Benefits of Bankruptcy Chapter 13

Many people think Chapter 13 bankruptcy is a Monopoly bankruptcy. These board game players lose all their property and drop out of the game when they declare bankruptcy. This erroneous outlook probably contributes to the bankruptcy-phobia many people have. These individuals have a crippling, unreasonable fear of bankruptcy that prevents them from even considering Chapter 13.

As outlined below, a real-life Chapter 13 is much different from a Monopoly bankruptcy. A Chicago bankruptcy lawyer helps distressed debtors unlock all the benefits of a Chapter 13 bankruptcy. These benefits come from accurately (and strategically) filling out paperwork as well as taking advantage of some legal loopholes that only experienced attorneys are familiar with. Largely for these reasons, a partnership with a Chicago bankruptcy lawyer is an investment that always pays off.

Basic Chapter 13 Benefits

Basic Chapter 13 benefits which are practically available for the asking include the Automatic Stay, asset protection, and a protected repayment period.

Section 326 of the Bankruptcy Code (a/k/a the Automatic Stay) usually stops creditor adverse actions. Some of these adverse actions include:

• Foreclosure,
• Wage garnishment,
• Repossession,
• Creditor harassment, and
• Evictions.

Usually, the Automatic Stay remains in full effect until the judge closes the matter. So, distressed debtors have a harassment-free period to catch up on past-due secured debt obligations, such as late mortgage payments. More on that below.

As mentioned, in a Monopoly bankruptcy, most players lose all their assets. That’s because bankruptcy exemptions don’t apply in Monopoly bankruptcy. But they do apply in an Illinois bankruptcy. These exemptions include:

• House,
• Motor vehicle,
• Government benefits,
• Retirement accounts, and
• Personal property.

There’s more good news. Effective January 2026, Illinois lawmakers significantly expanded many of these exemptions, especially the house and motor vehicle exemptions, making it easier for a Chicago bankruptcy lawyer to protect this property.

Bankruptcy doesn’t change the fact that secured debts, such as mortgages, must be paid. However, if the debtor owes past-due payments, Chapter 13’s protected repayment plan lasts up to five years. Since the Automatic Stay remains in effect, debtors make income-based repayments and catch up on their own terms.

Advanced Chapter 13 Benefits

The best interests of creditors rule and lien stripping may be two of the biggest informal benefits of Chapter 13 bankruptcy.

The best interests of creditors rule applies to the liquidation of nonexempt assets. Assume Frank and Leslie have a vacation cabin that’s nonexempt under the formal exemptions. Their cabin needs substantial repairs.

If the cost of those repairs, along with other seizure-related costs, exceeds the likely auction price, the trustee (person who oversees the bankruptcy for the judge) cannot legally seize the carbon. The seizure would not be in the best financial interests of the creditors.

Lien stripping often applies in the 80-20 mortgage purchases that were popular in the early 2000s. Assume Frank and Leslie bought their $200,000 primary residence with an 80/20 mortgage. If the home’s value has declined, the current fair market value may be too low to secure the senior $160,000 note and junior $40,000 note.

If that’s the case, the judge could reclassify the junior lien as a dischargeable unsecured debt. That reclassification means that Frank and Leslie could save thousands of dollars a year.

Connect with a Dedicated Cook County Lawyer

No matter what kind of financial problem you have, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Virtual, home, and after-hours visits  are available.

Source:

scholarship.law.upenn.edu/faculty_scholarship/300/