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During Tax Season 2014 (2013 Taxes); many people consider a Chapter 7 Bankruptcy because they hope they will have enough money from their tax refund to afford the filing of the Chapter 7.  The assumption is that all of the debt will be wiped out and their family will have a much better future with lower expenses.  This is generally true.  However, the farther you move away from simple credit card debt and add in the issues of car loans, home mortgages and unpaid taxes and the answer is less clear.

First the up front costs – since the Chapter 13 Code allows attorney fees to be awarded through the Chapter 13 case, there is very little up front cost – usually the filing fee ($281).  Second, Chapter 13 allows a debtor to not only keep their car, but get caught up on past due payments.  Thirdly  Chapter 13 is the original way to get caught up on a home mortgage.  Lastly,  if you have parking ticket, fines or unpaid tax issues, Chapter 13 provides a smooth way to fix these issues.

Chapter 7 is often preferred because no debt is paid back.  This is often most helpful where the debt is primarily credit cards and types of unsecured debt.  Chapter 7 also is a simpler process and generally takes only 5 months to administer from filing to finish.  All attorney fees and filing fees must be paid prior to filing – this is one of the biggest challenges to filers.  Occasionally, debtors are allowed to pay their fees one or two months after filing using a special client representation agreement – however, this agreement has a dark side – if you do not pay, your attorney does not need to represent you after the case is filed oftentimes resulting in your case being dismissed.

Below is a quick summary of the differences between Chapter 7 and Chapter 13.

Bankruptcy ActionChapter 7Chapter 13
Can Get Caught Up on Car Paymentsx
Can Get Caught Up on Home Mortgage Paymentsx
Can Lower Car Loan Interest Ratex
Can Lengthen Car Loan Termx
Can Discharge Parking Ticketsx
Can Keep Car Through Reaffirmationx
Can Keep Home Through Reaffirmationx
Retirement Assets are Exemptxx
No Repayment of Any Unsecured Debtx
Takes 5 months to complete bankruptcyx
Tax Liability Can be Dischargedxx
Priority Taxes (Non- Dischargeable) Paidx
Social Security Overpayment Collection Stoppedx
Social Security Overpayment Paid Offx
Income Must Be Median or Lessx

About the Author
David C. Nelson Biography of Attorney David C. Nelson David C. Nelson, Attorney, Chicago, Illinois, Bankruptcy, Real Estate, Estates, Probate, Wills, Trusts 53 West Jackson Blvd #430 Chicago IL 60604.