Why File Chapter 13 Instead Of Chapter 7?
Quite simply, people file bankruptcy, whether it’s Chapter 13 or Chapter 7, because their debts exceed their incomes. American households owe almost $17 trillion. The consumer debt load increases pretty much every year, often faster than wages increase. As outlined below, people file under different chapters of the Bankruptcy Code depending on the kinds of debts they have, and their financial needs at the time.
Most people fall behind on bills because of a divorce, job loss, or other event that’s almost completely beyond their control. A Chicago bankruptcy lawyer helps these families regain control over their own financial lives. Both kinds of bankruptcy keep ravenous creditors at arm’s length, allow filers to pay off debt or get rid of it altogether, and generally give them a fresh start. An attorney maximizes this fresh start and helps debtors truly put their financial problems behind them.
Chapter 13
The wage earner plan is designed for people with delinquent secured debts, such as past-due home mortgage payments. Chapter 13 gives these families up to five years to repay these debts, and other allowed claims, with an income-based monthly debt consolidation payment.
Generally, debtors use most or all of their monthly disposable income to fund this payment. The trustee (person who oversees a bankruptcy for a judge) then distributes this money among allowed claimants, such as home mortgage banks and student loan banks.
During the protected repayment period, the Automatic Stay prohibits creditors from pressuring debtors into paying more money or paying it faster. In other words, a debtor, not a creditor, controls the amount of monthly payments.
Chapter 13 also protects important financial assets, such as home equity, a motor vehicle, and government benefits. Furthermore, Chapter 13 discharges most unsecured debts, like credit cards and medical bills.
Chapter 7
This kind of bankruptcy is designed for people who mostly have issues with the aforementioned unsecured debts. Frequently, Chapter 7 discharges these debts in as little as nine months.
“Discharge” means a judge eliminates the legal obligation to pay a debt. A Chicago bankruptcy lawyer must deal with the collateral consequences of that debt in a separate proceeding.
Assume Karen owes tuition to State U, and State U withholds her transcript. A judge has the power to discharge the debt. But a bankruptcy judge doesn’t have the power to force State U to release Karen’s transcript.
The Chapter 13 protections, like the Automatic Stay, apply in Chapter 7. However, a Chapter 7 is much more streamlined than a Chapter 13, as mentioned above.
“Chapter 20”
This informal bankruptcy is an example of an advanced bankruptcy option that only a lawyer can unlock. Some people combine Chapter 7 and Chapter 13.
Assume Karen tries to discharge some past-due tax debt in a Chapter 7. But the IRS successfully challenges her motion to discharge that debt. When her Chapter 7 ends, she may be able to immediately file Chapter 13, and take advantage of an extended protected repayment period to pay back those back taxes.
Count on 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. The sooner you reach out to us, the sooner we start fighting for you.
Source:
newyorkfed.org/microeconomics/hhdc
