How Are Chapter 7 and 13 Bankruptcies Similar?
Overall purpose might be the biggest similarity between Chapter 7 and Chapter 13 bankruptcy. Both federal debt relief programs offer a fresh start to honest yet unfortunate debtors. Honest debtors have pure motives when they accurately complete and file all bankruptcy forms and other paperwork. Unfortunate debtors usually have excessive debts primarily because of divorce, illness, job loss, or another outside force completely, or mostly, beyond their control.
The specific purpose of Chapter 13 is different from the specific purpose of Chapter 7. For this reason, the two forms of bankruptcy have some procedural and other differences. After a thorough case evaluation, a Chicago bankruptcy lawyer puts your family on the correct bankruptcy path. A good lawyer takes more time at the front end to avoid some common problems later in the process. This approach hastens the fresh start the Bankruptcy Code guarantees.
Chapter 7 Nuts and Bolts
This kind of bankruptcy is designed for people with excessive credit card debt and other unsecured obligations. An average Illinois family has more than $10,000 in credit card debt, and the average credit card company charges about a 20 percent interest rate. To pay off that balance within ten years, if they cut up their cards, a family must pay more than $250 per month. That’s not a sustainable approach in most cases.
In as little as nine months, Chapter 7 discharges these unsecured debts along with most other ones, like medical bills and payday loans. “Discharge” means the judge eliminates the legal obligation to repay the debt. Bankruptcy judges don’t have the power to lift credit or property liens and address other collateral debt consequences.
Some unsecured debts, like student loans and back taxes, are priority unsecured debts that are only dischargeable in some cases.
Chapter 7 also protects core assets and halts adverse creditor actions. Exemptions usually apply to your house, retirement account, government benefits, and other important assets. Bankruptcy’s Automatic Stay immediately halts foreclosure, repossession, and most other adverse creditor actions.
Chapter 13 Nuts and Bolts
These same protections apply in Chapter 13 repayment bankruptcy cases. So, the two forms of bankruptcy are similar in this respect. But they’re different in other ways.
Chapter 13 lasts a lot longer than Chapter 7. Chapter 13 gives debtors who are behind on home mortgages and other secured debts up to five years to catch up on them. The trustee (person who oversees a bankruptcy for a judge) helps the debtor come up with an income-based repayment plan.
Since the debtor repays most obligations, Chapter 13 also falls off credit reports faster than Chapter 7. However, contrary to popular myth, neither kind of bankruptcy “ruins” your credit score. Bankruptcy simply makes a bad credit score worse for a small period of time.
Chapter 13 is also easier to qualify for than Chapter 7. The means test doesn’t apply in Chapter 13s. The debtor’s obligations must simply be underneath some very tall debt ceilings.
Sometimes, a Chicago bankruptcy lawyer combines a Chapter 7 and Chapter 13 into a Chapter 20 bankruptcy. If Ben finishes a Chapter 13, he might still need a little more time to pay off some debts. If he immediately files Chapter 7, he gets that extra time, because of the Automatic Stay.
Work With a Savvy Cook County Lawyer
No matter what kind of financial problem you are having, bankruptcy could be 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.