filer a clean financial slate.
Chapter 13 Bankruptcy: Repayment and Reorganization
What It Is
Chapter 13 bankruptcy, also known as a “wage earner’s plan,” allows individuals to reorganize their debts rather than eliminate them outright. Under this plan, the debtor proposes a repayment plan typically lasting three to five years based on income and expenses.
Who Qualifies
Chapter 13 is available to individuals with regular income who can afford to make monthly payments. There are also debt limits: as of 2025, unsecured debts must be under approximately $465,275, and secured debts under about $1.4 million (these limits adjust periodically).
What Happens to Property
Unlike Chapter 7, Chapter 13 allows filers to keep all their property, including homes and vehicles, as long as they stay current with the repayment plan. This makes Chapter 13 particularly appealing for those facing foreclosure or repossession.
How Long It Takes
The repayment period lasts three to five years, depending on income level and debt amount. After successfully completing the plan, any remaining eligible unsecured debts are discharged.
Comparing Chapter 7 and Chapter 13 in New Jersey
| Feature | Chapter 7 | Chapter 13 |
| Purpose | Liquidation | Debt reorganization |
| Eligibility | Income below median or limited disposable income | Regular income within debt limits |
| Duration | 3–6 months | 3–5 years |
| Property Protection | Non-exempt property may be sold | Debtor keeps all property |
| Debt Discharge | Most unsecured debts | Remaining debts after repayment |
| Foreclosure Prevention | Limited options | Can stop foreclosure and allow repayment |
| Credit Impact | Remains on credit report for 10 years | Remains for 7 years |
In essence, Chapter 7 provides a faster fresh start, while Chapter 13 offers a structured path to debt repayment for those with steady income and valuable assets to protect.
How New Jersey Bankruptcy Exemptions Apply
Each state allows debtors to protect certain property from liquidation. In New Jersey, filers can choose between state exemptions or federal exemptions, but not both. Common protections include:
- Homestead exemption: Protects a portion of home equity
- Motor vehicle exemption: Covers up to a set value in one vehicle
- Personal property exemption: Includes furniture, clothing, and household items
- Retirement accounts: Most tax-qualified accounts are fully protected
Choosing the right exemption system can significantly affect the outcome of a Chapter 7 filing or the structure of a Chapter 13 repayment plan.
For detailed exemption amounts, refer to the U.S. Courts Bankruptcy Basics guide or consult the New Jersey Courts website.
The Role of the Bankruptcy Trustee and the Court
Both types of bankruptcy involve oversight by a bankruptcy trustee, who ensures compliance with federal and local laws. In Chapter 7, the trustee manages asset liquidation; in Chapter 13, they oversee repayment plan administration. Filers must also attend a meeting of creditors (341 meeting), where they answer questions about their financial situation under oath.
How Bankruptcy Affects Credit and Future Finances
Filing for bankruptcy does affect credit scores, but its long-term impact often depends on financial behavior afterward. Chapter 7 remains on a credit report for 10 years, while Chapter 13 lasts 7 years. However, many individuals begin rebuilding credit within months by making timely payments and using secured credit responsibly.
In many cases, bankruptcy can actually improve financial stability by eliminating or managing unpayable debts and preventing further damage from collections or lawsuits.
Key Takeaways
When considering bankruptcy in New Jersey, it’s crucial to understand the core differences:
- Chapter 7 is best for individuals with limited income and few assets, seeking a swift discharge of unsecured debts.
- Chapter 13 suits those with steady income who want to retain property and catch up on overdue payments.
- Both offer a path toward financial recovery, but the choice depends on individual goals, income, and asset protection needs.
By learning about the Differences Between Chapter 7 and Chapter 13 Bankruptcy in New Jersey, residents can make more informed financial decisions and take the first step toward rebuilding their economic stability.
