Get Answers To Your Chapter 7 Questions

What is Chapter 7 bankruptcy?

Chapter 7 is the most common type of bankruptcy filed by individuals who need a fresh start. People file Chapter 7 bankruptcy to receive a discharge, which is an order from the Bankruptcy Court that forgives most debts. Technically, it is a liquidation bankruptcy, which means that assets can be taken and sold and the proceeds used to pay creditors. However, many assets can be protected so that individuals can file bankruptcy and keep all of their property. Please see the questions below about what debts can be discharged and what assets can be protected.

What debts can be discharged in Chapter 7 bankruptcy?

Credit cards, personal loans, medical bills and other unsecured debt, even if you have been sued and the debt has become a judgment, are discharged in Chapter 7. Secured debts such as car loans and home mortgages are dischargeable, but only if an individual does not want to keep the property they are paying for. If you want to keep the property, the secured debt must be paid. Personal income taxes may be discharged depending on the age of the taxes. Chapter 7 does not discharge student loans or unpaid child support.

Can I keep my home if I file Chapter 7 bankruptcy?

Your home may be sold in Chapter 7 bankruptcy to pay your creditors. However, this will happen only if your home contains equity, meaning that the home has value above and beyond the mortgage debt. Additionally, you can protect equity in your home should your home be worth more than what you owe on it. Illinois law allows you to protect up to $15,000 in equity in your home if you are an individual, $30,000 if you are married and own the home together. In the aftermath of the financial crisis of 2008, many homes have lost value such that they may be kept in Chapter 7 bankruptcy. Please contact my office to schedule your free one-hour consultation if you have any additional questions.

Will I lose my pension or 401(k) if I file Chapter 7 bankruptcy?

Most pensions and retirement accounts are 100 percent exempt so they will not be liquidated if you file Chapter 7 bankruptcy. In most instances, the key is whether the funds were contributed to the account pretax, meaning before income taxes were deducted from your paycheck. Most pensions and retirement plans through employers are pretax plans and are 100 percent protected. I will provide an analysis of your retirement accounts in a free one-hour consultation.

Can I keep my car if I file Chapter 7 bankruptcy?

You can almost always keep your car in Chapter 7 bankruptcy if you are still paying for it. This is because cars usually depreciate faster than the loan is paid down such that the car cannot be sold for more than what is owed on it. As long as you continue to make your payments, you can keep your car. If your car is paid off or does contain equity, Illinois law allows you to protect $2,400 in a vehicle if you are an individual, $4,800 if you are married and own the car together. I may be able to protect additional equity in your car as well, depending on what other personal property you own.

What can I expect if I file Chapter 7 bankruptcy?

After your initial consultation, if you decide Chapter 7 bankruptcy is the option that works best for you, you will schedule a second appointment to meet with your attorney. This second appointment is what I call a "client interview," where I will obtain detailed information about your assets, liabilities and budget. All of this information will be entered into your bankruptcy petition, which is the document that is filed with the Bankruptcy Court for you to obtain your discharge. Shortly after your second meeting, your bankruptcy petition will be completed. You must review and sign this petition to make sure all of the information is correct.

Once the petition is filed with the court, you have the powerful protection called the automatic stay. The automatic stay stops all collection activity, including lawsuits, garnishment of wages and even harassing phone calls. Once filed, your case is assigned to an individual called a bankruptcy trustee. It is the trustee's job to examine your assets and determine whether any of your property can be sold to pay your creditors. You will meet with your Chapter 7 trustee approximately 30 days after your case is filed. I will attend this meeting with you and answer any questions you may have. Approximately 60 days after this meeting, or 90 days after your petition is filed, you will receive your discharge, which forgives your debts.

What are the consequences of filing Chapter 7 bankruptcy?

Chapter 7 bankruptcy will provide you with a fresh start, but it will remain on your credit report for 10 years and will affect your ability to obtain credit to buy a car or house. However, many people are able to repair their credit within a few years of bankruptcy. Individual circumstances may vary.

What is reaffirmation?

Legally, filing Chapter 7 breaks your obligations to repay your debts. However, many people have a home or a vehicle that they are stilling paying for and want to keep after filing Chapter 7 bankruptcy. Most creditors will require you to reaffirm your debt with them to keep the property you are still paying for. To reaffirm, you sign a simple contract with the lender called a reaffirmation agreement. Once this document is signed, that particular obligation survives your discharge, like you never filed bankruptcy. You continue to make the payments until the loan is paid off. Reaffirmation is a serious decision with serious consequences and should be signed only after you have consulted with an attorney and understand all of your rights and obligations. Speak with a lawyer to see if reaffirmation of your car or home loan makes sense for you.

Am I eligible to file Chapter 7 bankruptcy?

You are eligible to file for Chapter 7 bankruptcy if you have not filed such a bankruptcy in the prior eight years and if your income falls below a certain threshold. Your income threshold is based on your household size and which state you live in. The income data is gathered and published by the United States Census Bureau and is available here:

http://www.justice.gov/ust/eo/bapcpa/20111101/bci_data/median_income_table.htm

If your income happens to fall above the median for your household size, you may still be able to qualify for Chapter 7 bankruptcy. Set up your free consultation to have an attorney evaluate your income to determine if you qualify or what other solutions in bankruptcy may be of benefit to you.

My wages are being garnished. Will filing Chapter 7 bankruptcy stop these garnishments?

When you file for Chapter 7 bankruptcy, you incur a powerful legal protection called the automatic stay. The automatic stay is in full force from the moment you file for bankruptcy and stops all collection efforts, including garnishment of wages. A bankruptcy petition generally takes two to three weeks to complete, but I can expedite the process to file Chapter 7 bankruptcy if circumstances dictate.

A relative or friend is a co-signer on one of my debts. How will he or she be affected if I file for bankruptcy?

If someone has co-signed a loan with you, he or she is equally responsible for repayment of the debt. If you file bankruptcy, your creditor can, and most likely will, pursue repayment of the debt from the co-signer. However, if you reaffirm the debt and continue making payments, your co-signer will remain unaffected. As long as the debt is paid, your bankruptcy will have no adverse affects on your co-signer's credit.

I have certain accounts that I want to keep. Do I have to include all of my debts in the bankruptcy or can I pick and choose which debts I want to include?

You must include all of your debts when you file bankruptcy. A bankruptcy does not allow you to pick which debts you want to include and which debts you do not.

What is a bankruptcy trustee?

Chapter 7 bankruptcy is a "liquidation" bankruptcy, meaning that your assets could be taken and sold to pay your creditors. A bankruptcy trustee's job is to sell your assets and pay your creditors. Every case is assigned a bankruptcy trustee. In every case, there is also a mandatory meeting of creditors, sometimes called a "341 meeting." At this meeting, you will meet with your trustee, who will determine if you have any assets that can be sold. Many of your assets can be protected. Please review the frequently asked questions page for a more detailed list of what assets can be protected and what assets are at risk of being taken and sold.

I Can Answer Your Questions

To schedule a free consultation, please call me in Rockford at 815-306-4189 or contact me online.