Chapter 7 and Chapter 13: A Quick Comparison
Both forms of consumer bankruptcy offer distressed debtors a fresh start. As outlined below, Chapter 7 and Chapter 13 have many other things in common as well. However, some significant differences exist, mostly with regard to the type of debt addressed (secured or unsecured).
A Chicago bankruptcy lawyer does much more than fill out forms. An attorney also stands up for debtors in the legal disputes that usually accompany the bankruptcy process. Additionally, a Chicago bankruptcy lawyer helps debtors take full advantage of the fresh start bankruptcy guarantees. In fact, in many cases, by the time the filing officially falls off their credit reports, many former debtors have forgotten that they filed.
Differences
We start with perhaps the biggest difference between Chapter 7 and Chapter 13, which is the purpose of these two forms of consumer bankruptcy. Chapter 7 is primarily designed for debtors with excessive unsecured debt, such as credit card debt. Most people file Chapter 13 because they have past-due secured debt, such as home mortgage payments.
Since it primarily discharges (forgives) unsecured debts, many Chapter 7s are closed within a year. That’s especially true if the debtor has little or no assets.
Chapter 13, on the other hand, lasts up to five years. The extended protected repayment period gives debtors plenty of time to erase secured debt arrearage. Each month, the debtor makes a debt consolidation payment.
The role of the trustee (person who oversees the bankruptcy for the judge) is different as well. Chapter 7 trustees normally verify debtor identities and look for red flags of fraud, such as recent large transfers and creditor payments. Chapter 13 trustees help debtors come up with the aforementioned debt consolidation payments. As long as the payment meets minimum legal requirements, the trustee usually rubber-stamps it.
Informal qualifications are different, mostly with regard to the debtor’s monthly income. Chapter 7 debtors should be in the red, to show they need extreme relief. Chapter 13 debtors should be in the black, to prove they can make monthly payments.
Similarities
In terms of formal pre-filing qualifications, the Automatic Stay, and available loopholes, Chapter 13 and Chapter 7 are very much alike.
All bankruptcy debtors must complete a pre-filing debt counselling course and a post-filing budgeting class. These classes, which are available online, normally take a few minutes and cost a few dollars.
The Automatic Stay, the core principle in a consumer bankruptcy, equally applies in Chapter 13 and Chapter 7. Section 362 of the Bankruptcy Code prohibits most kinds of adverse action, such as:
- Repossession,
- Wage garnishment,
- Foreclosure,
- Creditor lawsuits, and
- Eviction.
Generally, these adverse events are rather simple to prevent. However, they’re almost impossible to undo. So, if you’re more than a month behind on secured debt payments, reach out to a Chicago bankruptcy lawyer ASAP.
Favorable bankruptcy loopholes include reaffirmation agreements and lien stripping. Bankruptcy wipes out all credit agreements, giving an attorney the opportunity to renegotiate terms, such as the interest rate, which reaffirms these obligations. Lien stripping may apply if a home’s value is too low to secure a senior lien and a junior lien, like a HELOC. If the judge reclassifies the junior lien as an unsecured debt, that debt becomes dischargeable.
Work With a Dedicated Cook County Lawyer
No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.
