Good Reasons to File for Chapter 13 in Lake County

Debtors often shy away from using Chapter 13 bankruptcy plans in lieu of Chapter 7 because Chapter 13 usually requires them to pay back at least some of their debts, whereas Chapter 7 can usually completely eliminate many debts. However, Chapter 13 can be a better option in certain circumstances, and some debtors may not even have the option to choose

Chapter 13 can be the best option in numerous circumstances like if a debtor has a large amount of secured debt or a lot of debt that Chapter 7 will not discharge. The following circumstances often make Chapter 13 the best option.

  • The law excludes the filer from Chapter 7. The law does not make Chapter 7 bankruptcy available to everyone. A recent change to the bankruptcy law now requires filers to pass a “means test” The means test checks monthly income against the state’s median. If their income is higher, and they have enough income left over after paying off allowable expenses, then they must use a Chapter 13 plan.

  • The debtor has important secured debts, like a mortgage or car loan.  Chapter 7 bankruptcy may be able to discharge secured debt, but it cannot eliminate a creditor’s right to repossess collateral for secured debts, like a car for a car loan. Chapter 13 gives the filer a chance to pay off those debts and keep their property.

  • The filer has many debts that Chapter 7 will not eliminate. Chapter 7 is good at eliminating garden-variety, unsecured debt like credit card bills or medical expenses. However, some particular debts, like back taxes, student loans, or child support survive Chapter 7 untouched. Chapter 13 gives the filer some structure and protection to pay of these debts without the constant harassment of creditors.

  • The debtor wants to repay their debts. Some debtors have the good faith desire to repay what they borrowed. Chapter 13 bankruptcy allows them to do this rather than simply discharging the debts. Additionally, it gives the filer formal deadlines and a rigid routine that can help them make payments by enforcing fiscal discipline.

  • The debtor will lose important, nonexempt property. Chapter 7 bankruptcy can force people to sell certain types of property. While the law exempts certain types of property, like clothes and home furnishings, a filer may have an heirloom or something else of sentimental value that Chapter 7 would make them sell. In those cases, Chapter 13 can provide an alternative to help them deal with their debts without losing the important property.

  • The debts in question have a cosigner. Often, people cosign a debt with another person who agreed to become liable for the debt in the event that the filer could not pay them back. Chapter 7 often opens these cosigners up to collection efforts from creditors. Consequently, many people opt for Chapter 13 repayment plans so that their cosigners do not end up paying off the filer’s debt.

These are just some of examples of situations where Chapter 13 may be a filer’s best option. Of course each case is unique, and many different factors go into choosing the right type of bankruptcy. For help with specific bankruptcy questions and to discuss your options, please contact Newland & Newland today. We provide support to clients in Lake County, McHenry County, Cook County, DuPage County, Crystal Lake, Arlington Heights, Barrington, Palatine, Rolling Meadows and throughout Northern Illinois.

  • Newland & Newland LLP, Attorneys, Arlington Heights, IL