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Illinois Bankruptcy: A Quick Overview

Filing for bankruptcy in Illinois is, in most ways, the same as filing for bankruptcy in any other state. The bankruptcy procedure is governed by federal law, not Illinois state law, and it works by dissolving contracts between you and your creditors—this is what allows you to start fresh.

However, the laws of the state of Illinois have a significant role. They decide which property you can retain in your bankruptcy case. Most people in Illinois file for Chapter 7 or Chapter 13 bankruptcies. If you do not know the difference between the two, you are not alone.

Chapter 7 is frequently the first option for bankruptcy filers for several reasons. It is quick and takes only a few months to complete. It is also inexpensive—you do not have to pay anything to creditors. It works effectively for people whose property is necessary for living and working.

However, those with more assets, particularly unnecessary luxury things, can lose them. You may have to sell your RV, baseball card collection, Bahamas timeshare, or even your home or car if you have too much equity or are late on payments. Chapter 7 does not offer payment plans for mortgage or car loans like Chapter 13 does. Therefore, you risk losing your house or car if you are late when filing for Chapter 7 bankruptcy.

Need Chicago Bankruptcy Services?

Cutler & Associates, Ltd. has been providing debt relief to clients and families in Chicagoland since 1990, with offices in four locations around the city and neighboring suburbs.

We take pleasure in personalizing our service and have helped numerous customers successfully navigate bankruptcy.

Not only will we address any concerns you may have, but we will also keep you updated as the bankruptcy process progresses. Contact our Aurora Chicago bankruptcy lawyers for a free consultation now!

What is Chapter 7 Bankruptcy?

how do I qualify for chapter 7 bankruptcyIndividuals and businesses of all sizes in Illinois can benefit from Chapter 7. Companies that wish to go out of business entirely or liquidate should choose Chapter 7. This is often the easiest and quickest way to pay debts in Illinois. In a Chapter 7 bankruptcy filing:

  • The debtor’s possessions are determined by state law; and
  • A trustee sells the remaining assets to pay off as many debts as possible.

Remember that a corporation does not get a discharge. If a company reopens after filing a Chapter 7 bankruptcy case, even under a different name, it will remain liable for all of its previous debts. On the other hand, individuals do get a discharge. However, they may experience difficulty acquiring credit at fair interest rates after liquidation.

How Does Chapter 7 Bankruptcy Work in Illinois?

Many people are concerned about two things when it comes to debt:

  1. How quickly they could be free of their debt burden
  2. How much it costs to get out of debt

Chapter 7 bankruptcy often emerges as the winner in both categories compared to alternatives such as Chapter 13 bankruptcy, debt management, debt negotiation, and debt repayment plan. Let’s take a closer look at those variables.

How Long Does it Take to Get Relief from a Chapter 7 Bankruptcy In Illinois?

A Chapter 7 bankruptcy discharge can be typically obtained in as little as 120 days in Illinois. That is the average time it takes to finish a no-asset Chapter 7 bankruptcy case. Generally, no-asset means that you do not own a house or any other assets that exceed the Illinois bankruptcy exemptions.

How Much Does Chapter 7 Bankruptcy Cost in Illinois?

The average Chapter 7 bankruptcy cost in the United States is between $500 to $3000. However, the cost of Chapter 7 bankruptcy in Illinois differs.

The cost of Chapter 7 bankruptcy may even change depending on whether you file in Naperville or Aurora. For example, in Naperville, you might pay a Chapter 7 bankruptcy lawyer fee of $1,075. In Chicago, you could pay a bankruptcy lawyer fee of $1,170. For more details on this, you may check the cost of filing Chapter 7 in Illinois.

There are instances when a filing fee waiver might lessen the cost of filing for bankruptcy. You may want to look into the Illinois filing fee waiver.

How Do I Qualify for Chapter 7 Bankruptcy in Illinois?

Chapter 7 bankruptcy is meant for people unable to pay even a tiny amount of their debts. To qualify for a Chapter 7 bankruptcy discharge (debt that is forgiven), you must first pass an income assessment.

In Illinois, there are two ways you may qualify under Chapter 7.

  1. If your household income in Illinois is currently less than the family median income. Compute your qualification using the Illinois bankruptcy means test.
  2. Your current Illinois household income is greater than the state’s median. You may still qualify for deductions because of certain expenses.

Explanation of the Chapter 7 Means Test

The United States Trustees office describes the means test as a “standardized bankruptcy form” that must be completed before a bankruptcy petition can be filed. It’s similar to an income test. The bankruptcy forms calculate your monthly average income then it would annualize that amount to compute your yearly income.

