Chapter 13 Bankruptcy in New Jersey

About Chapter 13

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Mr. Cerbone is Board Certified Bus. Bankruptcy Attorney - American Board of Certification

Purpose of Chapter 13

One purpose of a chapter 13 is to enable a debtor to retain certain assets (for example, your home) that might otherwise be liquidated by a chapter 7 Trustee. The filing of a Chapter 13 case stops foreclosures, repossessions, wage garnishments, lawsuits and all other collection activity. A Chapter 13 also provides an alternative to Chapter 7 when you have too much "disposable income" (your net monthly income exceeds your net monthly expenses by too much). A Chapter 13 case usually yields much lower monthly payments than you were previously paying and after 36 months, you are done. Your debts are gone. A Chapter 13 also enables you to discharge debts that would not be discharged in a Chapter 7, such as a fraud judgment, certain tax obligations, penalties, and other debts. Chapter 13 protects individuals from the collection efforts of creditors; permits individuals to keep their real estate and personal property; and provides individuals the opportunity to repay their debts through reduced payments.

Individuals With Regular Income

Chapter 13 of the Bankruptcy Code, sometimes referred to as the "wage earner" plan, is available to individuals with regular income. Chapter 13 may permit individual debtors to propose a plan of repayment where creditors are paid all, or a portion, of certain debts in installments. The plan may provide for payments over a period of 36 to 60 months.

Chapter 13 may allow a debtor to retain assets and obtain a broader discharge. The plan must provide for the submission of all or such portion of future earnings or other future income of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan.

Individuals In Business

A corporation may not be a Chapter 13 debtor. However, relief may be available to a self-employed individual, or an individual operating a business, provided that the requirements under Section 109 are met. Section 1304 provides that a debtor who is self-employed or engaged in business may operate the business of the debtor.

Automatic Stay

The filing of a petition under Chapter 13 "automatically stays" most collection actions against a debtor or a debtor's property. For so long as the stay is in effect, creditors generally cannot even make a telephone demand for payment to a debtor. The automatic stay should be respected and taken seriously. Section 362 (h) provides that an individual injured by any willful violation of a stay shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages.

Co-Debtor Stay

Section 1301 of the Bankruptcy Code provides that in a bankruptcy for individuals filed under Chapter 13, a creditor may NOT pursue against a co-debtor or a personal guarantor, not in bankruptcy, if the debt is a "consumer debt". Under Section 101 (8) ''consumer debt'' means debt incurred by an individual primarily for a personal, family, or household purposes.

Estate of The Debtor

Except as provided in a confirmed plan or order confirming a plan, the debtor shall remain in possession of all property of the estate. Property of the estate includes, in addition to the property specified in Section 541, earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first

Chapter 13 Plan

The debtor must file a Chapter 13 plan with the petition, or within 15 days thereafter. Such time may not be further extended except by the court for cause. If a debtor first filed a Chapter 7 bankruptcy but later converted to a Chapter 13, a plan must be filed within 15 days from the date of conversion.

At a required confirmation hearing, the Bankruptcy Court may "Confirm" the plan if the plan meets statutory requirements, is proposed in good faith, all fees and charges have been paid, and the debtor has a reasonable probability of success in fulfilling the payments under the plan. The value of property, as of the effective date of the plan, to be distributed to each allowed unsecured creditor must be not less than the amount which would have been paid on such unsecured claim under a Chapter 7.

Effect of Confirmation

The confirmation of a Chapter 13 plan generally binds the debtor and all creditors, and vests all property in the debtor. Upon completion of the plan, a debtor may be granted a discharge.

Mr. Cerbone is Board Certified Bus. Bankruptcy Attorney - American Board of Certification. For more information visit our website at or contact us at 732-301-4406