What to Expect in an Illinois Chapter 7 Bankruptcy
The average credit card interest rate is over 20 percent. At that level, debtors can pay two or three times the monthly minimum, and the outstanding does not significantly decrease. It’s very frustrating to pay hundreds of dollars a month on several credit cards (most Americans have four credit cards) and barely make the interest payment.
Chapter 7 bankruptcy does not just stop this debt treadmill. Chapter 7 eliminates the treadmill altogether. This federal debt relief program is the only way to give your family a fresh financial start. But many people are largely unfamiliar with the process. As is often the case, if families know roughly what to expect, the fear of filing bankruptcy diminishes.
Qualifying for Chapter 7
A 2005 bankruptcy reform measure introduced the means test. To qualify for Chapter 7 debt elimination, the debtor’s annual income must be below the average income for that family size in that geographic area. As of May 2020, that amount is $103,074 for a family of four in Illinois. Frankly, if your income is significantly higher than that, you probably do not need to file Chapter 7. Other options are available.
There are some other formal qualifications as well. All Chapter 7 debtors must complete a debt counselling course. This brief and inexpensive course is available online. Additionally, Chapter 7 is usually only available for individuals, families, and sole proprietorship businesses. Finally, a prior bankruptcy filing might affect the Automatic Stay or the discharge order. More on these things below.
Moreover, there are some informal qualifications. For example, the trustee (person who oversees the bankruptcy for the judge) often questions the need for a Chapter 7 filing if the debtor’s monthly income significantly exceeds monthly expenses. Informal qualifications vary among different jurisdictions.
Almost all consumer bankruptcies begin with voluntary petitions. Debtors choose when to file, and they can withdraw their petitions at any time.
As soon as debtors file, Section 362 of the Bankruptcy Code normally takes effect. Bankruptcy’s Automatic Stay prohibits all forms of creditor adverse action, including:
- – Wage garnishment,
- – Repossession,
- – Foreclosure, and
- – Creditor harassment.
If the debtor had filed bankruptcy within the previous 180 days, the Automatic Stay may be limited.
This petition details all the filer’s debts and assets. Contrary to popular myth, bankruptcy filers do not lose their assets. In fact, the law exempts most assets from creditor seizure. These exemptions include homestead, retirement account, personal property (including motor vehicles), and government benefits.
About six weeks after debtors file their petitions, they meet with the trustee for a brief case review.
Prior to the meeting, the trustee usually examines some financial documents, such as tax returns and recent paystubs. Typically, the trustee looks at these documents to check for large income changes.
At the meeting, the trustee verifies the debtor’s identity and asks a few yes/no questions about the petition and its contents. Your attorney prepares you for this portion of the meeting. Assuming there are no red flags, and there usually are none, that’s pretty much it.
Generally, the judge signs a Chapter 7 discharge order about six months after the trustee’s meeting. The discharge order affects unsecured debts, such as:
- – Credit cards,
- – Signature loans,
- – Payday loans, and
- – Medical bills.
“Discharge” eliminates the legal obligation to pay the debt, but not the debt itself. Assume Janet owed tuition to State U. As a result, State U withheld her transcript. If Janet filed Chapter 7, the tuition debt would be discharged, but Janet or her lawyer must negotiate separately with State U regarding the transcript hold.
Reach Out to Diligent Lawyers
Chapter 7 is an excellent option for distressed debtors. For a free consultation with an experienced Chicago Chapter 7 bankruptcy attorney, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in Indiana and Illinois.