What are the advantages of filing for bankruptcy?
Bankruptcy may make it possible to eliminate legal obligations to pay most or all of your debts. This is called a “discharge” of debts. While bankruptcy does not automatically eliminate mortgages or other liens on your property without payment, it can stop foreclosure on your house and give you an opportunity to catch up on payments. Other examples include: Prevent repossession of a car or other property or even reclaim repossessed property. Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt. Restore or prevent termination of utility service. Allow you to challenge the claims of creditors who have may have committed fraud or are attempting to collect more than you owe.
What are the different types of bankruptcy?
There are four types of bankruptcy cases. Chapter 7 is known as “straight” bankruptcy or “liquidation.” It requires a debtor to give up property which exceeds certain limits called “exemptions”, so the property can be sold to pay creditors. Chapter 11, also known as “reorganization”, is used by businesses and very large individual debtors. Chapter 12 is reserved for family farmers. Chapter 13 is also called “debt adjustment”. It requires a debtor to file a plan to pay debts (or parts of debts) from current income.
Most people filing bankruptcy will want to file under either Chapter 7 or Chapter 13. Either type of case may be filed individually or by a married couple filing jointly.
Which is the way to go for me – Chapter 7 or Chapter 13?
Also known as a “straight bankruptcy”, in Chapter 7 you file a petition asking the court to wipe out or discharge your debts. In exchange, you give up property, except for “exempt” items. Property which is not exempt is sold and the money is distributed to creditors. If you are seeking to keep a home or car and are behind on payments, Chapter 7 may not be the right choice, because mortgage holders and car loan companies still have certain rights to this property under Chapter 7.
In Chapter 13, you file a “plan” showing how you will pay off some of your debts over three to five years. Chapter 13 allows you to keep valuable property, such as your home and car. You should consider a Chapter 13 plan if you have a property you want to keep, are behind on payments and can see a way to pay creditors over time.
Those with enough income and can pay for necessities while keeping up with required payments, often go the Chapter 13 route.
What does it cost to file?
Court costs are typically a few hundred dollars, plus you have attorneys’ fees. The court may allow you to pay the filing fee in installments if you cannot pay all at once.
What property can I keep?
In Chapter 7, you keep the property the law says is “exempt” from the claims of creditors. Our Illinois exemptions section provides a list. The value of the property is based on what it is worth now (not when you bought it). Also, equity in property means counting exemptions against the full value, minus any money that you owe on mortgages or liens. While exemptions allow you to keep the property, even in a chapter 7 case, your exemptions do not influence the right of a mortgage holder or car loan creditor to take the property (if you are behind).
In a Chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law.
Will I lose my home or car?
In most cases, you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in Chapter 13. However, some of your creditors may have a “security interest” in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not mean these security interests go away.
But, there are several ways that we can help you keep collateral or mortgaged property after you file bankruptcy.
What can I own after bankruptcy?
You get to keep the exempt property and anything you obtain after the bankruptcy is filed. However, an inheritance, property settlement, or life insurance benefits received within 180 days after your bankruptcy may have to be paid to your creditors if the property or money is not exempt.
What debts will bankruptcy NOT eliminate?
Bankruptcy will normally not wipe out child support or alimony, fines, and some taxes. Also, debts not listed on your bankruptcy petition or loans you received by giving false information to a creditor. Student loans owed to a school or government body, unless the court determines this would be an undue hardship. Finally, mortgages or other liens which are not paid in the bankruptcy case.
Will I have to go to court?
In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors”. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. If you choose to dispute a debt, you may have to appear before a judge at a hearing. If you need to go to court, we will make you aware of such an event and you’ll be prepared.
How will bankruptcy affect my future credit?
Bankruptcy usually does not make things worse. The fact that you’ve filed a bankruptcy can appear on your credit record for ten years. But since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit.
Are gas, electric or other utilities affected?
Public utilities cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service.
Can I Be Discriminated Against For Filing Bankruptcy?
No. Employers cannot discriminate against you because you filed a bankruptcy petition or because you failed to pay a dischargeable debt.
Can bankruptcy help me reinstate my driver’s license?
If you lost your license solely because you couldn’t pay court-ordered damages, bankruptcy should allow you to get your license back.
What about co-signers to my loans?
If someone has co-signed a loan with you and you file for bankruptcy, the co-signer may have to pay your debt.
If I’m married, can I file by myself?
Yes, but your spouse will still be liable for any joint debts. If you file together you will be able to double your exemptions. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable then it might be advisable to have only one spouse file. If the spouses have joint debts, the fact that one spouse discharged the debt may show on the other spouses’ credit report.
Will bill collectors stop calling?
Yes. The automatic stay prevents bill collectors from taking any action to collect debts. Creditors will also stop calling if you inform them that you filed the bankruptcy petition, and supply them with your case number. Plus, the court mails a notice to creditors listed in your bankruptcy schedules. This usually takes a couple of weeks. In some cases, we can contact your creditors upon filing the bankruptcy petition, especially if court actions are pending.
Can bankruptcy forgive my student loans?
Generally, student loans cannot be discharged in bankruptcy. Exceptions might include student loans not insured or guaranteed by a governmental unit (nor a part thereof), or when the loan will “impose an undue hardship on the debtor and the debtor’s dependents.”
The facts of the case and local court decisions can influence the outcome. Filing an “adversary proceeding” in the bankruptcy court to obtain a court order declaring the debt discharged isn’t uncommon.
If I have just moved here, where do I file?
The case should be filed if you are the debtor, where you have lived for the greatest portion of the last six months.
If I am going through a divorce, how will this affect our divorce settlement?
Alimony, maintenance, and support are protected from discharge. Divorce decrees and separation agreements are not dischargeable unless the debtor meets a number of conditions we can discuss further in person.
How often can I file bankruptcy?
You can file for Chapter 7 bankruptcy again after six years has passed from the date of your last filing. A Chapter 13 bankruptcy can be filed at any time.