Individuals Families and
Small Business Owners
In spite of your best efforts, you may find yourself struggling to stay out of debt. For some debtors, it is appropriate to file for Chapter 7 bankruptcy, which is also known as liquidation bankruptcy, when faced with insurmountable debt. When you undergo Chapter 7 bankruptcy, many of your debts are wiped out, or “discharged.” However, it is important to go through the proper steps to achieve the discharge for which Chapter 7 bankruptcy was designed. The DuPage County Chapter 7 bankruptcy lawyers at the Bankruptcy Center of Illinois may be able to represent you during this process.
Chapter 7 bankruptcy is a federal court proceeding that is governed by the Bankruptcy Code. This type of bankruptcy helps individuals who are experiencing financial distress obtain relief. Filing for Chapter 7 does not necessarily mean that you lose all your property. You can keep certain pieces of property that are exempted.
A bankruptcy discharge will remove liability for most debts, but certain debts such as child support, alimony, certain taxes, and any debts that you did not disclose to the bankruptcy court are non-dischargeable. A creditor can ask the bankruptcy court to declare a debt non-dischargeable under certain circumstances. Not everyone can file for Chapter 7 bankruptcy. In order to file, you must pass the means test.
The means test is a way for the court to figure out whether your income is low enough to qualify for Chapter 7 bankruptcy. If you fail the means test due to high income, you can use Chapter 13 bankruptcy, which requires you to develop a payment plan to pay off a significant amount of your debt.
A Chapter 7 bankruptcy attorney in DuPage County can explain how the means test works. The first part of the means test is to look at whether your income is more than the median income in Illinois. If your monthly income is less than the median income for households of your size in Illinois, you pass and may file for Chapter 7 bankruptcy. However, if your household income is greater than the state median, the next step is to look at what your disposable income is by deducting certain expenses from your monthly income. You cannot get Chapter 7 relief if your disposable income is more than a specific amount.
During the 180-day period before filing for Chapter 7, you must obtain credit counseling from an approved credit counseling agency. You initiate the bankruptcy by filing a petition with the bankruptcy court. Filing the petition triggers what is called an automatic stay; this stops creditors from pursuing debt collection against you unless they are approved to go forward by the bankruptcy judge.
The bankruptcy court will appoint a trustee to go over your finances and administer your bankruptcy case. The trustee can liquidate any asset of yours that is not exempt from collection or subject to a lien. The funds from the sale of the assets go toward paying your creditors. You can also keep property that the trustee has abandoned because selling it would not yield enough money to pay back creditors once the costs of the sale are recouped. A DuPage County Chapter 7 bankruptcy attorney can assess whether an asset is likely to be abandoned.
Your debt will be categorized as priority, secured, or unsecured claims. Priority debt includes employee wages, certain taxes, alimony, and child support. You cannot discharge most priority debts in bankruptcy. Secured debts are secured by a lien on collateral, such as a house or car. Your Chapter 7 discharge may wipe away personal liability for the debt, but the creditor can seize the collateral securing the debt if the debt is not repaid. You can surrender the property, reaffirm the debt by continuing to make payments, or protect the property’s fair market value. Unsecured debts are those that are not secured by a lien on property or backed by collateral. These include medical debt and credit card debt.
When used properly, bankruptcy can relieve a lot of the pressure that debtors feel and allow them to obtain a fresh start. However, if bankruptcy is not carefully managed, some debts may not be discharged, leaving the debtor in a precarious position. If you wish to file under Chapter 7, you should consult a Chapter 7 bankruptcy lawyer in DuPage County. Call us at (773) 993-0024 or contact us via our online form.