The Different Kinds Of Bankruptcy In Illinois
All the types of bankruptcy have the same goal that Supreme Court Justice James Clark McReynolds first articulated in 1915: “to relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.”
So, to be eligible for debt relief under federal law, debtors must be both honest and unfortunate. There are a few “dishonest” debtors, but bankruptcy fraud cases are relatively rare. Furthermore, almost all debtors are “unfortunate.” Most people file bankruptcy because of medical bills, a divorce, a period of unemployment or some other adverse circumstances that were mostly well beyond their control.
There are basically three different types of bankruptcy in Illinois. Two of them are formal and one is informal.
Just a few months after debtors file voluntary petitions, “liquidation” bankruptcy discharges (forgives) their unsecured debts, including:
- – Medical bills,
- – Credit cards,
- – Some past due income taxes, and
- – Most government loans.
Small Business Administration loans are entirely dischargeable, income taxes are dischargeable if they are at least three years old and meet some other qualifications, and student loans are dischargeable if the debtor has a hardship.
In return for this discharge, debtors agree to liquidate their nonexempt assets to pay their creditors. That sounds very harsh, but in reality, most people do not have nonexempt assets. Home equity, retirement accounts, motor vehicles, and household possessions are all generally exempt.
But Chapter 7 debtors in Indiana don’t have to wait several months for relief. Breathing room comes right away, in the form of the automatic stay. Section 362 of the Bankruptcy Code prohibits moneylenders from taking any adverse action while the case is pending. This list includes:
- – Foreclosure,
- – Wage garnishment,
- – Repossession, and
- – Collection activity.
In most cases, Section 362 takes effect automatically and remains in effect while the case is pending. Moneylenders can only take such action in extraordinary circumstances and if the judge gives them special permission.
The wage-earner plan is ideal for people in Chicago who are behind on their home mortgage or other secured debt. In addition to unsecured debt discharge and the automatic stay, Chapter 13 provides a protected repayment period of up to five years.
During this time, debtors make catch-up payments through a monthly debt consolidation payment. If the trustee (person who oversees the bankruptcy for the judge) approves the plan, the moneylender must accept it as well. Significantly, the repayment plan is income-based. So, debtors pay what they can afford as opposed to what the moneylender demands.
Debtors have a near-absolute right to converts from a Chapter 13 to a Chapter 7 at any time. So, many people with significant home mortgage or other secured debt in Indiana can file a Chapter 13, and if they cannot afford the debt consolidation payment, convert to a Chapter 7 and start over in just a matter of weeks.
Reach Out to Experienced Attorneys
Distressed debtors have several debt relief options. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.