“Chapter” refers to the different types of relief available.
So, you’ve decided to file bankruptcy. You do not technically need a bankruptcy attorney to file bankruptcy. You conceivable could file your own bankruptcy petition, and there is such a thing as a professional bankruptcy petition preparer who can draft the documents for you.
Bankruptcy, however, is complicated and the paperwork is extensive. The most recent bankruptcy petition I filed contained 61 pages of documents for the petition alone, without counting all of the other documents that are filed with a bankruptcy case. A bankruptcy lawyer can also give you legal advice that a professional petition preparer cannot.
There are four types of relief available to consumer debtors under the United States Bankruptcy Code. These types of relief are generally referred to by the “Chapter” in which they are codified in the Bankruptcy Code.
Chapter 7 bankruptcy basics.
Chapter 7 bankruptcy is designed for debtors with limited monthly income who are unable to pay their debts. The basic deal you make when you file a Chapter 7 bankruptcy is that you turnover all of your “non-exempt” property in exchange for a “discharge” of all of your debts and obligations that can be discharged.
Chapter 7 for most debtors is the most desirable type of bankruptcy case because it does not require you to repay your debts. Other types of bankruptcy cases–specifically Chapter 7 and Chapter 13–require you to propose a plan to repay all or part of your debts and to make payments of most of your disposable income over a period of years to obtain the same discharge that you can receive within months under Chapter 7.
Not every debtor, however, qualifies to be granted a Chapter 7 discharge. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA” which is a commonly used acronym and is pronounced BAP-see-puh) which prevents debtors who make too much money from filing Chapter 7. Among other things, BAPCPA imposed the “Means Test” on consumer Chapter 7 filings. While there are a number of ways to pass the Means Test, the most common are (1) if your household income averaged over the past six months falls below the median income in your state for a household of your size, (2) your disposable income is not enough to cover your reasonable living expenses, or (3) most of your debt is not “consumer” debt (e.g. you guaranteed a loan for your business that failed).
Most debtors qualify for Chapter 7, but if you do not pass the household income test it is important to contact a Crystal Lake Bankruptcy Attorney to assist you with your filing. The means test is complicated and will receive scrutiny from both the trustee assigned to your case and by the United States Trustee.
Our team can quickly counsel you about whether you qualify for a Chapter 7 bankruptcy and, more importantly, whether it is right for you. The goal of many bankruptcy attorneys is to get your money and get your case filed, whether or not it’s right for you. That is not how we run our office, and we tell many debtors that the cure of bankruptcy is too strong medicine for the disease of debt.
Chapter 13 basics.
Chapter 13 bankruptcies, occasionally called “wage-earner bankruptcy,” are available to people earning an income that generates disposable income of at least $100 a month. Chapter 13 requires you to propose a plan to repay some or all of your debts over a period of three to five years.
While Chapter 7 is generally better if you can qualify for it, there are some instances where you might choose to file Chapter 13:
- Mortgage Foreclosure. If your house is in foreclosure and you need to get it current but cannot get it current without an orderly payment plan, Chapter 13 may be right for you. That said, houses invoke all sorts of irrational emotions. We all are generally emotionally attached to our homes. We have the resources to tell you whether reinstating your mortgage through a Chapter 13 is prudent or whether you’re irrationally throwing good money at a bad housing investment.
- Lien Stripping. If the second or third mortgage on your home is completely underwater (i.e. there is not even one penny of equity after the first mortgage), you can strip those liens off in Chapter 13. You cannot strip second mortgages and HELOCs off in Chapter 7.
- Co-Signers. If you have co-signers on debt and would feel terrible about leaving those co-signers with sole liability for your loans, Chapter 13 can help.
- Too Many Assets. If you have too many assets (e.g. a small business with some book value that you do not want liquidated or a sizable collection of guns or art), Chapter 13 can help you retain the business interest that you otherwise would have to liquidate in Chapter 7.
Aside from those four very specific scenarios, we do not recommend Chapter 13 to debtors who otherwise would qualify for Chapter 7.
Chapters 11 and 12 basics.
Chapter 11 is similar to Chapter 13 in that you must propose a plan and make payments toward your debt over time. Chapter 11 is inferior to Chapter 13 in every respect, but if you have too much debt to qualify for a Chapter 13 bankruptcy ($383,175 in unsecured debt and $1,149,515 in secured debt), Chapter 11 may be your only option.
Chapter 12 is a type of bankruptcy relief available to family farmers and commercial fishermen so that they can obtain a discharge similar to Chapter 13 without having to sell their farm or boat.
Crystal Lake Bankruptcy Attorney
Our Crystal Lake bankruptcy attorney has experience counseling individuals, families, recent divorcees, and small businesses about whether bankruptcy relief is right for them. We offer a no-obligation, no-fee initial consultation for bankruptcy clients to discuss and devise solutions for our clients.