When a person or company is no longer able to fulfill the terms of a debt that he has borrowed from a lender, he may file for bankruptcy to seek relief or change the terms of the debt. Many types of bankruptcy are differentiated by their bankruptcy chapter in the United States Bankruptcy Code.
Read on to know more about Chapter 7 bankruptcy and to know how to file for bankruptcy of this specific type.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as liquidation bankruptcy or straight bankruptcy. This involves the debtor evaluating his assets and determining if they are exempt or non-exempt. Non-exempt assets would have to be liquidated to pay for the debt according to their priority. If a person’s nonexempt assets are less than their debt, the remaining debt will be relieved.
Chapter 7 bankruptcy is only one of the many different types of bankruptcies, and some types are better than others in some cases. We at Cutler Bankruptcy are a Chicago, Illinois-based law firm that specializes in bankruptcy law. Talk to our bankruptcy attorneys today to know how best to go about debt relief.
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Illinois Bankruptcy Means Test
The first step to filing a Chapter 7 bankruptcy is to first check if you qualify for it through the bankruptcy means test. This test is meant to prevent abusers from using Chapter 7 debt relief if they do not need it.
The first part of the bankruptcy means test involves comparing your household income to the state’s median income. You have to review all your sources of income including child support, pension and retirement income, contributions from family members, alimony, etc. This does not include benefits received from the Social Security Act.
Of course this means that the median numbers will be different per state. For Illinois it’s:
| Household Size | Monthly Income | Annual Income |
| 1 | $4,573.08 | $54,877.00 |
| 2 | $6,049.92 | $72,593.00 |
| 3 | $6,979.92 | $83,759.00 |
| 4 | $8,589.50 | $103,074.00 |
| 5 | $9,339.50 | $112,074.00 |
| 6 | $10,089.50 | $121,074.00 |
| 7 | $10,839.50 | $130,074.00 |
| 8 | $11,589.50 | $139,074.00 |
| 9 | $12,339.50 | $148,074.00 |
| 10 | $13,089.50 | $157,074.00 |
If your household’s income is lower than Illinois’ median income, you automatically qualify to file for Chapter 7 bankruptcy. If it is higher, then you must proceed to the next step, the means test calculation.
For this step, you will have to compile your expenses and deduct them from your income. This process is used to determine the percentage your creditors will receive if you were to file for Chapter 13 bankruptcy instead which involves a reorganization of your debts. The deductible expenses can be sorted into four main categories:
1. Administrative expenses.
These refer to the expenses a person would incur if they were to file for Chapter 13 bankruptcy instead.
2. Payments to secured and priority creditors
These refer to secured debt backed by collateral such as house mortgages and car loans as well as priority debts such as tax debts.
3. Expenses are based on national standards established by the IRS.
These are necessary expenses that the IRS has set standard amounts for and include food and clothing, out-of-pocket medical fees, housing and utilities, and transportation costs.
4. Actual expenses.
The person may be able to go over the standard amounts set by the IRS if he can prove that they are reasonable, necessary expenses. Other expenses that a person would continue to incur even after filing bankruptcy fall under this category and include payments for domestic support obligations.
These expenses are then deducted from the person’s income. If the resulting amount is not enough to pay at least 25% of the person’s unsecured debts under a Chapter 13 bankruptcy payment plan, the person is eligible for debt relief from filing for a Chapter 7 bankruptcy.
These laws vary from state to state, so be sure to contact an Illinois bankruptcy lawyer for your bankruptcy needs. We at Cutler Bankruptcy have branches scattered across Illinois in Aurora, Oakbrook, Schaumburg, and Skokie. We are here to help you.
2. Counseling and Forms
Once you have determined that you are qualified for Chapter 7 bankruptcy, you may begin the process of filing it. The first step is to undergo credit counseling by counseling agencies approved by the US Trustee Program. This has to be done within six months of filing for bankruptcy.
You should also start to collect the documents and forms that you will be needing including bank statements, vehicle titles, income tax returns for the last two years, paycheck stubs received, ideally, in the last 6 months, and a bankruptcy petition filed to the court to begin. It would also be good to have your bills for the last 90 days.
Additionally, you will need to fill out your bankruptcy forms. You may get a bankruptcy lawyer to help you at this stage.
Bankruptcy laws and the bankruptcy process may seem daunting, but we are here to help you. As we are a local, Illinois-based bankruptcy law firm, we know the state laws concerning bankruptcy, and we are confident that we can help you especially in the local scenario. Talk to a bankruptcy attorney today.
3. Trustee Appointment and Meeting of Creditors
The bankruptcy court will then assign to you an unbiased bankruptcy trustee who will oversee your entire bankruptcy filing. At this point, you will be placed under what is known as an automatic stay which means that from then on, no creditor may come after you for your debts.
It is also at this point that your trustee will evaluate your assets and determine which are exempt and non-exempt.
Exempt assets are those deemed necessary for an individual to continue making a living that includes a house, a basic car, clothes, groceries, etc. On the other hand, non-exempt assets include high-value items such as coin collections, extra properties, expensive vehicles, and the like.
4. Debt Repayment
After your assets have been sorted as exempt and non-exempt, you will have the right to retain your non-exempt assets while your non-exempt assets will be seized by the trustee and liquidated to repay the debt you owed to your creditors.
5. Discharge of Remaining Debt
At this stage, finally, most of your debts will be discharged, after which, your creditors will no longer have the right to come after you, even in the future. Take note though that while most debts will be discharged, the US Bankruptcy Code lists 19 categories of debts that cannot be discharged including income tax debts and student loan debt.
6. After Bankruptcy
Of course, there are serious ramifications to filing a Chapter 7 bankruptcy. For instance, the bankruptcy report will be on your credit reports for the next 10 years and you will not be able to file for another Chapter 7 bankruptcy for 8 years after you have filed for the first.
We also suggest keeping bankruptcy documents so that you can protect yourself in case your creditors still come after you in the future when your debts have already been discharged.
It is for these reasons that we suggest thinking very critically before filing for a Chapter 7 bankruptcy because while it gives you a fresh start, it has serious effects that will affect you for a very long time.
If you need help and guidance in dealing with bankruptcy matters, don’t hesitate to contact our Illinois Bankruptcy Lawyers at Cutler Bankruptcy, an Illinois-based bankruptcy law firm. We are committed to helping you settle your financial difficulties to get a new lease on a debt-free life.