A common question asked by potential clients that come to our Chicago office is what the differences are between a Chapter 7 and Chapter 13 bankruptcy. The contrasts are stark and can affect people in various ways. Below is a breakdown of the two:

Chapter 7 – Chapter 7 is the most common bankruptcy code on the books and is known as a “Fresh Start” bankruptcy. A Chapter 7 bankruptcy, with the exception of exempt items such as student loans, child support payments and tax liens, will wipe out debts such as credit cards, unsecured lines of credit and medical bills. A Chapter 7 Bankruptcy, once filed, also prevents further collection activity against debtors and puts an end to harassing collection calls. Not everyone qualifies for a Chapter 7 bankruptcy, however, and an experienced bankruptcy attorney will be able to discuss whether or not a Chapter 7 is right for you. In most cases, debts are discharged within four to six months after a Chapter 7 case is filed.

Chapter 13 – A Chapter 13 bankruptcy occurs when a debtor has enough non-exempt assets and income to make monthly payments according to a Chapter 13 plan. Payment plans are arranged to pay back creditors over time, with a reduction to the original outstanding balances. Many times, the repayment amounts are significantly reduced compared to what was originally owed. The amount a debtor will be responsible for will be directly related to the amount of non-exempt assets he/she has, as well as the total amount of monthly disposable income he/she receives. Chapter 13 cases will also help people save vehicles and homes, and in many cases, can stop foreclosures or repossessions. When a debtor has satisfied the payment arrangements, a discharge is entered and there is no further responsibility to creditors.

It is important to note that the information posted above is a general overview and bankruptcy cases may have unique circumstances that affect each person differently.

If you are considering a bankruptcy and reside in Chicago, Gurnee, Rolling Meadows, Naperville, Schaumburg, or surrounding areas, call our office at 1-800-519-0090 and our Chapter 7 and Chapter 13 bankruptcy attorney will be happy to discuss your options with you.