Bankruptcy Basics

An Overview

bankruptcy faqs

Bankruptcy is a legal process by which individuals who cannot pay their bills  get a fresh start. The right to file for bankruptcy is provided by federal law. Filing bankruptcy immediately stops creditors from contacting you.  Most people are surprised to learn about the positive developments that can result from filing.

It is best to talk to us if you are uncertain as to whether you qualify, or which  filing applies in your case.  This is not an area of law that a non-attorney typically handles for themselves.  The information on this site is also not intended to replace a friendly conversation on the subject.  Just give us a call and we can save you lots of time and frustration.

For those of you with a real desire for knowledge, please feel free to explore this section of our web site for useful information.

Qualifying – Chapter 7 or 13

To determine if you qualify, your income and expenses will be analyzed in what is known as a “means test”.   The courts look at average income for the 6 months prior to filing and compare it to the median income for the state. If the income is below the median, then you may choose Chapter 7. If your income exceeds the median, the remaining parts of the means test will be applied to determine if you can file Chapter 7 or if you must file Chapter 13.

You will likely still be able to file a Chapter 7 bankruptcy if you are unable to pay at least $6,000 over the next five years ($100 per month) to your unsecured creditors after your expenses. Your prospects of a Chapter 7 are in jeopardy if you can pay at least $10,000 over five years.

These calculations can get a little complicated!  Just give us a call and we can help you quickly determine which path we’ll purse on your behalf.

To qualify for either, you must undergo credit counseling (before filing) and a financial management instructional course (after) filing bankruptcy.

 

The Paperwork

To begin, start organizing the following types of financial information:

§  Your current income sources

§  Significant financial transactions for the last two years

§  Monthly living expenses

§  Your debts (secured and unsecured)

§  Your property (assets and possessions)

§  Your tax returns for the last two years

§  Deeds and titles to any real estate and cars you own (plus any loan documents)

The Filing Process

Once you have gathered this information, we then determine which property is exempt from seizure based on the Illinois exemptions. Then, we file a petition and several other forms at an Illinois district bankruptcy court.  These various forms or “schedules” describe your current financial status and recent financial transactions (typically within the last two years). It is important to be entirely truthful, otherwise, you could jeopardize your filing.

There are court costs of a few hundred dollars in either a Chapter 7 or 13, but you may be able to pay those in installments.

Chapter 13 Requirements

If you are filing a Chapter 13 bankruptcy, a proposed repayment plan must also be submitted. After reasonable monthly expenses, some priority claims (such as taxes and back child support) must be paid in full; unsecured debts (like credit card debt and medical bills) are usually paid in part.

A repayment plan must be in good faith and unsecured creditors must be paid “at least as much as if” a Chapter 7 had been filed.  Also, all disposable income must be paid into the plan in at least three years (and up to five years, in some instances).

If you have filed Chapter 13, you must begin making your plan payments and we can arrange for these to be directly deducted from your wages.

The Role of the Automatic Stay

Once you have filed, an automatic stay is activated and this means creditors cannot make direct contact with you or pursue a claim on your property (from the day of filing forward.) This will also stop any foreclosure proceedings. If you have filed Chapter 13, you must begin making your plan payments to enjoy protection under the automatic stay.

Enter the Bankruptcy Trustee

Upon filing, the court will assume legal control of your debts and property not covered under Illinois exemptions.  A trustee will be appointed to your case by the court. The trustee sees that your creditors are paid as much as possible and checks your assets and exemptions to determine everything is done properly. They can challenge any aspect of your case.

341 Meeting of Creditors

A month after filing, the trustee will call a first, or 341 meeting of creditors.  The debtor must attend. Creditors rarely attend a Chapter 7 meetings….a few might attend a Chapter 13 meeting.  Any creditor objections are discussed, usually between your lawyer and the creditors. If a compromise can not be reached, a judge will intervene.

Most Chapter 7 filings don’t involve non-exempt assets.  If they do, you have to turn over non-exempt property (or its cash value) to the trustee after this meeting. The trustee sells this property and distributes the proceeds to your creditors. The trustee may elect to return the property to you if it is of little value or difficult to sell. Trustees and creditors then have 60 days to challenge your right to a discharge. If there are no challenges, you will receive a notice from the court and debts that qualify will be officially discharged in three to six months.

Chapter 13 Plan Confirmation

If you filed a Chapter 13 plan, a bankruptcy judge approves or denies your repayment plan during a hearing that you must attend. If your plan is confirmed and you do what we advise, any balance on the dischargeable debts you owe will be eliminated at the end of your term.