Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is perhaps the best-known and most talked about form of debt relief, but many people still have many questions about Chapter 7 Bankruptcy.We are here to help answer your questions and determine whether you are eligible to file a Chapter 7 and whether that is the best options for your individual needs.
Below you will find answers to many of the commonly asked questioned that we receive. What is a Chapter 7 Bankruptcy? Do I qualify to file a Chapter 7? Is Chapter 7 the best options for me? Will Chapter 7 wipe oput all my bills? Will I lose my home, car or other assets? Is Chapter 7 only for individuals?
What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is used to eliminate debt. It is often referred to as “liquidation” or a “straight” bankruptcy because virtually all debt is eliminated. However, not all debt is automatically eliminated or discharged. Some of the types of debt that can survive a Chapter 7 case include: child support, alimony, parking tickets, many student loans and certain tax debt. Once we know the facts of your case, we can tell you what debt you are able to discharge.
One of the biggest concerns that people have in Chapter 7 is about losing assets. In a Chapter 7 case, a trustee is appointed to review your case and determine whether or not you own anything of value that can be sold to reapy your creditors. Now that may sound scary but you should know that most people filing Chapter 7 do not lose ANY assets. The Bankruptcy laws allow you to protect your assets using “exemptions.”
What exemptions you are allowed to use differ based upon the State in which you reside. In Illinois, the state law exemptions are used to protect a certain portion of equity or value you have in the assets you own. The following is a partial ist of personal property is exempt from asset seizure in Illinois:
- Up to $15,000 worth of real property per person (condo, mobile home, co-op, farm)
- Personal injury recoveries not exceeding $15,000
- Personal vehicle up to $2,400 value
- Qualified pension, IRA or other qualified retirement account
- Social Security and Disability benefits
- Life insurance and annuities (restrictions apply)
- Child support
- Alimony
- Tools and other items used as part of a trade
- Wild Card = up to $4,000 worth of personal property
If spouses file for Chapter 7 Bankruptcy jointly, many of the above exemptions are doubled. The following is a link for a complete list of Illinois exemptions.
Considerations About Filing Chapter 7?
The first question that needs to be answered is whether you are eligible to file a Chapter 7 case. If you have previously filed a bankruptcy case (either Chapter 7, 11 or 13), and received a discharge, there is waiting a period before you can obtain another discharge. The other factor that needs to be considerd is your household income. If your income is above certain standards by the IRS, you MAY not be eligible to file a Chapter 7 case.
We use a tool call the Means Test to determine whether you ake to much money to file Chapter 7. The Federal Government has developed this Means Test to help anyone contemplating bankruptcy gain a clearer understanding about their financial situation. Initially, the test analyzes the size of the household and the household income. If the household income exceeds the state median based on how many people live in the home, then additional forms must be completed. Taken together, these forms will help anyone know whether filing Chapter 7 is both viable and advisable.
When clients come to Gregory K. Stern, P.C. Bankruptcy and Foreclosure Attorneys for Chicago, they are advised in the same way. Of course, the Bankruptcy Means Test provided by the U. S. Department of Justice Courts system can be confusing, which is why we offer a free consultation to clients.
I Passed the Means Tests – Should I File a Chapter 7?
If you pass the Means Test it means that your are eligible to file Chapter 7. However, just because you are eligible to file a Chapter 7, in some cases, Chapter 7 is not the best option. It is critical that you talk to a lawyer and discuss your goals and expectations in filing a Chapter 7 case. Here are a few examples when filing a Chapter 7 may not be the right choice: (1) If you have assets that have value far exceeding the amount of your allowed exemptions, filing a Chapter 7 may lead to losing that asset or (2) if your primary debt is parking tickets or non-dis-chargeable student loans or tax debt, a Chapter 13 repayment plan might be a better option that Chapter 7.
Below is a list of “Pros” and “Cons” for filing Chapter 7
| PROS | CONS |
|---|---|
| Filing of a case give you an automatic stay that stopes all collection activity, lawsuits, garnishments and threatening phone calls. | If you have assets that value above the allowed exemptions, the trustee may sell that asset. |
| You can eliminate most, if not all of your debt. You get a fresh start. | Doesn’t eliminate all types of debt. |
| Most people do not lose any assets | Does not allow you catch up on past due car or house payments. |
| A typical case last about 4-5 months | Will affect your ability to get credit in the future |
Can a Business File for Chapter 7 Bankruptcy Protection?
Both businesses and individuals can file for Chapter 7 bankruptcy protection, but most businesses do not. The reason is simple: If a business files for this form of bankruptcy, the business must be winding down, closed or willing to turn over operation of the business to the Chapter 7 Trustee. In most cases, the person filing for bankruptcy on the business will not be interested in losing their only means of income. While whereas a business may file Chapter 7, few do.
Instead, most businesses will file a Chapter 11.or attempt to restructure the business debt outside of bankruptcy.
Are There Alternatives to Filing Chapter 7 Bankruptcy?
There are alternatives to filing for Chapter 7 Bankruptcy. At Gregory K. Stern, P.C. Bankruptcy and Foreclosure Attorneys for Chicago, we will explore all options with you. We can assess whether alternatives will be useful in your case Some alternatives include negotiating with creditors on your behalf to either reach a settlement or better terms of payment,file for relief under Chapter 13 to include restructuring of your debt, and/or asset protection. In addition, if you are facing litigation by a creditor, we will be happy to represent you.
Our office is located at 53 West Jackson Boulevard, Suite 1442, Chicago, Illinois 60604. Our number is…