Comprehensive Bankruptcy Support in Elgin, IL
As an individual consumer or business leader contemplating bankruptcy, you want a full understanding of how the process works and what it can do for you before you commit to filing. Bankruptcy can provide powerful benefits but is a major commitment with significant consequences, so it is in your best interest to discuss your case with a legal professional. Jim Young is a bankruptcy attorney with 30 years of experience, and he is happy to review many frequently asked questions often posed by people in your position.
Who Can File for Bankruptcy?
If you are an individual consumer, you most likely qualify for Chapter 7 bankruptcy or Chapter 13 bankruptcy, but not both. Your eligibility will depend on your current level of disposable income. If you have very little money left over each month after paying essential expenses (including secured debts), you may be a good candidate for Chapter 7 bankruptcy. If you have a considerable amount of money available each month, you can likely afford a Chapter 13 payment plan.
You only tend to be ineligible for bankruptcy if you have previously filed in the past few years. You cannot file for Chapter 7 if you received a Chapter 7 discharge within eight years or a Chapter 13 discharge within six years. Chapter 13 bankruptcy is unavailable if you previously filed for it within the past two years or if you filed for Chapter 7 in the last four years.
Businesses typically file for Chapter 7 or Chapter 11 relief. A business may file for Chapter 7 if they are looking to shut down, liquidate, and distribute company assets. A company will pursue Chapter 11 bankruptcy if they wish to continue operating.
An individual or business could be prohibited from filing for bankruptcy if they are found to have defrauded their creditors. Examples of disqualifying fraud include selling assets to friends at a price below market value to avoid liquidation or attempting to conceal property in a filing.
Can I Get Rid of Government Debt Through Bankruptcy?
Unfortunately, many types of debts owed to any level of government are not typically dischargeable through bankruptcy. Fines, penalties, and trust fund payroll taxes can almost never be eliminated, for example. There are some limited exceptions, including applicable income taxes that are at least three years old. Government-guaranteed student loans can only be discharged in extremely specific circumstances involving undue hardship. An attorney can review the specific debts you owe to a local, state, or federal government and advise what can and cannot be wiped out.
What Happens to My Credit After I File for Bankruptcy?
Your credit will inevitably take a hit after filing for bankruptcy. A Chapter 7 filing will remain on your credit report for ten years, while a Chapter 13 filing will be listed for seven years.
If you are considering bankruptcy in the first place, however, your credit is likely already in jeopardy, so do not let concerns about your rating overly influence your decision on whether to file. If you take no action, you will likely continue to accumulate debt, and your credit will commensurately suffer. Bankruptcy will trigger a major ding, but it can stop the damage in the long term. Think of it as the first step in the longer journey of resolving credit issues. A legal professional can walk you through the several practical steps you can take to repair your credit following a bankruptcy case.
Who Finds Out If I File for Bankruptcy?
First, it is important to understand that there is nothing shameful about filing for bankruptcy. No one should be embarrassed about pursuing relief available under the law. With that said, an unfair stigma does still sometimes surround bankruptcy, so you may be wondering about how discreet the process is. The good news is your filing for bankruptcy will not be aggressively advertised: Your creditors will be directly informed, but your friends and family will not. Your employer could conceivably notice if they no longer have to facilitate a wage garnishment, but they will not typically be directly notified about your filing. The only situation whether a relative or some other friend may learn about your bankruptcy is if they co-signed a loan with you. In these situations, they may be informed about the proceedings.
Your bankruptcy is a matter of public record, and any person could conceivably look it up if they had reason to do so. Do note that prospective employers or lenders could discover your bankruptcy filing. Lenders can make decisions based on your filing history, but employers cannot discriminate against you on this basis.
Can Bankruptcy Stop Wage Garnishments?
Yes. When a consumer files for Chapter 7 or Chapter 13 bankruptcy, they receive immediate protection from the automatic stay, a court order that halts collection actions. In other words, if a creditor was preparing to garnish your wages, they cannot start to do so. If they were already garnishing your wages, the garnishments must stop until the automatic stay is lifted. In most cases, the automatic stay will remain in effect throughout your bankruptcy case. If the debt related to the garnishment is discharged, the garnishments cannot continue post-bankruptcy. If you cannot wipe out the underlying debt, wage garnishments will likely resume once your bankruptcy case is over, but you will hopefully have the financial resources needed to pay the debt in full.
