The Facts About Chapter 13 Bankruptcy in Illinois
Most families in the Prairie State have heard all the myths about Chapter 7 bankruptcy, but they haven’t heard any of the facts about this government-sponsored debt relief program. As a result, they don’t know the relief that’s available to distressed debtors.
Most families live from hand to mouth. Therefore, even a temporary income disruption, like a short-term job loss or a sudden illness, could cause people to fall behind on mortgage payments, auto payments, and other secured debt payments. Usually, these installment payments are so high that it’s impossible to make catch-up payments.
A Chicago bankruptcy lawyer does more than tell distressed debtors about the facts of a Chapter 13 bankruptcy. An attorney knows the law and knows how to make it work for people. This law is now more favorable than ever, underscoring the need to know the facts about bankruptcy in Illinois.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy enables debtors to create a repayment plan lasting three to five years. Instead of liquidating assets like in Chapter 7, filers make monthly payments to a court-appointed trustee, who distributes funds to creditors.
In Illinois, cases are handled through the United States Bankruptcy Court for the Northern District of Illinois and the United States Bankruptcy Court for the Southern District of Illinois, depending on where you reside.
Who Qualifies for Chapter 13 in Illinois?
Most people qualify for Chapter 13 bankruptcy. To be eligible, individuals must meet certain requirements, such as:
- Have a regular and reliable income which enables the debtor to make a monthly debt consolidation payment,
- Stay within federal debt limits for secured (about $2.2 million) and unsecured debts (about $400,000),
- Be current on income tax filings, and
- Complete an approved credit counseling course (debtors must complete a post-filing course as well).
Chapter 13 bankruptcy is only available to individuals and sole proprietors, not corporations or partnerships. Chapter 11 bankruptcy is available in those cases, as is Chapter 7.
What Must I Pay?
The repayment plan is the core feature of Chapter 13 bankruptcy. It allows you to get current on all allowed claims, like the aforementioned home mortgage loan, over time. The length of the plan depends on your income:
- 3 years if your income is below the Illinois median, and
- 5 years if your income exceeds the median.
Your monthly payments are based on disposable income—what remains after necessary living expenses. Priority debts (taxes, child support, alimony) must be paid in full, no matter what. Debtors must also bring secured debts (mortgages and car loans) current, if they want to keep the property. Unsecured debts, like credit cards and medical bills, may only be partially repaid.
The Automatic Stay Protection
One of the most important facts about Chapter 13 bankruptcy in Illinois is the protection offered by the Automatic Stay. As soon as you file, most collection efforts stop immediately, including:
- Foreclosure proceedings,
- Wage garnishments, and
- Lawsuits and creditor harassment.
Usually, the Automatic Stay remains in effect until the judge closes the case. In other words, creditors cannot pressure debtors to pay more money or pay it faster, at least in most cases.
Property Exemptions
In a Monopoly board game bankruptcy, players who file bankruptcy lose all their property. In a real-life bankruptcy, debtors typically keep most of their property, such as:
- House,
- Motor vehicle,
- Retirement account,
- Government benefits, and
- Personal property.
Creditors can only bypass the Automatic Stay and repossess exempt property in extreme situations, such as a threat to the collateral (e.g. Mike posts his plans to drive his car off a cliff on Facebook).
Connect With a Diligent Cook County Lawyer
No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours, virtual, and home visits are available.
Source:
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