When creditors are “at your door” many persons think of filing bankruptcy. Often they are reluctant because they really do not understand bankruptcy.
Chapter 7 Bankruptcy, simply put, means the following:
A. You will not be legally required to pay most of your debts (three major exceptions being child support, most taxes and student loans).
B. You will get to keep all your property that is exempt on which a creditor has a lien or mortgage (if you pay the secured creditor and any equity you have in the property is exempt).
One person’s exemptions in Illinois (doubled for a married couple) are basically as follows:
A. $15,000 of “equity” in real estate (Example: If a couple owns a home worth $80,000 and have a mortgage of $50,000, they have $30,000 in “equity.” If they pay the mortgage, they can keep their home because their exemption together totals $30,000.
B. $4,000 of property of any kind or description other than real estate.
C. $2,400 in a motor vehicle.
D. $1,500 in tools of a trade.
E. Miscellaneous items, such as worker’s compensation benefits, unemployment compensation, life insurance and others.
The date the debtor obtains relief from his debts is the date of filing of the bankruptcy petition. Although he is not “discharged” from his debts until later, after the filing of a petition no creditor can do any more to collect a debt without permission of the Bankruptcy Court. You can only file a Chapter 7 ever eight (8) years.
Chapter 13 Bankruptcy means the following:
A. You will pay your secured creditors and some money to your unsecured creditors. In the Decatur area, you must pay at least 10% of your unsecured debt. (In a Chapter 13, payments are made to a person called a Trustee who divides the payments among your creditors).
B. You will keep all of your property if your Chapter 13 plan is confirmed (unless you choose not to pay a secured creditor).
You may be eligible for a Chapter 13 even if you have filed a Chapter 7 in the last eight years.
You can force a mortgage company or loan company to permit you to catch up your payments on a home or car loan in a Chapter 13.
New Bankruptcy Law
Congress has passed a major change of the bankruptcy laws. This change went into effect on October 17, 2005. Under the new law, persons making more than the statewide median income may be forced to file a Chapter 13 instead of a Chapter 7. For most people, the new law will still allow them to file a Chapter 7 and discharge their dischargeable debts. The new law does require that a debtor go through consumer credit counseling before filing.
Obviously, this is a surface analysis of bankruptcy. For more information, call us at (217) 422-2400 to arrange an appointment.