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Check First If You May Qualify for Chapter 13 Bankruptcy

Chapter 13 bankruptcy can be a lifeline for individuals struggling with debt, offering a structured way to repay creditors and potentially keep crucial assets. However, not everyone qualifies for this type of bankruptcy. Understanding the specific criteria that might render someone ineligible in Schaumburg, IL, is crucial. 

Various factors, such as income levels, debt limits, and past bankruptcy filings, play a significant role in determining eligibility. Additionally, local regulations and the need for pre-filing credit counseling can further influence one’s ability to file. Understanding these barriers is essential for anyone considering filing for bankruptcy, especially Chapter 13, to ensure they explore all available options and follow the necessary legal frameworks.

Quick Summary:

  • Understanding the criteria for Chapter 13 bankruptcy eligibility in Schaumburg, IL, is crucial, as factors like income levels, debt limits, and past bankruptcy filings play a significant role. In addition to federal guidelines, meeting specific state requirements, such as residency for at least 180 days and completing a certified credit counseling course before filing, is essential.
  • Several factors can disqualify individuals from filing for Chapter 13 bankruptcy. Previous bankruptcy dismissals or withdrawals within the last 180 days due to non-compliance with court orders or failure to appear in court can hinder eligibility. Moreover, lacking sufficient income to sustain a repayment plan, having debts surpassing the specified limit of $2,750,000, failure to file income taxes on time, and business ownership all pose barriers to Chapter 13 eligibility.  However, sole proprietors can file personally to reorganize both personal and business debts.
  • Seeking guidance from a bankruptcy attorney in Schaumburg, IL, is advisable, as they can help navigate the complexities of Chapter 13 bankruptcy, maximize exemptions, negotiate with creditors, prevent foreclosure, and explore alternative debt relief solutions. Additionally, attorneys can ensure compliance with local regulations and assist in completing mandatory pre-filing credit counseling, ensuring a smoother filing process.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy lets people in the U.S. reorganize their debts with help and approval from the court. Both single people and married couples can file for this kind of bankruptcy, even if they are self-employed or own a small business.

When you file for Chapter 13 bankruptcy, you must create a plan to pay back your debts over three to five years. This plan, often called a wage earner’s plan, has to be approved by the court. To complete Chapter 13, you must stick to this repayment plan. The plan usually needs to pay back creditors at least as much as they would get under other types of bankruptcy, using all your leftover income after essential expenses.

Filing for Chapter 13 requires you to list all your creditors, the amounts you owe, any property you own, your income sources and amounts, and your monthly expenses. Once your plan is approved, you make one monthly payment to a neutral bankruptcy trustee, who distributes the money to your creditors. With Chapter 13, you don’t have to deal directly with your creditors. The trustee handles all the payments for you.

Local Regulations and Pre-filing Credit Counseling

In addition to the federal guidelines, qualifying for Chapter 13 bankruptcy in Schaumburg, IL, involves meeting some specific state requirements:

  • Residency: You must be a resident of Illinois for at least 180 days before filing for Chapter 13 bankruptcy in the state [11 U.S.C. § 103(a)].
  • Credit Counseling: Before filing for Chapter 13 in Illinois, you must complete a credit counseling course certified by the U.S. Trustee Program. This course educates you on financial management and explores alternatives to bankruptcy ([11 U.S.C. § 109(h)]. You can find a list of approved credit counseling agencies from the Department of Justice

By understanding these local regulations and completing the mandatory credit counseling, you can ensure a smoother Chapter 13 filing process in Schaumburg, IL.

Who Cannot File for Chapter 13 Bankruptcy? 

Although Chapter 13 bankruptcy offers a path to financial rehabilitation through a court-approved repayment plan, not everyone qualifies. Listed below are factors that may make one ineligible to file for Chapter 13.

Previous Bankruptcy Dismissal or Withdrawal

If someone tried to file for bankruptcy before and their case was dismissed in the last 180 days because they didn’t show up in court or follow court orders, they can’t file again immediately. Also, if they chose to drop their case after creditors tried to get back property with liens, they can’t file for bankruptcy again either. This rule applies even if they intentionally didn’t go to court.

