CHAPTER 7 VS. CHAPTER 13
Many factors are involved in determining which bankruptcy chapter is best for an individual. No two situations are identical. As a rule of thumb, bankruptcy laws require individuals to pay their debts back to the extent they can afford to do so. If you have an ability to pay something meaningful back to your creditors, then you should file a Chapter 13. If, on the other hand, you lack an ability to pay something back, you can file a Chapter 7. If you stand to lose something such as your home, your car or personal belongings in a Chapter 7, you may wish to file a 13 instead. Unfortunately, there are many other factors to consider that should be left up to the skills of an experienced bankruptcy attorney.
The Chapter 7 is preferable in many instances because the bankruptcy discharge, or “fresh start”, is finalized much sooner, generally within three and one-half months of a bankruptcy filing. In a Chapter 13, you normally do not receive your discharge until completing a three to five year repayment plan. During the pendency of the Chapter 13, it may be difficult to obtain credit due to the delay in receiving your discharge.
The attorney’s fees for a Chapter 13 are much higher than a Chapter 7. However, we require much less money up front to file the case. Most, if not all, of the attorney’s fees are usually paid through the Chapter 13 Plan.
Approximately, 60 percent of our filings are Chapter 7s, which is consistent with the national average. However, some of our competitors in Southern Illinois file a significantly higher number of Chapter 13s compared to Chapter 7s. We believe this raises cause for concern.
Normally, we look to file a Chapter 7 in a case unless there is a compelling reason to file a Chapter 13. We believe that if a client cannot afford the fees to file a Chapter 7, standing alone, that is not a legitimate reason to steer that client into filing a Chapter 13. Regretfully, some of our competitors feel otherwise. At the Bankruptcy Clinic, we place your financial best interest ahead of our own because we believe our professional ethics require it.
That being said, the bankruptcy laws do force us to place many of our clients into Chapter 13s. Furthermore, the Chapter 13 certainly has its advantages in many situations. There are countless other factors that may prove beneficial for a Chapter 13 filing besides a financial ability to pay back to your creditors. Below is just a sampling of some situations that would warrant serious consideration of a Chapter 13 over a Chapter 7.
Stop the threat of repossession of your property
Stop a foreclosure
Recover repossessed property
Keep real estate, vehicles or other property you might otherwise lose
Retain control over potential claims and lawsuits against third parties
Save your business
Pay off recent back taxes, with no further interest or penalties
Pay the fair value of vehicles, furniture or appliances rather than what you owe on them
Lower the interest rate on secured debts
Obtain peace of mind in knowing you are paying something back
Improve your credit sooner
Eliminate second or third mortgages or home equity loans entirely
Repay back child support without interest or penalties
Defer student loans during the life of your Chapter 13
Discharge certain debts that may be “willful” or “malicious”
Discharge marital settlement obligations incurred in a divorce
Protect your family members
Protect recent purchases (such as vehicles) from Chapter 7 liquidation
Pay less up front to file your bankruptcy
Preserve your discharge during the pendency of a Chapter 13
Have the freedom to dismiss the bankruptcy at any time
Modify your Chapter 13 to suit your changing circumstances
Obtain a discharge that may be time barred by a prior Chapter 7
Protect a Co-Signer
Buy Yourself Some Time
Free Consultation With a Skilled Lawyer
For a free consultation with the Bankruptcy Clinic, PC, call 888-522-6578 toll free or contact us online. We have fully staffed offices in Carbondale, Marion and Mt. Vernon, Illinois, to better serve you. Evening and weekend appointments are available.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.