What Kind Of Bankruptcy Is Right For You?
The underlying purpose of the Bankruptcy Code is to give the honest but unfortunate debtor a fresh financial start. Some people are burdened with unsecured debt, like credit cards and medical bills. Typically, debtors in these situations want to eliminate this debt as quickly as possible and start rebuilding their credit. Other people are delinquent on a home mortgage or other secured debts, and they simply need time to bring these accounts current.
Chapter 7 and Unsecured Debt
The average American household has over $15,000 in credit card debt. This figure obviously does not include medical bills and other common types of unsecured debt. Chapter 7 bankruptcy eliminates most all unsecured debts, and in most cases, these debts are discharged (forgiven) in only a few months.
Chapter 7 is sometimes erroneously called “liquidation,” a term which implies that debtors forfeit most or all of their assets to pay their debts. But most all assets are exempt. In Illinois, they include:
- – Up to $15,000 in home equity, or even more in some cases,
- – Retirement nest eggs, like earned IRAs, 401(k)s, or pension plans,
- – A motor vehicle,
- – Personal property, like furniture and jewelry,
- – Insurance benefits,
- – Most all current wages, and
- – Up to $4,000 of otherwise non-exempt property (the “wildcard exemption”).
Furthermore, the bankruptcy trustee who oversees the matter does not automatically seize non-exempt property. Assume the debtor has a somewhat dilapidated rental house. Although the house is not exempt, the trustee may allow the debtor to keep it, because after considering the cost of repairs and other associated expenses, the house may not have sufficient value to benefit the creditors in a liquidation.
Procedurally, the debtor files a petition and schedules. About six weeks later, the trustee reviews the paperwork with the debtor in a private meeting. Assuming there are no improprieties or “red flags,” the discharge order usually follows about six months later.
Chapter 13 and Secured Debt
According to the federal government, mortgage delinquency rates are still considerably higher than they were in the pre-Great Recession years. Many distressed homeowners either have underwater mortgages or damaged credit and are thus generally unable to refinance. Chapter 13 offers a solution to owners who fell behind on their mortgages, but given some additional time, are now in a position to catch up and resume making regular payments.
In a Chapter 7, the trustee’s main job is to review the petition and schedules. But in a Chapter 13, the trustee essentially places debtors on an allowance for either three or five years, depending on their income level. In addition to a petition and schedules, the debtor files a proposed debt repayment plan, and this is where the allowance comes in. After they pay essentials each month, any remaining money goes to repay creditors. Delinquent secured debts, like car loans and house notes, must be brought current within the three or five years. At the end of the repayment period, any remaining unsecured debt – even if it is all unsecured debt – is discharged.
During the repayment period, an automatic stay prevents moneylenders from taking any adverse action against debtors absent special permission from the bankruptcy court. So, Chapter 13 participants repay their debts on terms they can afford, as opposed to the sometimes-draconian terms the moneylenders offer.
Count on Assertive Lawyers
Whether you are dealing with secured or unsecured debt, bankruptcy is the best way to get a fresh start. To start down that path today, contact an experienced bankruptcy lawyer in Chicago from the Bentz Holguin Law Firm, LLC. After-hours and weekend appointments are available.
