Chapter 13 Bankruptcy: Advantages over Chapter 7
Chapter 13 enables a person to pay off all or part of his or her debts over three to five years.
In Chapter 13, the Bankruptcy Court issues an "automatic stay" to creditors, just like in a Chapter 7 case. However, in a Chapter 13 case, a person filing bankruptcy generally keeps more or all of his or her property instead of liquidating assets, and instead proposes a plan to repay all or a portion of the debts over time.
During that time, the debtor makes regular payments to a Chapter 13 trustee who, in turn, distributes the money to the debtor's creditors. In order to be eligible to file a Chapter 13 case, you must have a stable income with a disposable income and meet certain debt limitations for unsecured and secured debts.
The provisions of the Chapter 13 bankruptcy have advantages to some who are considering bankruptcy. For example, the debtor may have more equity in his or her home than can be protected with the exemption for real estate. The Chapter 13 plan would allow the person to keep the home.
When a co-signer is involved in consumer debt situations, a Chapter 13 proceeding can protect the co-signer who did not file for bankruptcy protection. Certain individuals are required to file a Chapter 13 case, even if they do not have homes or excessive equity in their homes. An experienced bankruptcy attorney must conduct a "means test" to determine one's eligibility to file a Chapter 7 or Chapter 13 bankruptcy.
As a general rule, most people who file bankruptcy find it more difficult to obtain long-term credit, such as a mortgage, shortly after a bankruptcy has been filed. For other types of credit, experiences vary. Also, the Bankruptcy Code prohibits an employer from discharging or discriminating against an employee solely because the person filed for bankruptcy.
Note: This information was prepared as a public service by the Illinois State Bar Association. Every effort has been made to provide accurate information at the time of publication. For the most current information, please consult your lawyer. If you need a lawyer and do not have one, visit our lawyer referral page.
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