Below are several key points to remember regarding the means test:

  1. In Illinois, the means test applies to your total household income regardless of whether your spouse is not filing with you.
  2. In Illinois, the means test for filing for bankruptcy is based on the household’s income. It does this by comparing the average income of your household with that of other homes in Illinois. The numbers for the means test were derived from Census Bureau data.
  3. Here is the exact wording for the monthly average income used in Illinois’ means test.
  4. If your income fluctuates, you may want to use this average income calculator. The purpose of this calculator is to determine your monthly average income for Illinois’ means test.

Calculator for the Illinois Bankruptcy Means Test

In the United States, three different bankruptcy forms are used as qualification guides. The Chapter 7 Statement of Your Monthly Income form is used in the first Illinois bankruptcy means test calculation.

Income Limit for Chapter 7 Bankruptcy in Illinois

The family income thresholds for bankruptcy cases in Illinois filed on or after May 15, 2022, are shown below. The numbers are updated every six months or such. If you have more than nine people living in your household, you need to add $9,000 to each additional person.

# of People Annual Income

  • 1 $61,456
  • 2 $81,190
  • 3 $97,067
  • 4 $113,649
  • 5 $123,549
  • 6 $133,449
  • 7 $143,349
  • 8 $153,249
  • 9 $163,149

What Qualifies as Income in Illinois?

The means test does not take into account all sources of income. Some social security and disability income, for example, are excluded from the bankruptcy means test. Payments to war crime victims and payments connected to a national emergency are also excluded from the Illinois means test (e.g., COVID-19).

Now, let’s look at the different forms of income taken into account for the Illinois bankruptcy means test. The wording includes any money paid regularly by any party other than the debtor for the debtor’s household expenses. It is a broad definition, so we will go through some of the many sources of income covered.

  • Money from Wages or Salary
  • Earnings of the Spouse (in a joint case or if not legally separated)
  • Hourly and Overtime Pay
  • 1099 Income (Lyft, Uber)
  • Rental Income (Net)
  • Illinois government earnings
  • Alimony and child support
  • Dividends, Interest payments, and royalties
  • Retirement Income and Pensions
  • Business Income (Net)
  • Payments from an Annuity
  • Unemployment Benefits
  • Workers’ Compensation Benefits

How Is Household Size Calculated?

This is another question often asked. Even though your roommate might not count as a member of your household, your children who you claim as dependents on your taxes do count.

If you have children who are away at college or are engaged but not yet married, different Illinois bankruptcy jurisdictions may have regulations about who may be included.

Calculator for the Illinois Above Median Bankruptcy Means Test

If you find out that your income exceeds the Illinois household income threshold, you may still be qualified based on the following two means tests: 1. Statement of Exemption from Presumption of Abuse Under §707(b)(2) and 2. Chapter 7 Means Test Calculation. The second part of the means test enables you to determine your disposable income by deducting allowable monthly expenses from your current monthly income (CMI). The expenses were a combination of those from Illinois and the rest of the United States.

For further clarification, disposable income is the amount of money available after expenses that may be used to pay off debts. If your disposable income is below a certain level, you may still be eligible for Chapter 7 bankruptcy. Illinois’ above-median bankruptcy means test calculator uses both forms to help you estimate Chapter 7 qualification by figuring allowable expenses.

Allowable Deductible Expenses in Illinois

Here are some actual expenses you can deduct on the second part of the means test.

  • Deductions for mandatory employee expenses like retirement plans, uniforms, and union dues
  • Premiums for health and disability insurance
  • Personal income taxes
  • Childcare
  • Premiums for term life insurance
  • Secured loan payments for your vehicle and house
  • Child support and alimony payments
  • Donations to charities (limited to a percentage of your income)

Other expenses for unusual conditions may also be deducted. The expenditures listed below are limited depending on the number of family members in your household. The maximum amounts authorized for the expenses listed below may be found in current national guidelines:

  • Clothing
  • Food
  • Supplies for housekeeping
  • Personal care products and services
  • Housing and utility bills
  • Transportation
  • Out-of-pocket medical expenses

What Will Happen If You Fail the Bankruptcy Means-test?

If you do not pass the means test, you may file for Chapter 13 bankruptcy. Chapter 13 restructures your debt into a rigorous 3-5 year court-monitored payment schedule.

It is strongly encouraged that you consult with a competent bankruptcy attorney before filing for bankruptcy. You may believe you do not qualify for Chapter 7 bankruptcy when you actually can, or there may be better choices for your specific case. 

Need Help Filing for Chapter 7 Bankruptcy?

The bankruptcy attorneys at Cutler & Associates, Ltd. serve clients from throughout the region. We have four offices in and around Chicago that focus on debt resolution. You’ll discover that we’re caring, committed bankruptcy lawyers who always put your needs first and do whatever it takes to meet them. To better serve you, we have many locations in and around the greater Chicago region:

  • Skokie
  • Schaumburg
  • Oak Brook
  • Aurora

You can be sure that Cutler & Associates, Ltd. is Chicagoland’s leading bankruptcy law firm.

Get in touch with the office most convenient for you right now to schedule your free consultation!