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Understanding the Difference between Chapter 7 and Chapter 13 Bankruptcy

Bankruptcy Option in Illinois Declaring bankruptcy is a complex process. One decision creates ripples that shake not just the financial aspect of your life; these ripples will also affect your future a great deal. The state of Illinois acknowledges the complexity of the bankruptcy filing that it requires the debtors to undergo credit counseling and complete a financial management instructional course.

Here are the basics of the Chapter 7 bankruptcy and Chapter 13 bankruptcy.

Chapter 7: Straight Bankruptcy

Chapter 7 bankruptcy wipes out your entire debt, giving it the name “straight bankruptcy.” Lawyers from Chang Legal LLC explain that in this type, there’s no need for the filer to have a repayment plan. The filer can’t hold their assets anymore, however. The court trustee collects the nonexempt assets and sells them to pay the creditors. The good thing about filing a Chapter 7 bankruptcy is that you can have a fresh start. The money you earn after the date of the filing is yours.

Chapter 13: Reorganization Bankruptcy

Chapter 13 is designed to repay as much debt as possible. In this type, the filer can keep all the assets. There should be a repayment plan, though. In this arrangement, you will be given several years to repay your debts. This bankruptcy is also called the “reorganization bankruptcy” because of the detailed repayment plan involved.

In 2015, there are approximately 820,000 personal bankruptcy cases filed, 37% were Chapter 13 and 63 percent were Chapter 7.

Chapter 13 bankruptcy works if you have a steady income and you are confident that your financial problems are temporary. If it is otherwise, Chapter 7 is probably the best option for you. To make the best move, get the help of bankruptcy lawyers. They can help you evaluate your finances and choose the option that is more beneficial.

You Won’t Lose Everything You Have in Bankruptcy

Bankruptcy

BankruptcyWhen it comes to bankruptcy, it is perfectly understandable to expect the worst. This is because your property and possessions may be sold or taken away to pay all your debts.  Bankruptcy filing will also stay on your credit record for seven to 10 years, and will make it difficult for you to get loans or low-interest credit cards.

Despite the negative effects of bankruptcy, it can give you an opportunity to start afresh. You may not realize it, but you won’t lose everything you have. Every state has exemptions that protect specific kinds of assets like a house or a car up to a certain value. You can also keep household goods and money in qualified retirement plans.

The Biggest Lie

Law offices like The Baim Law Firm say this misconception is often disseminated by creditors who want to frighten you into paying them instead of getting the help of a licensed trustee. When you’re terrified of losing everything, you will keep making payments and doing everything to keep your possessions and assets.

It Depends

If you file for Chapter 7 protection, your debts will be erased and the trustee will sell your property to give the money to creditors. You can still, however, keep a certain property up to a certain limit. If you file Chapter 13, on the other hand, you can keep all your assets, but you need to agree on a repayment plan and keep up with the payments.

Lifestyle Change

There is always life after bankruptcy and this usually means changing your lifestyle, particularly how much you spend every month. If you’ve filed a Chapter 13, you need to pay your debts in a timely manner and you can’t take on a new credit card or loan without permission from the court. For Chapter 7, you need to start living on cash, instead of relying on credit help. It is also a good idea to start building an emergency fund.

The law surrounding personal bankruptcy is complicated. While you are not required to have an attorney, it is still best to seek professional assistance from a firm. A bankruptcy lawyer will guide you if you need to file for Chapter 13 or if you have a complex Chapter 7 case.