Is Chapter 13 or Chapter 7 Better? Which is Perfect For You?

One of the very first questions asked by people once they decide to file bankruptcy (whether in Illinois or elsewhere) is, “Is Chapter 13 or Chapter 7 better?” It is an important question because deciding to file for bankruptcy is not an easy or enjoyable one.

It can be tough and frustrating to navigate your way through the added pressures that come with the court system, and sometimes it’s easier to seek help from a legal professional, specifically a reliable bankruptcy attorney in Chicagoland. 

This article outlines some of the considerations you should make before deciding whether Chapter 7 or Chapter 13 bankruptcy is best for you.

 

Comparison of Chapter 13 and Chapter 7

Chapter 7 bankruptcy and Chapter 13 bankruptcy are two completely different types of bankruptcy.

The main distinction is that Chapter 7 is focused on asset liquidation to pay back debts. In comparison, Chapter 13 is a debt restructuring option that can help you handle your existing bills more easily.

Chapter 7 bankruptcy applies to corporations and people alike, but Chapter 13 bankruptcy is reserved for individuals exclusively.

Both types of bankruptcy have distinct qualifying criteria, and your attorney can advise you on which is the more appropriate alternative. 

Additionally, Chapter 7 and Chapter 13 bankruptcy have very different timetables. 

While Chapter 7 often results in a discharge considerably sooner than Chapter 13, it is a more difficult procedure that will require you to liquidate the majority of your assets.

While some individuals may be eligible for both Chapter 7 and Chapter 13 bankruptcy, it is critical to make an informed selection before filing.

 

The pros and cons of both Chapter 7 and Chapter 13

Chapter 13 Bankruptcy Benefits

• Maintain all property – As long as you adhere to the conditions of your repayment plan.

• Debt reduction – While debt is not erased, it is significantly reduced.

• Complete protection from creditors — This includes debt collection and wage garnishment.

• Classification of debts – Establish standards for debts committed with a third party versus those incurred with yourself.

• Dischargeable debts – Debt incurred due to fraud or luxury goods purchases made using a credit card.

• Co-signer protection — If the payment plan arranged is for the entire amount of the obligation; your co-signers are protected from creditors.

• Unlimited Future Chapter 13 petitions — You may file for a subsequent Chapter 13 petition at any time.

• The lender provides foreclosure protection.

• Additional time to pay back non-dischargeable debts.

 

Chapter 13 Bankruptcy Disadvantages

• Consumption should be limited until your payment plan is fulfilled.

• Increased legal expenses as a result of the more complex bankruptcy process.

• Debt repayment takes between three and five years.

• Stockbrokers and commodities brokers are completely barred from filing for this sort of bankruptcy.

 

The Benefits of Chapter 7 Bankruptcy

• A fresh start – Any outstanding obligations are secured debts, and you may enter into a “Reaffirmation Agreement” concerning them.

• Complete protection from creditors — This includes debt collection and wage garnishment.

• Wages and property are protected — Any assets you receive after declaring bankruptcy, barring inheritance.

• There is no minimal criterion for debt.

• Debt repayment occurs within 4-5 months.

 

Chapter 7 Bankruptcy Disadvantages

• Property loss — The trustee may sell any non-exempt property, such as your home or automobile.

• Temporary protection from foreclosure – When your house is threatened with foreclosure, the automatic stay is not permanent.

• The risk associated with co-signing a loan — Anyone who co-signs a loan may be obliged to repay the amount on your behalf.

• Limitation on filing – After your original case is closed, you are barred from filing another Chapter 7 petition for eight years.

 

How to use bankruptcy Chapter 7 and Chapter 13 to your advantage

It has the potential to save your retirement. 

Filing can eliminate credit card balances, medical expenses, and other obligations, allowing you to save more for retirement and secure what you’ve already saved. 

While pensions, 401(k)s, and recent Social Security payouts are already protected from creditors, bankruptcy adds protection for up to $1.36 million in IRAs, which are not necessarily protected from creditors in all states.

Bankruptcy is frequently the first step in improving one’s credit score. 

While bankruptcy will remain on your credit report for seven to ten years, it is not the end of the world. Credit may be established rather rapidly.

If you file for bankruptcy, you may be able to leave more money in your retirement accounts to your heirs. Otherwise, creditors would receive first claims on any money in your estate, not your heirs.

Additionally, bankruptcy might create a sense of security.

Filers frequently experience embarrassment, despite repeated assurances that it is a business choice and that there is no shame in being battered by bad circumstances. 

However, bankruptcy experts who have observed this trend repeatedly believe that relief follows – freedom from debt collectors and from the worry that can accompany heavy debt.

 

Which should you file, Chapter 7 or Chapter 13?

There is no way to determine without first seeing an attorney. What is proper for one individual may be incorrect for another. Depending on the situation and the amount of debt you have, you may be limited in your choice of bankruptcy filing options.

Takeaway: Bankruptcy Chapter 7 and 13 can be scary, but in the end, it will all be okay.

 

Seek the services of CUTLER & ASSOCIATES, LTD. attorney to guide you throughout the process.

Before you decide which chapter bankruptcy is best for your case, your smartest move is to hire a bankruptcy lawyer skilled in that chapter. Bankruptcy law is complicated, and we do not recommend trying to navigate it on your own. Getting the Services of Cutler & Associates, Ltd bankruptcy attorney can help you avoid costly mistakes and ensure that your calculations are accurate. Call us now at 847-443-5399 or fill-up the form to schedule a consultation.