Chapter 7 Bankruptcy

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Chapter 7 Bankruptcy

Why File Chapter 7?

  • A Fresh Start – With some exceptions, all of your debts are discharged and you get a fresh start.
    • This form of bankruptcy is a liquidation proceeding. In other words, a debtor turns over all non-exempt property to the bankruptcy trustee, who uses the proceeds of such assets to pay holder of claims (creditors) in accordance with the provisions of the Bankruptcy Code.
    • In addition to a fresh start, filing chapter 7 bankruptcy normally allows you to retain some of your property.
  • Immediate Protection – As soon as you file for Chapter 7 bankruptcy, you will be protected from all creditors trying to contact you.
  • Lower cost – Generally, the cost of a Chapter 7 is less than the cost of a Chapter 13.
  • Completed in a Few Months – You will receive your discharge and be finished and ready to start your “fresh start” within about four months of filing.

Filing procedure to File Chapter 7 Bankruptcy in Illinois

  • You would first file a petition with bankruptcy court. This creates an “estate” consisting of all your legal and equitable interests in property as of that time. Then, a trustee is appointed to take possession of the property of the estate. In all reality, no one actually takes your property, but the trustee must determine if any assets in the estate can be liquidated.
  • Roughly one month after filing bankruptcy, you will attend a hearing. This hearing is for the creditors to ask you questions about your debts and assets. In all reality, the main purpose of this hearing will be for the trustee to determine if you have nay assets to take and sell to pay back your creditors.
  • Approximately two to three months later you will receive a discharge.

What is a discharge?

  • The main point of filing for Chapter 7 is to receive a “discharge.” A discharge is a court order that says you don’t have to repay your debts. It is possible that some debts are automatically excluded from discharge and must be paid. These debts include:
    • Alimony
    • Maintenance
    • Child Support
    • Divorce Obligations of any kind
    • Fines and tax obligations
    • Penalties
    • Student Loans
    • Personal Injury claims arising out of driving while intoxicated
  • It is possible that your discharge many be denied, if you were to destroy or conceal property; destroy, conceal or falsify record; or make a false statement under oath.

Do you qualify for Chapter 7?

  • The way to know if you qualify for chapter 7 is by taking the Means Test. It is mainly about your financial situation, specifically, your monthly income, household size, and monthly expenses to determine if you qualify. Your income must be at or below the average income for a family of your size in Illinois.
  • The reason behind the Means Test is to ensure that Chapter 7 is given to those who need it the most.

Will you lose assets?

  • Given that Chapter 7 is a liquidating process, this means that if you have assets that are free and clear of any liens, the bankruptcy courts concedes those assets and auctions them off to pay your creditors. On a positive not, most assets are considered exempt under Illinois and federal law. This means that even though you own a particular asset out right, it will be protected during the bankruptcy process. Nonetheless, consult with a bankruptcy attorney to assess whether your assets are exempt or at risk.

What times of debts can be eliminated through a Chapter 7?

  • Mortgage debt
  • Credit card debt
  • Medical bills
  • Civil judgments
  • Unsecured loans

However, the following are typical debts that are not discharged in Chapter 7:

  • Unpaid taxes
  • Student loans
  • Child-support/maintenance/other divorce obligations
  • Criminal fines
  • Secured loans such as car payments and house payments
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