Chapter 7 and Chapter 13 of the Bankruptcy Code provide different ways for an individual to obtain relief from outstanding debt. The choice of one or the other is usually dictated by the debtor’s particular circumstances. Each remedy has advantages and drawbacks. One advantage of Chapter 13 is that it allows for discharge of certain types of debts that cannot be discharged under Chapter 7.

A Chapter 7 bankruptcy offers speed and simplicity. A case usually takes three to six months and typically results in full discharge of most types of unsecured debt.

But a Chapter 13 bankruptcy can often be a better remedy than Chapter 7, especially as regards saving one’s home from foreclosure or other assets from repossession. Under a Chapter 13 plan, people in arrears on home mortgage or car loan payments can repay the past due amounts in small increments over years. The automatic stay in bankruptcy stops creditors from taking collection measures as long as the debtor makes the payments in the court-ordered Chapter 13 plan and continues to pay off the loan going forward.

Even without the need to protect large assets, a debtor with steady income might still find Chapter 13 advantageous because it allows for discharge of some types of debts that cannot be discharged in Chapter 7. 

The following are examples of debts that can be discharged at the end of a Chapter13 repayment plan:

• Certain governmental fines and penalties, such as a debt originating with violations of securities laws or with misconduct against a bank insured by the federal government

• Compensation owed for damaging or destroying another’s property, even if the debtor’s actions were willful

• Portions of secured loans that have been stripped or crammed down, which become reclassified as unsecured loans

• Debts incurred to pay nondischargeable taxes, such as by using a credit card

• Certain debts arising from divorce or separation settlements

Those types of debt cannot be discharged in Chapter 7. 

There are limitations to Chapter 13 debt discharges. Your bankruptcy attorney will ask you for a complete and accurate listing of your debts and assets in order to counsel you on the best resolution of your financial problems.

The Law Offices of James C. Zimmermann provides legal assistance in all bankruptcy and debt relief matters. We have offices in Hackensack, Vernon, Wayne, Pompton Lakes and Nutley, New Jersey. Call 973-764-1633 or contact us online for a free consultation.