Chapter 7 bankruptcy in New Jersey eliminates most unsecured debts in 3-4 months but does not cure mortgage arrears, while Chapter 13 allows you to repay mortgage arrears over a 3-5 year plan and keep your home. The right choice depends on your income, assets, goals, and whether you are trying to save your home from foreclosure. Both chapters trigger the automatic stay that immediately halts foreclosure, collections, and lawsuits.
Chapter 7 Bankruptcy Overview
Chapter 7 is a liquidation bankruptcy. A court-appointed trustee reviews your assets, and any non-exempt property may be sold to pay creditors. In practice, most Chapter 7 cases in NJ are “no-asset” cases, meaning the debtor has no non-exempt property and no assets are liquidated. Chapter 7 provides a discharge of most unsecured debts (credit cards, medical bills, personal loans) within approximately 3-4 months of filing. However, Chapter 7 does not eliminate secured debts like your mortgage. While the automatic stay temporarily halts foreclosure, once the case is closed or the stay is lifted, the lender can resume foreclosure proceedings. Chapter 7 may be appropriate if you do not intend to keep your home and want to eliminate other debts, or if you want to discharge unsecured debts to free up income for mortgage payments.
Chapter 13 Bankruptcy Overview
Chapter 13 is a reorganization bankruptcy that allows individuals with regular income to propose a 3-5 year repayment plan. The plan addresses all of your debts, including mortgage arrears. The critical advantage of Chapter 13 for homeowners facing foreclosure is that it provides a specific mechanism under 11 U.S.C. § 1322(b)(5) to cure mortgage arrears over the life of the plan while maintaining current mortgage payments going forward. As long as you make all plan payments and remain current on your mortgage, the lender cannot foreclose. Chapter 13 also allows you to “strip off” wholly unsecured junior liens (second mortgages or home equity lines of credit where the home’s value is less than the first mortgage balance) in certain circumstances.
Income Requirements: The Means Test
Chapter 7 requires you to pass the “means test” under 11 U.S.C. § 707(b). If your household income is below the NJ median income for your household size, you automatically pass. If your income exceeds the median, the means test calculates whether you have sufficient disposable income to fund a Chapter 13 repayment plan. If the test shows you can pay a meaningful amount to creditors, you may be required to file Chapter 13 instead. Chapter 13 does not have a means test for eligibility but does require that you have regular income sufficient to fund a repayment plan. Chapter 13 also has debt limits (effective April 1, 2025): your total secured debts cannot exceed $1,580,125 and your total unsecured debts cannot exceed $526,700. These limits are adjusted periodically.
Impact on Your Mortgage and Home
In Chapter 7, you must continue making mortgage payments to keep your home. The bankruptcy discharge eliminates your personal liability on the mortgage debt, but the lender retains the lien on your property. If you stop paying, the lender can foreclose after the bankruptcy case is closed. In Chapter 13, you make current mortgage payments directly to the lender while the plan cures your arrears through payments to the Chapter 13 trustee. At the end of the plan, your mortgage is current and you continue making regular payments. Chapter 13 is the only bankruptcy chapter that provides a court-supervised mechanism to cure mortgage arrears while keeping your home.
Property Implications
Both Chapter 7 and Chapter 13 allow you to protect certain property through NJ exemptions. NJ does not have a homestead exemption, which means your home equity is not automatically protected in Chapter 7. If you have significant equity in your home, a Chapter 7 trustee could potentially sell it to pay creditors. Chapter 13 does not involve liquidation of assets, so your property is not at risk of sale — though you must pay unsecured creditors at least what they would receive in a hypothetical Chapter 7 liquidation.
Timeline Differences
Chapter 7 cases typically last 3-4 months from filing to discharge. Chapter 13 cases last 3-5 years (the length of the repayment plan). While Chapter 7 is faster, Chapter 13 provides ongoing protection and a structured path to resolve mortgage arrears. The automatic stay in both chapters takes effect immediately upon filing.
Call Friscia & Associates Today
Choosing between Chapter 7 and Chapter 13 bankruptcy requires careful analysis of your financial situation, goals, and the specifics of your foreclosure case. Call Friscia & Associates at (973) 500-8024 to speak with a NJ bankruptcy and foreclosure defense attorney who can evaluate your options and recommend the best strategy to protect your home and financial future.
Legal Disclaimer: The information on this page is for general informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by reading this content. Every bankruptcy case is different, and outcomes depend on the specific facts and circumstances involved. If you need legal advice, please contact our office to schedule a consultation.