If you’re struggling to pay bills and are being harassed by creditors, you may need a fresh financial start. Let our experienced attorney’s help.
As a consumer, you can file for bankruptcy in Illinois under either:
- Chapter 7 (Straight Bankruptcy) to wipe out all debts except those listed and get an immediate fresh start or
- Chapter 13 (Wage Earner Bankruptcy) to set up a repayment plan to pay back your debts over several years’ time.
Chapter 7 bankruptcy is designed to clear your unsecured debt, protect your property and wages, and give you a fresh financial start.
Under the new law, you are required to take an on-line or telephonic credit counseling course within the six months preceding your filing for bankruptcy.
Filing Chapter 7 Bankruptcy in Illinois
While bankruptcy is a federal institution, the details are different in every state. Understanding in how these laws may help you take full advantage of a powerful tool that many people have used to clear their credit card, medical and personal loan debt.
Chapter 7, otherwise known as “liquidation,” is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships. A trustee (appointed by the court) gathers and sells your non-exempt property and uses the proceeds from the sale to pay your creditors.
Chapter 7 bankruptcy is designed to quickly and completely resolve your unsecured debts – debts that are not directly tied to a piece of property.
Many people use Chapter 7 as a way to get out from under oppressive credit card and medical bills. These may be cleared in only a few months with Chapter 7.
Most chapter 7 cases are “no-asset” case, which simply means that you do not have any non-exempt property for the trustee to sell.
In exchange for removing these debts, your creditors may ask for a liquidation sale of non-exempt property you own. This rarely happens in Chapter 7 cases because of Illinois’ Chapter 7 exemptions.
What Can I Keep?
You can keep many items even after you file for bankruptcy under state law. The items in this section may change in the future.
If there’s no equity in your house (today’s value costs of sale less payoff balances on all liens and mortgages), the trustee in a Chapter 7 bankruptcy will abandon the house to you. That is, you keep it, as long as you keep the mortgages current.
A bankruptcy doesn’t wipe out voluntary liens, like mortgages and deeds of trust, or tax liens. So the lender still has the right to foreclose if you don’t pay. If you pay, everyone is happy. Remember, the lender doesn’t want the property; it wants you to pay regularly on the loan. Foreclosure is a last resort for the lender if it concludes it can’t get the owed money any other way.
If there’s less than $15,000.00 in equity in your house ($30,000.00 for married joint tenants), you can claim a “homestead exemption” and keep the house, as long as you pay the mortgages. If there’s too much equity, it’s possible you could lose the home. In that case, you may wish to consider a Chapter 13 bankruptcy.
If there is no equity in your car, after subtracting any car loan and exemption from the car’s present value, the bankruptcy trustee will not take the car.
If there is less than $2,400.00 equity in your car, it is exempt and you may keep it.
If there’s more than $2,400.00 equity in your car, you may be able to pay the difference between the value of the car and $2,400.00 equity allowed to the Chapter 7 trustee and keep the car.
If you still owe money on the car, you can choose to reaffirm the debt to the secured lender. By law, you have to reaffirm your car loan within 45 days after the “341 meeting.” You do not have the option of continuing your car payments without reaffirming the loan. Once the loan is reaffirmed, if you default on your payments and the car is repossessed, you are liable for the repossession deficiency.
You also have the option to redeem the car within 45 days of the “341 meeting” by buying it from the secured creditor in a single payment for its present value.
Under Illinois laws, you can also keep:
- Unemployment, disability, workers’ compensation, veterans’ and Social Security benefits
- Retirement plan and life insurance proceeds
- Clothing and school books
- Professional books and tools of the trade up to $1,500.00 in value
- Family photos and bible
- Health aids
- Personal injury recoveries up to $15,000.00
- Wrongful death recoveries needed for support
- $4,000.00 of any personal property
- Tools of the trade up to $1,500.00
- Alimony and child support as needed
- Property of business partnership
Do I make too much money to file a Chapter 7?
Federal bankruptcy laws provide for a “means test,” which will determine whether you’re eligible to file for Chapter 7 bankruptcy. The test is used to limit Chapter 7 to those people who truly can’t repay their debts. If your income is below the median income for families in your state, based on Census Bureau statistics, you’ll be eligible. If you don’t qualify for a Chapter 7 bankruptcy, you may still be eligible to file a Chapter 13 bankruptcy.
If you make more than the median income for families in your state, it must be determined whether your disposable income will cover your debts. Expenses, such as mortgage and car payments, are deducted from your average monthly income to determine your monthly disposable income. This amount is then multiplied by 60 to determine the amount you could pay over 5 years.
Do I have to go to Court?
After the bankruptcy is filed, you must appear at the “first meeting of creditors” (also called a “341” meeting). The trustee can ask you questions under oath about your property and debts. Creditors can also question you on those subjects, but seldom do.
Generally, the only responsibility you have after the 341 meeting is to cooperate with the trustee in providing any requested information.
The trustee may review your income and expenses to see if you have enough money left after your current living expenditures to pay something to creditors.
What documents do I need to bring to my appointment?
Federal Law Requires Complete Information be Provided to Your Attorney.
Click here for a checklist to help you to provide us with important information.
Filing Chapter 13 Bankruptcy in Illinois
If you’re an individual or a sole proprietor, you can file a Chapter 13 bankruptcy to pay off all or part of your debts over three to five years. Rather than wiping out debts immediately, this option allows you to reorganize them so you have time to pay.
Many people who file Chapter 13 bankruptcies have:
- Mortgages or other loans they would like to bring current, so they don’t lose their homes or other property
- Taxes, child support or student loans that can’t be wiped out by Chapter 7 bankruptcy
- Moral convictions that all debts should be paid no matter how long it takes
For a Chapter 13 bankruptcy, you’ll need a stable income with disposable income (income left over after you pay the bare necessities of life such as shelter, food and utilities).
The court will apply living standards set by IRS regulations to determine what is reasonable for you to pay for living expenses, including housing and food, to find out how much you have available to pay your debts.
The filing of the Chapter 13 petition must be accompanied by a proposed payment plan extending over three to five years. The proposed payment plan must provide for the payment of all “priority claims”, such as taxes, in full. All tax returns for the four years prior to filing must be filed.
The bankruptcy trustee appointed by the Bankruptcy Court must review the proposed plan for accuracy and feasibility. The proposed plan is distributed to creditors, who have the right to object to the plan if its unreasonable. If the plan is approved, you can keep all your assets during the period of the plan. You make monthly payments to the bankruptcy trustee, who distributes the funds to the creditors according to the plan. If the plan is completed as approved, your unpaid debts are “discharged”. If you don’t complete the repayment plan as approved, you’ll have several other alternatives which we can explain to you.
Neither Chapter 13 or 7 bankruptcy gets rid of all debts. You are still responsible for:
- Child Support.
- Most recent back taxes.
- Most student loans.
- Recent large purchases of more than $550.00 for luxury goods bought within 90 days of filing.
- Fines or penalties of government agencies.
- Fraudulent debts.
- Cash advances of $825.00 within 70 days of filing.
Contact our office for an appointment and we would be pleased to discuss your bankruptcy concerns in more detail.