Chicago Heights Bankruptcy Lawyer On The Basic Differences Between C...

Many clients are confused by the differences between chapter 7 and chapter 13 bankruptcies.  There are many technical differences, but there are a few easy things that separate the two chapters.

A chapter 7 bankruptcy is often referred to as a total liquidation, which is a bit of a misnomer.  Not all debts are dischargeable or forgiven in a chapter 7.  Some debts, like certain taxes, student loans and child support, are never dischargeable.  Likewise, not all assets are sold by the bankruptcy trustee.  In fact, most belongings are protected by either federal or state exemptions.  An experience bankruptcy attorney will know how to apply properly the exemptions to protect the maximum amount of value for a client.

The process for a chapter 7 bankruptcy is much shorter than the chapter 13 process.  Most chapter 7 cases last no longer than seven months, on average.  The amount of work a client has to put in a chapter 7 case is infinitely less than what a chapter 13 debtor does, as well.

Chapter 13 is often confused with debt consolidation.  Debt consolidation involves negotiation with one’s creditors.  Chapter 13 involves proposing a plan that will be approved by a bankruptcy court that imposes conditions on the creditors.  There is some negotiation with secured creditors, but unsecured creditors are largely at the mercy of the debtor’s proposed plan and the court’s oversight.

A chapter 13 case runs anywhere from three to five years.  It is also much more expensive.  But the reasons most people seek relief under chapter 13 are to protect assets – usually homes or cars — that they cannot do in a chapter 7 case.  Chapter 13 allows for repayment of arrears on mortgages or car loans which clients cannot do in a chapter 7 case.

The question as to which chapter under which a client should declare bankruptcy is a function of the client’s needs and the application of the Bankruptcy Code to the client’s facts.  An experienced bankruptcy attorney will know how to navigate through the issues and advise which course of action is best-suited to the client’s needs.