What’s the Difference Between Chapter 7 and Chapter 13?

Many more people are asking this question and exploring their bankruptcy options. At a time when consumers need more protection than ever, the Consumer Financial Protection Bureau recently increased the power of debt collectors. This CFPB rule was one of the last non-bankruptcy shelters available for distressed debtors.

If you find yourself in this predicament, you can either wait and hope that someone else does something, or you can take control of your own financial situation. A Chicago bankruptcy lawyer can protect you from creditors, shield your assets from liquidation, and give you a fresh financial start. Different types of bankruptcy are available for different types of debt problems.

Key Similarities

Regardless of the chapter they file under, distressed debtors like you can take advantage of the Automatic Stay and debt discharge.

Section 362 of the Bankruptcy Code usually kicks in as soon as debtors file their voluntary petitions. The Automatic Stay promptly stops:

• Foreclosure,
• Bank account levy,
• Repossession,
• Wage garnishment,
• Eviction, and
• Creditor lawsuits.

Generally, the Automatic Stay remains in force until the judge closes the case. Moneylenders can only bypass the Stay in limited circumstances, and only if they can get past the Chicago bankruptcy lawyer who stands up for you in court.

Consumer bankruptcy provides more than short term relief. Bankruptcy also discharges (eliminates) unsecured debts, like medical bills and credit cards. Revolving debt drags families down fast. The interest rates are so high that minimum payments barely make a dent in the UPB (Unpaid Principal Balance). Imagine what your family can do with the thousands of dollars a year that you currently give to credit card companies.

Additionally, both kinds of bankruptcy protect your most important assets. Unless you file bankruptcy, many creditors do not need court orders to liquidate your house, car, or retirement account.

Important Differences

Chapter 7 helps people with crushing unsecured debt. Typically, if such obligations eat up more than 10 percent of your income, you should consider filing bankruptcy.

In as little as six months, Chapter 7 discharges debt and gives you a fresh start. The procedure is usually straightforward, especially if you have a capable attorney. Assuming the trustee (person who oversees the bankruptcy for the judge) sees no evidence of financial or identity fraud, judges usually issue discharge orders without requiring hearings.

Chapter 13 is designed for people with delinquent secured debts. Legally, most lenders can begin repossession, foreclosure, and other procedures if a single payment is a single day late.

The trustee has a different job in a Chapter 13. While still looking for signs of fraud, the trustee also helps the debtor set up a monthly repayment plan. Families usually have up to five years to erase secured debt delinquency. At the end of the bankruptcy, the judge discharges any remaining unsecured debts.

Five years is a long time, and financial circumstances usually change during this period. Depending on whether your situation improves or gets worse, a lawyer can ask for an early exit from bankruptcy or a hardship discharge. 

Connect with Tenacious Lawyers

No matter what financial problems you face, bankruptcy could be your way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in Indiana and Illinois.

Resource:

consumerfinance.gov/compliance/compliance-resources/other-applicable-requirements/debt-collection/