Blog

Oct
23
What You Need to Know about Chapter 7 and 13 Bankruptcies

temp-post-image

Declaring bankruptcy is never an easy decision to make. It is widely known that bankruptcy comes with certain negative consequences that can make managing one’s finances challenging for several years afterward. There is also the social stigma that comes with finding oneself in such severe financial straits. However, bankruptcy is not the end of the world. A properly managed bankruptcy and subsequent financial plan can successfully relieve a person of suffocating debt while also helping him/her get life back in order.

In the U.S., personal bankruptcies are filed under the guidelines of either Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. That code was codified by the Congress through the Bankruptcy Reform Act of 1978, an act that has itself been modified numerous times over the last 37 years. Below are the basics of both Chapter 7 and 13 bankruptcies, basics that are important to you as an individual consumer.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy filings are intended for individuals who would be best helped through liquidation. In such cases, a trustee is appointed to administer the case. That trustee reviews the client’s finances, including bankruptcy paperwork and supporting documents and sells any nonexempt property while directing the proceeds to creditors.

This kind of filing is generally reserved for those with very few assets and minimal income. The primary purpose is to free the individual of unsecured debt such as credit cards, personal loans, etc. It should be noted that Chapter 7 bankruptcy is tied to the individual’s property and income. If income is too high, a court may not allow a Chapter 7 filing; the client may be required to file Chapter 13.

Chapter 13 Bankruptcy

The Chapter 13 filing is one of reorganization rather than liquidation. It can be utilized by individual consumers and, in some cases, sole proprietors whose business and personal assets may not necessarily be separate. The primary difference between Chapter 13 and Chapter 7 is that a Chapter 13 filing does not eliminate personal debt. Rather, it establishes a workable repayment plan that brings an end to collection efforts in exchange for ensuring creditors will be paid over time.

Because Chapter 13 bankruptcy is a reorganization rather than liquidation, the individual does not lose any personal property unless he or she voluntarily uses such property to pay off debts. A court can approve a Chapter 13 bankruptcy plan without approval from creditors as long as the plan meets all statutory requirements under the bankruptcy code. However, that does not mean creditors cannot be consulted for the purposes of approving a plan.

Bankruptcy Details

Both Chapter 7 and 13 bankruptcies include details a client must discuss with his/her attorney in order to ensure the best strategy is adopted. For example, Chapter 7 bankruptcies can usually be discharged within 3 to 5 months; Chapter 13 bankruptcies are not discharged until all debts have been paid off – usually 3 to 5 years.

Also note that Chapter 7 bankruptcy does not provide a means for the individual to catch up on missed payments for secured debt such as mortgages and car loans. Chapter 13 does. A Chapter 13 filing may be the better option if the individual is in jeopardy of losing secured property as a result of financial problems.

There is quite a bit more to know about bankruptcy before deciding to pursue such a strategy. We invite you to contact us for more information and advice about your case.


Convenient Locations

In order to provide convenience for clients throughout Chicago and Northern Illinois, we have offices in the following locations: 

Chicago • Schaumburg  • Oakbrook • St. Charles • Naperville • And More

Locations

We have office locations throughout the Chicago Area:

Chicago (Downtown)

Schaumburg

Oak Brook

Naperville


All calls are routed through our Downtown office for your convenience.

Phone: 312-967-3159

Locations

We have office locations throughout the Chicago Area:

Chicago (Downtown)

Schaumburg

Oak Brook

Naperville


All calls are routed through our Downtown office for your convenience.

Phone: 312-967-3159

Less
Sign Up for Our NewsletterLess
Sign Up for Our Newsletter
Subscribe Here