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The Difference Between Chapter 7 and 13 Bankruptcy

Kenosha, Wisconsin, Bankruptcy Attorneys

There are two major differences between a Chapter 7 and a Chapter 13 bankruptcy. First, if most of your debts are consumer, in order to file under the terms of Chapter 7, you must first meet specific income requirements. Secondly, under the terms of Chapter 13, some or all of your unsecured debt is restructured, instead of being wiped out, as in Chapter 7. Additionally, a Chapter 13 is more involved than a Chapter 7, which means it costs more. Consequently, Chapter 13 is more expensive, both in the amount of attorneys fees and the amounts you pay towards your debts. However, the majority of people who file bankruptcy under Chapter 13 are able to keep their homes, their cars, and other personal belongings. At the Lakelaw law office, our attorneys can evaluate your financial situation and determine whether filing for Chapter 7 or Chapter 13 makes sense for you.

If you're facing foreclosure or mounting credit card bills, contact bankruptcy lawyers at Lakelaw today to schedule an appointment to discuss your case.

Eligibility for Chapter 7 and Chapter 13

The eligibility requirements for filing under Chapter 7 or Chapter 13 are related to income and the amount of an individual's secured and unsecured debts. In order to file for Chapter 7, your median income cannot be more than the median income in Wisconsin for households of a similar size. If your monthly income exceeds the state's median, a means test will be applied in order to determine whether your filing is "presumptively abusive" - that is, taking advantage of filing under Chapter 7.

In contrast, in order to file under Chapter 13, your unsecured debts cannot be in excess of $336,900 and your secured debt cannot exceed $1,010,650. However, it should be noted that a change in the consumer price index will cause these figures to change as well. Notice here that, unlike in Chapter 7, there is a limit to the amount of unsecured and secured debt you can have in order to file under Chapter 13.

Debt Relief under Chapter 7 and Chapter 13

Under the terms of Chapter 7, credit card debts, medical bills, certain kinds of loans, and other forms of unsecured debt are normally discharged. However, unless all of your property is secured or exempt, the trustee may sell some of your property.

In Chapter 13 bankruptcy, your debt is reorganized according to a repayment plan approved by the Bankruptcy Court and it is unlikely that any of your property will be sold, assuming you comply with the terms of your repayment plan and make payments on time for a set period, typically three to five years.

Home Foreclosure - Chapter 7 and Chapter 13 Bankruptcy

Filing for Chapter 7 or Chapter 13 bankruptcy places an automatic stay on any collections, replevins or foreclosure actions. As a result, your bank will be required to at least temporarily forestall foreclosure proceedings on your home. However, if you can't make monthly mortgage payments, your bank is under no legal obligation to let you stay in your house. Consequently, your bank may foreclose on you unless you can actually keep your mortgage payments current and catch up on any delinquent payments.

Perhaps the biggest difference between Chapter 7 and Chapter 13 bankruptcy is how each impacts home foreclosure. In a Chapter 7 you must be current on your mortgage or have an agreement with your lender in place before you file because you cannot force a reinstatement of the mortgage in a Chapter 7. A Chapter 7 may help you save your home because after discharging your unsecured debt through the Chapter 7, you will have additional disposal income to put towards your monthly mortgage. In a Chapter 13, you can usually force a reinstatement of the mortgage.

Contact Bankruptcy Attorneys at Lakelaw

For more information regarding bankruptcy, foreclosure, and how we can help you, contact the bankruptcy attorneys at the law offices of Lakelaw today to schedule an appointment and discuss your case.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

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Lakelaw - Kenosha
6905 South Green Bay Road
Suite 101
Kenosha, WI 53142-1458
Phone: 262.694.7300
Fax: 262.694.7301
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4959 Dempster Street, Suite 101
Skokie, IL 60067
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