Unfortunately, sometimes big life events, such as the loss of your job or the death of a spouse, may create a financial avalanche too strong to overcome. In such cases, filing for Chapter 7 bankruptcy may be the right option to help you start over again.
It is important to note that Chapter 7 bankruptcy does not eliminate certain types of debt such as some government fines, restitution, child and spousal support, tax liability debts, debts from intentional and malicious injuries, drunk driving-and other criminal-related debts, or most student loan debt.
It is important to speak with a qualified bankruptcy attorney to understand the specific types of debt that you will be able to eliminate – as well as those that you will not. Contact one of our experienced chapter 7 bankruptcy attorneys today at the Chicago Bankruptcy Clinic to discuss whether or not chapter 7 bankruptcy is right for you.
Is Chapter 7 bankruptcy the right option for me?
Before you can even file for Chapter 7 bankruptcy, you must first be eligible. This means that your income must be lower than the median income for those in Illinois. Should your income exceed this median, you must then be able to demonstrate that your disposable monthly income isn’t capable of covering your debts. You can prove this by passing a “means test.”
If you do not pass the means test you are not eligible to file for Chapter 7. However, you can instead file for Chapter 13 bankruptcy. While there are exceptions to this, they are often complex and require the assistance of a knowledgeable and experienced bankruptcy attorney who can help to walk you through everything.
Those who have filed for Chapter 7 bankruptcy in the past must wait a minimum of eight years before filing again. However, those who have filed for Chapter 7 in the past need only wait four years to file for Chapter 13.
You Have an Income Stream or Own Valuable Property
You want to consider whether or not a creditor will be able to collect from you before filing for Chapter 7 bankruptcy. Since creditors will look into whether you have assets that they can take to offset your debts, if you lack a stream of income and only own basic household items and a modest vehicle without a high likelihood of your financial situation changing any time soon, you would likely be considered judgment proof.
In other words, it’s unlikely that a creditor would be able to collect anything from you. Therefore filing for Chapter 7 bankruptcy doesn’t make a lot of sense since it won’t make much difference. This is also true if all of your income is from Social Security since creditors can’t take that.
However, if you do own valuable assets, your creditors can likely go after them to collect from you for child support, taxes, and certain student loans.
Other unsecured creditors, such as those with medical debt and credit card debt, must first sue you in court to obtain a judgment to seize your property or garnish your wages. Should you be served with a lawsuit, it’s imperative that you speak with a bankruptcy attorney. This is because filing for bankruptcy before the creditor’s judgment can help avoid a lien on your property.
Your Debts Are Dischargeable
If your main goal in filing for Chapter 7 bankruptcy is to eliminate nondischargeable debts, it doesn’t make sense to do so.
Certain categories of debt aren’t dischargeable in Chapter 7 bankruptcy. It doesn’t make much sense to file for Chapter 7 bankruptcy if your primary goal is to eliminate these non-dischargeable debts:
- Student loans (unless repayment would cause undue hardship)
- Income taxes (no more than three years past due)
- Recent debts for luxuries
- Drunk driving-related judgments
A bankruptcy judge may discover that certain types of debts are nondischargeable if the creditor objects to a discharge in the bankruptcy court. Such debts include those from:
- Willful or malicious injury to another or another’s property
- Larceny (theft)
- Breach of trust
- A marital settlement agreement or divorce decree (not otherwise automatically nondischargeable as support or alimony)
You Can Accept Losing Your Non-Exempt Property
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, works by selling off the (nonexempt) property that you can to pay off as much unsecured debt to your creditors as possible, with the remainder to be discharged.
However, there is certain exempt property that cannot be taken from you. Chapter 7 bankruptcy is right for you if you are okay with losing your non-exempt property:
- Musical instruments (unless you’re a professional musician);
- Collections (e.g. stamps and coins);
- Family heirlooms;
- Bank accounts;
- Stocks, bonds, and other investments;
- A second vehicle; and
- A second home.
There is a possibility that some of the above may be able to be “exempt” if it is correctly categorized within an allowable exemption of the Bankruptcy Code. This is why it is crucial to discuss your situation with an experienced bankruptcy attorney.
Contact Our Experienced Chicago Bankruptcy Attorney
At Chicago Bankruptcy Clinic, we will handle all the details of your bankruptcy filing with precision and professionalism. We are familiar with the rules and procedures of the local bankruptcy courts and have developed working relationships with bankruptcy trustees in jurisdictions throughout Chicago. Our legal team has a well-earned reputation not only as dedicated advocates of our clients but as honest brokers as well.
If you are considering filing for Chapter 7 bankruptcy, don’t go it alone. When you work with our experienced bankruptcy lawyers, you will have peace of mind knowing that debt relief is on the way. Please contact our office today for a free consultation.