Why Should I File Chapter 13?
Most people file Chapter 13 bankruptcy if their debts are too large to pay all at once, and they need a payment plan. Chapter 13 payment plans are much more debtor friendly than the “payment plans” creditors offer.
Chapter 13 offers income-based repayment plans that usually last five years. Usually, that’s more than enough time to catch up on late mortgage payments and other delinquent secured obligations. Chapter 13 also discharges (eliminates) most unsecured debts, like credit cards and medical bills.
Additionally, a Chicago bankruptcy lawyer can unlock some advanced Chapter 13 options that, in many cases, may save your family thousands of dollars. More on that below.
Automatic Stay
Section 362 of the Bankruptcy Code may be one of the biggest benefits of Chapter 13 bankruptcy. Many people file Chapter 13 simply to take advantage of the Automatic Stay. This provision immediately stops most kinds of creditor adverse action, such as:
- Foreclosure,
- Creditor lawsuits,
- Eviction,
- Wage garnishment, and
- Repossession.
Credits need special permission from the judge to bypass the Automatic Stay. Judges only grant such permission in extreme cases. The amount of delinquency, no matter how high, is not an extreme circumstance.
We mentioned that many people file bankruptcy to take advantage of the Automatic Stay. Some people abuse this privilege. They file multiple times, sometimes under different names. These serial filers are entitled to lesser protection under the Automatic Stay.
Asset Protection
Chapter 13 not only protects your most important assets from creditors. It also protects them from bankruptcy trustees (people who manage bankruptcy cases on behalf of judges). The formal property exemptions in Illinois include:
- Home equity,
- Motor vehicle equity,
- Government benefits,
- Personal property, and
- Retirement accounts.
Some exemptions, like the retirement account exemption, are absolute. 401(k)s, IRAs, and other retirement nest eggs are usually untouchable regardless of their balance.
Other exemptions, like the home equity exemption, are value based. If homeowner’s equity exceeds the exemption amount, a Chicago bankruptcy uses little-known loopholes to protect your home.
A tenancy of the entirety is a good example. It’s illegal to seize one person’s assets to pay another person’s debts. So, if one homeowner files bankruptcy, and the other occupant is a tenant, the house is untouchable.
Debt Repayment
About six weeks after debtors file their voluntary petitions, they meet with bankruptcy trustees who set them up on payment plans. The payment plan must settle all allowed claims before the three- or five-year timer expires.
“Allowed claims” include secured debt arrearage and some unpaid unsecured debts, such as past-due child support or student loans.
“Settle” is a significant word in a bankruptcy. Most judges send any disputes over payments and other such matters to mediation, A mediator ensures that each side negotiates in good faith. So, even if the bank is in the right, the bank must compromise, if that’s what it takes to get a deal done.
Financial circumstances often change over the course of three or five years. When that happens, an attorney can modify the plan. A conversion to Chapter 7 is usually an option as well. Chapter 7 debtors repay nothing in most cases, and get their fresh starts much faster.
Work With a Thorough 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.
