The Bankruptcy Code is divided into several chapters that relate to specific bankruptcy actions. The two most common types of bankruptcies for consumers are found in Chapter 7 and Chapter 13 of the Bankruptcy Code. The choice of filing a case under one of these chapters depends on a number of variables and the individual's financial circumstances.
A Chapter 7 Bankruptcy is sometimes described as an "erase your debts and start fresh bankruptcy." The basic concept of a Chapter 7 case is that most of your debts are wiped-out and you receive a fresh start.
Legal exemptions usually protect all of a Chapter 7 debtor's property, so creditors generally receive nothing. Most
unpaid unsecured debts (e.g. credit cards, medical bills, car repossession deficiencies) are discharged. The debtor must choose whether to continue paying for a debt that is secured by collateral such as a car or house, or surrender the property and discharge the debt. A typical Chapter 7 bankruptcy case will take around four months, start to finish, and the debtor will not lose any property.
In a Chapter 13 Bankruptcy the debtor repays all or part of her debts in monthly installments over a three to five year period. The repayment period cannot exceed five years. The debtor proposes a plan to repay creditors, but not always the full amount that they are owed. The plan is reviewed by creditors and the Chapter 13 Trustee, who may file objections, and is approved or denied by the bankruptcy court. Each month, the debtor makes a payment to the Chapter 13 Trustee who, in turn, distributes payments to her creditors based on the terms and conditions of the Chapter 13 plan. The amount of the monthly payments to the Chapter 13 Trustee depend on a variety of factors, such as your monthly income and necessary expenses, what type of debt you have, and the type of assets you own. At the end of the repayment plan, most debts are discharged. You will not lose any property during a Chapter 13 bankruptcy unless you want to surrender it.
Some individuals choose to file Chapter 13 to have the opportunity to repay debts over time, like a vehicle or arrearages on a house payment. In some cases Chapter 13 can lower or eliminate these payments. Chapter 13 is often a great option for those who are disqualified from Chapter 7 because their household income allows them to pay a portion of their unsecured debts.
Because of the complexities of the Bankruptcy Code, it is important not to try to navigate these waters by yourself. If you are unable to pay your creditors or are struggling to keep up, discuss your options with an experienced bankruptcy attorney. The Bankruptcy Code is very efficient at reducing, restructuring, and even eliminating debts you cannot afford to pay. The bankruptcy chapters allow you and your attorney to make decisions that will lead to a better financial future for you and your family.
Contact the experienced Chicago bankruptcy attorneys at Glanzer & Associates, P.C. at 1-312-644-2227 to discuss your specific situation, and to schedule your free, in-person consultation.