Lack of Sufficient Income

To file for Chapter 13 bankruptcy, you must prove to the court that you have enough money coming in after paying your essential expenses and debts, like car loans or mortgages, to stick to a repayment plan. This plan has to cover certain debts completely, or the judge won’t approve it. You can use various sources of income like regular pay, money from side jobs, retirement benefits, and even money from selling things like property.

Ineligibility Due to Excessive Debts

You cannot file for Chapter 13 bankruptcy if your debts are too high. According to United States Courts, you’re ineligible if your total debts—both secured and unsecured—are more than $2,750,000.

Secured debt is when you use something valuable, like your house or car, as collateral. The lender can take these valuables away if you don’t make your payments. Common secured debts include home mortgages and car loans. Sometimes, a debt can become secured if a creditor, like the Internal Revenue Service, puts a lien on your property.

Unsecured debt doesn’t involve any collateral. If you don’t pay these debts, creditors can’t take a specific piece of your property directly. The most common types of unsecured debts include credit card bills, medical bills, utility bills, and personal loans.

Business Restrictions

A company itself can’t file for Chapter 13 bankruptcy. Businesses needing to reorganize their debts must use Chapter 11 bankruptcy. However, if you’re a sole proprietor, you can file for Chapter 13 bankruptcy personally, including your business and personal debts. That helps sole proprietors reorganize their debts, but the business remains responsible for its debts.

Not Filing Income Taxes on Time

If you’re applying for Chapter 13 bankruptcy, you must prove that you filed your federal and state income taxes for the four years leading up to when you filed for bankruptcy. If you need more time to gather your tax documents, the court might give you an extension. But if you don’t show proof for those four years, your bankruptcy case could be thrown out.

Why Do I Need a Bankruptcy Attorney in Illinois?

If you are contemplating filing for bankruptcy, Chapter 13 in particular, it’s a good idea to talk to a bankruptcy attorney. Their job is to help people struggling with debt, so they understand what you’re going through and can guide you through the process, whether you need advice or want to file for bankruptcy protection. Here are some key advantages of having a bankruptcy attorney by your side throughout the process:

  • More Savings – A bankruptcy attorney can help you save money by choosing the correct exemptions. Exemptions are things you can keep even after filing for bankruptcy. Each state has different rules about exemptions, and an attorney can help you select the ones that let you keep as much of your property as possible.
  • Improved Negotiations – An attorney can also help you get better terms on your debts, like lower payments on credit cards, mortgages, and car loans. They can work with your creditors to create a manageable payment plan, reducing your stress and helping you gain control over your finances.
  • Save Your Home – If you risk losing your home, a bankruptcy attorney can help you understand and take the necessary legal steps to avoid foreclosure. They can guide you on how to act before the situation worsens, making it crucial to have an attorney who knows bankruptcy law well.

Don’t Be Disqualified From Chapter 13 in Schaumburg, IL!

Are you considering Chapter 13 bankruptcy for debt relief in Schaumburg, IL, but worried you might not qualify due to limitations on your debt amount? At Cutler & Associates, Ltd., we understand the complexities of filing for bankruptcy (Chapter 13 especially), eligibility, and the emotional toll of dealing with overwhelming debt. That’s why our dedicated Schaumburg bankruptcy attorneys are here to help.

Our team has extensive experience guiding Schaumburg residents through the Chapter 13 process, including understanding debt limitations and exploring alternative solutions if needed. We take the time to explain the eligibility requirements for Chapter 13 in clear terms, ensuring you know your options and can make informed decisions. We also understand the emotional stress of debt and are committed to guiding you through this challenging time with empathy and understanding.

If Chapter 13 isn’t the best fit for your situation, Cutler & Associates, Ltd. offers a comprehensive range of debt relief solutions in Schaumburg, IL. We can explore options like Chapter 7 bankruptcy to help you achieve financial freedom. Don’t let debt limitations hold you back from a fresh start. 

Contact Cutler & Associates, Ltd. today for a free consultation. We’ll help you assess your eligibility for Chapter 13 and explore the best path forward for your financial situation. Aside from our office in Schaumburg, we also offer legal services for bankruptcy in Oakbrook Terrace, Skokie, and Aurora.