Filing for bankruptcy in Illinois is a big step. In all likelihood, you came to this decision as a last resort after struggling to get control over your finances for years. Before you file, you might have to make another decision about whether to choose Chapter 7 or Chapter 13 bankruptcy.
What is the difference?
The main difference between Chapter 7 and Chapter 13 bankruptcy is that Chapter 7 is a liquidation of your debt while Chapter 13 is a reorganization of your debt. There are benefits and drawbacks to each one of these choices, and what’s best for you will depend on your unique circumstances.
If you choose Chapter 7 bankruptcy, you can potentially have all of your debts discharged without having to make any payments on them. However, you will have to place all of your non-exempt assets in the control of your bankruptcy trustee who will sell them in order to pay your debtors. Much of your property will be exempt from liquidation, though, so Chapter 7 is a good choice for people with few assets.
Chapter 13 bankruptcy is a better choice for people that have valuable assets that they want to keep. If you have multiple cars, for example, a Chapter 7 trustee could decide to sell the one that you don’t absolutely need for work. Under Chapter 13, you can keep your valuable assets as long as you agree to a repayment plan for your debts. The repayment plan may still wipe out a good chunk of your debt and significantly lower your monthly bills.
Consider your exemptions
Considering what exemptions you qualify for will be one of the most important factors in your decision. If you can exempt all of your property, Chapter 7 may be the smartest choice. On the other hand, if you determine that you would lose valuable real estate under Chapter 7, then Chapter 13 may be better for you. Remember that if you are filing with your spouse, you can usually double the exemptions.