Are Chapter 7 and Chapter 13 Different?

In some ways, these two kinds of consumer bankruptcy are significantly different. In other ways, they’re exactly the same. In a nutshell, these two matters end the same way. All filers receive a fresh financial start. The main differences between Chapter 7 and Chapter 13 lie in the nuts and bolts of each procedure. More on that below.

Another way these two matters are similar is that a Chicago bankruptcy attorney is a much stronger partner than a non-lawyer bankruptcy petition preparer. Since BPPs aren’t lawyers, they cannot give filers any legal advice, such as whether they should file Chapter 7 or Chapter 13. Additionally, a BPP cannot effectively advocate for debtors in court or during settlement negotiations. Only a lawyer can handle these chores.

Similarities

Chapter 7 and Chapter 13 refer to different chapters of the Bankruptcy Code. Since the same document covers both kinds of bankruptcy, they are similar in many ways, such as:

• Automatic Stay: When debtors file their voluntary petitions, Section 362 of the Bankruptcy Code immediately stops repossession, foreclosure, wage garnishment, and most other creditor adverse actions. Usually, these actions, especially repossession and forec;losuer, are very difficult to undo. So, distressed debtors should reach out to Chicago bankruptcy lawyers sooner rather than later.
• 341 Meeting: Section 341 of the Bankruptcy Code controls the meeting between debtors and trustees. The trustee is basically a person who manages a bankruptcy for a judge. Usually, the trustee reviews various documents, mostly tax returns and other financial documents, prior to this meeting, which usually happens about six weeks after a petition is filed.
• Debt Discharge: When a judge closes a Chapter 7 or Chapter 13, the judge discharges most credit card debt and other unsecured debt. Essentially, “discharge” means the judge eliminates the legal requirement to pay a debt, and the creditor cannot attempt to collect it. However, the collateral effects of that debt remain. If State U is withholding Bill’s transcript due to unpaid tuition, an attorney must address that situation in a different proceeding.

Other similarities include the forum and qualifications. All bankruptcies are federal cases, which means they’re very complex. Filing paperwork is just the beginning. Basic bankruptcy qualifications include a pre-filing debt counseling class and a post-filing budgeting class.

Differences

The qualifications for these two proceedings are also different in some ways. Chapter 7 filers must earn less than the statewide average for their family size. Chapter 13 debtors must be below debt ceilings.

Furthermore, Chapter 7 is much shorter than Chapter 13. In most cases, judges close Chapter 7s shortly after the 341 meeting. Chapter 13s last between three and five years. They include a protected repayment period that allows debtors to catch up on past-due mortgage payments and other secured debt arrearage.

Most importantly, the purpose is very different. Most people file Chapter 7 if they have excessive unsecured debt, such as medical or credit card debt. As mentioned, Chapter 7 discharges such debt almost immediately. In contrast, debtors struggling with past-due secured debt usually file Chapter 13. These debtors must catch up on payments or the creditor will repossess the collateral, whether or not the debtor filed bankruptcy. The three or five year repayment period gives debtors time to deal with the situation without incurring further penalties.

Contact a Thorough Cook County Lawyer

No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.

Source:

uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/process-bankruptcy-basics