Can I Discharge IRS or State Tax Debt Through Bankruptcy?
You can only discharge tax debt in very specific circumstances. If you recently got a huge tax bill you know that you cannot pay, bankruptcy will not be able to provide relief. Generally, you can only discharge income tax debt that is at least three years old. You must not have committed tax fraud or tax evasion, and you must have filed the applicable returns. More recent tax debt and other types of tax debt cannot be discharged. Get legal advice before filing for bankruptcy if you are looking to eliminate any kind of tax debt.
Can I Change My Mind After Filing for Bankruptcy?
It depends, but you may in some circumstances be able to change your mind after filing for bankruptcy. The functional way of doing so involves asking the court to dismiss your case. In many situations, the court will allow the dismissal and allow you to withdraw if no creditors object (and there are no extenuating circumstances in which dismissing the case would harm the creditors). You will most likely need to provide the court with a sound explanation for seeking a dismissal. An unexpected windfall might make an in-progress bankruptcy unnecessary, for example, especially if you now have the financial resources to pay off your debts.
What Can I Keep If I File for Bankruptcy?
Liquidation only affects non-exempt property. Many types of property are considered “exempt” under the law and can be kept by the filer with proper planning.
Examples of assets that can often be protected from a Chapter 7 liquidation in Illinois include:
- Equity in your home (up to $15,000)
- Equity in your vehicle (up to $2,500)
- Personal property (including family photos, books, health aids, and clothing)
- Tools of your trade (up to $1,500 in total value)
- Money needed for spousal and/or child support
- Unemployment benefits
- Workers' compensation benefits
- Veteran's benefits
- Many types of pension and retirement benefits
- $4,000 of value in an asset or assets of your choice (excluding real estate)
Can Bankruptcy Save My House from Foreclosure?
Potentially, yes. If you are at risk of foreclosure and wish to keep your home, Chapter 13 bankruptcy may be your best option. The automatic stay will stop a pending foreclosure so long as a sale has not already taken place. The foreclosure cannot generally continue until your bankruptcy case is over, so you will potentially have three to five years of protection. Your Chapter 13 payment plan will need to address your mortgage arrears and bring your loan current. Ideally, the debt reorganization should give you the funds you need to manage future mortgage payments post-bankruptcy.
What is a Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is also frequently referred to as “liquidation bankruptcy.” It is intended for individuals who have minimal disposable income or businesses looking to shut down operations. The filing process is comparatively brief and involves the sale, or liquidation, of non-exempt assets. The proceeds of the liquidation are used to partially compensate creditors for outstanding obligations. Once liquidation is completed, an individual filer receives a discharge of qualifying unsecured debt, including credit card debt, medical debt, personal loans, and unpaid utility bills. Again, Chapter 7 bankruptcy is relatively fast, often lasting only between four and six months.
What Is a Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a reorganization bankruptcy and does not involve liquidation. Filers propose and commit to payment plans that work to address all of their debts. The size of the monthly payment is based on the individual filer's current disposable income, so no one is expected to pay more than what is practical. Payment plans last between three and five years, and filers receive discharges of qualifying unsecured debt (including credit card debt, medical debt, unpaid utility bills, and personal loans) after making all payments.
What Is a Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is available to businesses experiencing financial difficulties. Businessowners retain ownership and control of their company after filing, though they must get permission from the bankruptcy court to move forward with certain types of transactions. After providing a financial disclosure to the court and creditors, the business will have an exclusive window to propose a reorganization plan. Elements of a plan may include downsizing operations, taking measures to reduce expenses, and renegotiating (or even discharging) certain debts. Creditors have the right to object to plan proposals, though the bankruptcy court can overrule them if the plan is considered fair and reasonable under the law. An expedited and more cost-effective form of Chapter 11 bankruptcy, known as Subchapter V, is also available to smaller businesses.