Should I File Chapter 7 or Chapter 13?
Filing choice usually depends on the type of debt. People with burdensome unsecured debts, like medical bills and credit cards, usually file Chapter 7. Debtors who are behind on mortgage notes and other secured debts generally file Chapter 13. Procedurally, the two major forms of consumer bankruptcy are almost identical, except for the length and purpose. More on that below.
Both kinds of bankruptcy enable struggling families to take control of their own financial affairs. Both kinds of bankruptcy are also very complex. A Chicago bankruptcy lawyer, not a bankruptcy petition preparer, should be with debtors as they go through this process. Petition preparers can only fill out forms. Attorneys strategically fill out forms and also represent debtors throughout this legal proceeding.
The purpose of and initial procedures in a Chapter 13 and Chapter 7 bankruptcy are practically identical.
Bankruptcy c=gives honest yet unfortunate debtors a fresh start. Honest debtors accurately complete the complex filing paperwork. They record all income sources and truthfully value their assets.
The bankruptcy value is usually different from the fair market value. A motor vehicle is a good example. Many “we buy cars in any condition” investors offer pennies on the dollar. This offer is the asset’s as-is cash value, which debtors must list on Schedule A. To support this value, which is usually much less than the Blue Book value, a Chicago bankruptcy lawyer often obtains a written offer and presents this offer to the trustee (person who oversees the bankruptcy for the judge) upon request.
Debtors are unfortunate if a situation largely outside their control, such as unemployment, divorce, or a death in the family, substantially causes their financial problems. Overspending, failure to budget, and other such personal habits often contribute to financial problems, but these behaviors shouldn’t substantially cause issues.
Procedurally, after debtors file their Chapter 7 or Chapter 13 voluntary petitions, the Automatic Stay usually takes effect. Typically, Section 362 of the Bankruptcy Code blocks adverse creditor actions, such as:
- Creditor lawsuits,
- Wage garnishment,
- Eviction, and
- Creditor harassment.
In some cases, usually if the debtor filed a previous petition within the past six months, the Automatic Stay has a more limited effect. Generally, unless a judge gives a creditor special permission, the Automatic Stay remains in force until the judge closes the matter.
Judges usually close Chapter 7 bankruptcies in less than a year. Upon closing, the judge discharged most unsecured debts. “Discharge” basically means the judge eliminates the legal obligation to repay a debt. Some unsecured debts, mostly back taxes and student loans, are only dischargeable in some situations.
Most Chapter 13s last five years. During the protected repayment period, debtors make income based catch-up payments on past due secured obligations. So, when the judge closes the bankruptcy, the debtor has a zero past due balance on all these debts. A Chapter 13 discharge also eliminates most unsecured debts, as mentioned above.
Chapter 13 also has a lesser impact on a credit report than Chapter 7, since in Chapter 13, the debtor makes more of an effort to repay obligations. Usually, the mortgage and other large debt waiting periods are shorter after a Chapter 13 filing. In fact, in some cases, debtors can borrow money to buy cars or even houses while they’re still in Chapter 13 bankruptcy.
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. Convenient payment plans are available.