Chapter 7 vs Chapter 13 bankruptcy in New Jersey

The basic difference

Chapter 7 is often called liquidation. A trustee reviews your assets, sells anything that is not protected by an exemption, and pays creditors from the proceeds. In practice, most individual Chapter 7 cases are no-asset cases where nothing is sold. Most debtors receive a discharge roughly 60 to 90 days after the first date set for the meeting of creditors, according to the federal courts.

Chapter 13 is a repayment plan. You keep your property and pay a set monthly amount to a trustee for three to five years. It is only available to individuals with regular income, including sole proprietors, and it is the chapter people often use to save a house from foreclosure by catching up on missed mortgage payments over time.

Chapter 13 has limits too. As of the federal courts' current figures, an individual must have unsecured debts under $526,700 and secured debts under $1,580,125 on the filing date to qualify. Above those amounts, other options such as Chapter 11 may be needed.

Filing in the District of New Jersey, and the counseling rules

New Jersey has one federal bankruptcy district with three courthouses: Camden, Newark and Trenton. Your case goes to the location, called a vicinage, that serves where you live or do business. Each vicinage has its own Chapter 13 standing trustee.

The clerk's office does not accept cash or personal checks from people filing without a lawyer. At a minimum, a new case needs the petition, the credit counseling certificate, a list of creditors, and either the filing fee or an application to pay in installments. Missing documents can lead to an order to show cause and possible dismissal.

Before filing either chapter, each individual debtor must complete credit counseling from an approved agency within the 180 days before the case is filed. For joint cases, both spouses must complete it. The U.S. Trustee Program keeps the list of approved agencies for New Jersey.

After filing, you must also take a separate financial management course. Skipping it can cost you your discharge.

The means test

If your household income is below the median for a household your size in New Jersey, you generally qualify for Chapter 7. If it is above the median, you take the means test, which subtracts allowed expenses and secured debt payments from your income to see if you could repay a meaningful part of your unsecured debt.

If the test shows enough disposable income, the law presumes that a Chapter 7 filing would be abusive, and you may need to file Chapter 13 instead. The court's website links to the current median income figures, which are updated periodically.

Passing or failing the means test is not the only factor. Some people who qualify for Chapter 7 still choose Chapter 13, for example to stop a foreclosure, protect a co-signer, or keep property that would not be protected by exemptions in a Chapter 7 case.

The automatic stay

Filing a bankruptcy petition triggers the automatic stay right away, without any judge needing to sign an order. It generally stops lawsuits, wage garnishments, foreclosure, repossession and collection calls. In Chapter 13, a co-debtor stay can also protect people who co-signed consumer debts.

There are exceptions. The stay may be limited or may not apply if you had a prior case dismissed recently, and some actions such as collecting child support continue. A foreclosure sale that was completed before you filed cannot be undone by the stay.

Exemptions: federal or New Jersey

Exemptions decide what you keep. New Jersey lets filers choose between the federal bankruptcy exemptions and the New Jersey state exemptions, but not mix them. New Jersey's own exemption list is short. It has no homestead exemption for your house, and it protects only $1,000 of general personal property, plus clothing and certain pensions.

Because of that, many New Jersey filers, especially homeowners with equity, choose the federal exemptions. Under 11 U.S.C. 522(d), as adjusted April 1, 2025, those include a residence exemption of up to $31,575 and a wildcard of $1,675 plus up to $15,800 of any unused residence exemption. The federal amounts are adjusted every three years, so a lawyer should run your numbers using the figures in effect when you file.

The 341 meeting of creditors

Every debtor must attend the meeting of creditors, named after Section 341 of the Bankruptcy Code. Despite the name, it is run by the trustee, and creditors rarely appear. You answer questions under oath about your petition, income and property. The District of New Jersey can dismiss a case if the debtor does not attend.

In Chapter 7, the meeting is held 21 to 40 days after filing. In Chapter 13, it is generally held 21 to 50 days after filing.

In Chapter 13, creditors generally must file claims within 90 days after the first date set for the meeting, and government creditors have 180 days from the filing date. Review your petition before the meeting so the answers you give match what you filed.

Debts bankruptcy usually does not erase

Neither chapter discharges everything. Child support and alimony, most student loans, certain taxes, criminal fines and restitution, and debts from drunk driving injuries generally survive. Knowing which of your debts fall into these groups is a big part of deciding whether bankruptcy makes sense at all.

Secured debts work differently. Bankruptcy can erase your personal liability on a car loan or mortgage, but the lender can still take the property if you stop paying. People who want to keep a financed car or house usually need to keep paying, or catch up through a Chapter 13 plan.