Unexpected expenses can ruin anyone’s finances and savings. If your debts spin out of control, your bills start piling up, and collection agencies start calling you, you might be thinking about bankruptcy. If this describes you, you should probably meet with a Chicago bankruptcy attorney.
Bankruptcy is a last resort for consumers who are in financial distress. It gives them a chance to discharge debts and “start over.” However, bankruptcy comes with a cost, both in what you pay to file for bankruptcy and in the damage it does to your credit score and your future.
Moreover, if you are struggling with your debts, it does not automatically mean that you should file for bankruptcy. It’s a bit more complicated than that. Your personal financial circumstances will determine whether or not bankruptcy is your best alternative.
Bankruptcy May Not Be Your Best Option
Bankruptcy is the only option for some people in some cases, but is it your own best option? And if it is, what are the several types of bankruptcy, and which type of bankruptcy should you seek? You will find some answers if you keep reading this brief introduction to bankruptcy in Illinois.
Bankruptcy has serious consequences. It isn’t some easy way to duck out on your debts. Hard-working people everywhere fall into debt because of an injury or a serious illness, a divorce or a death in the family, or a number of other reasons.
Bad things happen to good people. For some of them, bankruptcy is the right solution. It’s the responsible and legal way to deal with debts that simply cannot be paid.
What Should You Ask Yourself Before Filing For Bankruptcy?
Is bankruptcy right for you? First, ask yourself if your finances will improve in the near future. Do you expect a new job, a raise, a promotion, or an inheritance? Your debts may seem overwhelming today, but will your circumstances be different next month or next year?
The next consideration is whether your debts are mostly “secured” or “unsecured” debts. Bankruptcy wipes out or “discharges” only unsecured debts – medical bills and credit card balances, for example.
“Secured” debts include state, federal, and local tax debt, student loan debt, alimony and child support, civil judgements, and criminal or civil fines. If your debts are mostly unsecured debts, bankruptcy might be the remedy you need.
Finally, ask yourself if you are willing to deal with the repercussions of bankruptcy. Those repercussions can be severe. You will have to surrender some of your personal property, and your credit score may suffer some serious damage.
What Are Chapter 7 And Chapter 13?
But if you understand fully the negative consequences of filing for bankruptcy, and if you are willing to handle those consequences, filing for bankruptcy might be your answer. If so, you’ll need to decide, with your lawyer’s help, if a “Chapter 7” or a “Chapter 13” bankruptcy is best.
“Chapter 7” and “Chapter 13” are chapters of “Title 11” in the United States Code, the set of federal laws that govern the nation. The United States Code includes 52 titles; Title 11 is the U.S. Bankruptcy Code, the complete bankruptcy laws of the United States.
Chapter 7 and Chapter 13 are the chapters of Title 11 that govern personal bankruptcies. A Chapter 7 bankruptcy is right for some consumers and families who are in debt, but a Chapter 13 bankruptcy will serve others more effectively.
What Does A Chapter 7 Bankruptcy Provide?
How are Chapter 7 and Chapter 13 bankruptcies different, and what do each of the two bankruptcy options offer? Here’s what a Chapter 7 bankruptcy offers:
1. Immediate relief from creditors: An automatic stay goes into effect that prevents creditors from suing or even contacting you as soon as you file a Chapter 7 bankruptcy.
2. Convenience: A Chapter 7 bankruptcy can be completed in about ninety days, and it is less costly than filing under Chapter 13.
3. A fresh start: Your unsecured debts will be wiped out (discharged) with a Chapter 7 bankruptcy.
What Does A Chapter 13 Bankruptcy Provide?
In most cases, a Chapter 7 bankruptcy requires you to pass a rigorous means test. The test disqualifies debtors who can pay back part of their debts from filing under Chapter 7.
If you fail the means test, you will have to file for bankruptcy under Chapter 13. A Chapter 13 bankruptcy:
1. Halts foreclosure: A Chapter 13 bankruptcy allows a homeowner to get up-to-date on past-due mortgage payments and start making current payments.
2. Safeguards assets: In a Chapter 13 bankruptcy, you keep some of your assets that you would have to surrender in a Chapter 7 bankruptcy.
3. Restructures divorce and child support debts: You pay off child support and any other divorce debts over a period of three to five years.
4. A Chapter 13 bankruptcy also restructures payment schedules and amounts for your vehicle and your home.
After reviewing your financial situation and speaking to you personally, an Illinois bankruptcy lawyer will recommend a Chapter 7 bankruptcy, a Chapter 13 bankruptcy, or an alternative such as direct negotiation with your creditors.
What Gets Paid In A Bankruptcy? What Can You Keep?
In Chapter 7 bankruptcies, the court liquidates most of your assets and uses those resources to pay as much of your debt as possible. Any of your debts that are not paid in a Chapter 7 bankruptcy are discharged or erased.
However, if you file for bankruptcy under Chapter 13, you and your bankruptcy attorney will develop a payment plan to pay your priority and secured debts, along with as much of your unsecured debt as possible, over a specific period of time – usually three to five years.
Bankruptcy filers in Illinois are allowed to retain some of their personal property, called “exemptions.” Exemptions include medical and health devices, clothes, prepaid tuition trust funds, public benefits, certain pensions, and the property of a business partnership.
The State of Illinois additionally exempts up to $2,400 of equity interest in motor vehicles and up to $15,000 of equity interest in owner-occupied real estate.
Don’t Go It Alone!
Do not try filing for bankruptcy by yourself. It may not be your best option, and any mistakes could make your situation even more dire. For the advice and assistance you need if you struggle with debt in the Chicago area, promptly arrange to speak to a Chicago bankruptcy attorney.