Personal Bankruptcy Primer: Chapter 7 and Chapter 13
If you have overwhelming debts and concerns about how you will be able to pay your bills, filing for personal bankruptcy may be a solution for you. In general, chapter 7 bankruptcy and chapter 13 bankruptcy are the two primary ways in which individuals can file for bankruptcy. It is necessary to understand the differences between these types of bankruptcy before deciding which may be right for you, but it is even more important to work with an experienced Oakbrook Terrace bankruptcy lawyer.
Bankruptcy law is extremely complicated, and you will need an advocate on your side. At the Farooqi & Husain Law Office, we know that many members of the Muslim community struggle with personal debt. We can discuss your bankruptcy options with you today.
What Is Chapter 7 Bankruptcy?
What do you need to know about chapter 7 bankruptcy? According to a fact sheet from the U.S. Courts website, chapter 7 bankruptcy is also known as “liquidation” bankruptcy. How does it work? When you file for personal bankruptcy under Chapter 7, a bankruptcy trustee will collect and sell your nonexempt assets. With the proceeds from your nonexempt assets, the bankruptcy trustee will repay your creditors (inasmuch as is possible).
Once a debtor’s assets have been liquidated, the court may discharge those debts. In other words, the individual who files for bankruptcy will no longer be responsible for the debts she previously owed. In this way, chapter 7 bankruptcy gives debtors a “fresh start,” or the opportunity to start over financially.
What Is Chapter 13 Bankruptcy?
A fact sheet from the U.S. Courts website also provides the basics about chapter 13 bankruptcy. Unlike chapter 7 bankruptcy in which a debtor’s assets are gathered and sold, chapter 13 bankruptcy allows consumers to reorganize their debts. While chapter 7 bankruptcy is known as “liquidation” bankruptcy, chapter 13 bankruptcy is also known as a “wage earner’s plan.” If you have a regular income, you can use a chapter 13 bankruptcy to develop a repayment plan for your debts based on your current monthly income.
Given that a debtor’s property is not liquidated in a chapter 13 filing, it can be preferable. Additionally, if your home is in foreclosure, filing for chapter 13 bankruptcy can stop the foreclosure proceedings, allowing you to develop a plan to repay what you owe and to stay in your home. Most consumers who file for chapter 13 bankruptcy end up with lower monthly payments on their debts and longer repayment periods.
What Property Is Exempt?
When you file for bankruptcy, certain property is exempt. While exemptions apply in both chapter 7 and chapter 13 bankruptcy, understanding what types of property are exempt can be particularly important in liquidation bankruptcies. Under the Illinois statutes, general exemptions can include:
- Certain personal property (such as clothing, books, keepsakes);
- Up to $2,400 in one motor vehicle;
- Up to $15,000 in your residence;
- Certain insurance benefits;
- Veteran’s benefits;
- Certain personal injury awards;
- Spousal support payments;
- Eighty-five percent of your wages; and
- Certain retirement benefits.
Determining what property is exempt can be a complicated process, and you should always seek assistance from an experienced bankruptcy lawyer.
Do I Meet the Requirements to File for Bankruptcy?
To file for chapter 7 bankruptcy, you must meet certain eligibility requirements. In most cases, you must pass the “means test.” The Bankruptcy Code requires that, if your current monthly income is greater than the state median, you must be able to show that your income over a certain period of time is under an amount specified by the law. The means test is particularly complex, and it is essential to discuss your situation with an experienced DuPage County bankruptcy attorney.
Chapter 13 bankruptcy does not have the same requirements as chapter 7. Although chapter 13 does have certain conditions, debtors who file for chapter 13 bankruptcy do not need to pass a “means test.” As such, many Illinois consumers end up filing for chapter 13 bankruptcy if they are not eligible for a chapter 7 discharge.
Seek Bankruptcy Advice from an Oakbrook Terrace Bankruptcy Lawyer
Many members of the Muslim community have struggled with debt, and filing for consumer bankruptcy can provide relief. You should discuss your situation with a dedicated Oakbrook Terrace bankruptcy lawyer as soon as possible. Contact the Farooqi & Husain Law Office today to learn more about how we can assist you.