Chapter 7 and Chapter 13 Bankruptcy: What You Should Know
Nationwide, bankruptcy filing statistics have declined significantly since the end of the Great Recession. However, it’s unclear whether this decrease is because more Americans are on secure financial footing or because there is so much misunderstanding about bankruptcy.
For example, some people think that the 2005 bankruptcy reforms essentially made it impossible to file Chapter 7. True, there are some additional qualifications. But almost everyone still qualifies for unsecured debt relief.
Moreover, some people think they have too much property to qualify for Chapter 13. Indeed, the property/debt ceiling is rather low. But an experienced Chicago bankruptcy attorney should have no problem getting families the secured debt relief they need.
Chapter 7 Bankruptcy
Medical bills cause most Chapter 7 bankruptcies. During and after the Great Recession, medical bill inflation was rather low. Now, prices are rising again, and many families have a hard time keeping up. Even if the debtor has health insurance, the insurance often only covers 80 percent of the bill. 20 percent of cancer treatment expenses is a lot of money.
These expenses often cause a downward spiral. Many families use credit cards to pay medical costs. The balance gets a little bigger, and a little more difficult to pay, each month. Very quickly, the amount due becomes almost unmanageable.
If these issues sound familiar, Chapter 7 may be a way out. This form of bankruptcy quickly discharges unsecured debts, such as:
- – Credit cards,
- – Medical bills, and
- – Payday loans.
Other forms of unsecured debt, such as income tax debt and student loans, may be dischargeable as well, but there are special rules.
Debt discharge means the debtor no longer has a legal obligation to pay the debt. And, since the Bankruptcy Code guarantees a fresh start, most of the debtor’s assets are exempt in a Chapter 7. These exemptions normally include things like home equity, private vehicles, personal property, and retirement accounts.
Many debtors want to pay some obligations. For example, a family may want to pay certain medical bills to stay in good graces with a certain doctor. In these situations, a bankruptcy attorney can often negotiate a lower payment amount or a more convenient payment plan.
This form of bankruptcy also discharges unsecured debts. But most Chapter 13 filers have issues with secured debt, such as:
- – Home mortgage payments and
- – Auto loan payments.
These creditors are very aggressive, largely because the Supreme Court has limited some protections in the Fair Debt Collection Practices Act. Many moneylenders begin repossession or foreclosure proceedings after one or two missed payments.
Bankruptcy’s Automatic Stay comes into play here. Typically, Section 362 of the Bankruptcy Code immediately halts all creditor adverse action. That includes everything from harassing phone calls to collection lawsuits to foreclosure.
The Stay usually remains in effect for up to five years. During this time, the debtor makes monthly payments which pay down past-due debt. These payments are based on the family’s income and not on what the moneylender demands. At the end of the protected repayment period, the debtor has a zero past due balance. That’s the very definition of a fresh financial start.
Count on Experienced Lawyers
If you have past-due debt, you have legal options. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in Illinois and Indiana.