Chapter 7 Bankruptcy is the "fresh start" Bankruptcy. That means that this type of Bankruptcy will discharge all of the debtor's "unsecured debts". "Unsecured debts" are debts that have no collateral attached to them. For example, credit card debt and medical bills debt are unsecured because there are no assets held as collaterals by the creditor. To the contrary, home mortgages are secured debt because the home is held as collateral for mortgage loans.
After a Chapter 7 discharge, all of the unsecured debt will be discharged and the Bankruptcy petitioner will not be liable for those debts. The best part is that the debtor may never even have to go to Court. Most Chapter 7 filings avoid any Court at all unless there is some adversary proceeding associated with the filing. Even if court is needed, as an experienced DuPage County Bankruptcy lawyer, we will adequately represent our client's interests in Federal Bankruptcy Court.
As stated above, only unsecured debts will be discharged through a Bankruptcy filing. That includes the following: credit card debts, medical bills, certain civil judgments, SBA loans and payday loans. Secured debt such as home mortgages, IRS and state tax arrearage, property tax arrearage, student loans, and vehicle loan payments will not be discharged. A Chapter 13 Bankruptcy repayment plan will have to be looked at instead.
If a debtor is having wages garnished due to a monetary judgment entered against by a Court, then the debtor may be able to file for Chapter 7 immediately to discharge that debt and to cease the wage garnishment. For example, if a credit card company Plaintiff is awarded a monetary judgment against you then they can, and probably will, get a Court order allowing them to collect on that amount. They often collect that awarded amount by garnishing wages or freezing bank accounts. If you qualify for a Chapter 7 filing, and file the Bankruptcy, then the wage garnishment will stop. Any wage garnishing during a Chapter 7 filing is against Bankruptcy law as you will read below. Additionally, if you have received a collections letter from a collection agency or have been taken to court for unsecured debt and you file for Chapter 7 then the creditor will not be able to take any action against you or will have to dismiss the case. The bankruptcy code protects you from creditor harassment or creditors contacting you after the Bankruptcy filing. If creditors contact or try to enforce their debt after the filing, the Chapter 7 Bankruptcy lawyer should know right away.
Not everyone qualifies for this particluar type of bankruptcy. One of the most important factors relating to qualification is a debtor's income. Income is based on household income and household size. The Bankruptcy Law requires all debtors to go back 6 months for all income received. This includes wages and monetary assistance from friends or family. Then, the average of the last 6 months must be calculated into a monthly number to determine if the income requirement is met. Below are the income requirements in order to file for Chapter 7:
For a household size of one, the annual median income must be $64,303.00 or less to qualify.
For a household size of two, the annual median income must be $83,024.00 or less to qualify.
For a household size of three, the annual median income must be $101,710.00 or less to qualify.
For a household size of four, the annual median income must be $120,079.00 or less to qualify.
For each additional household member, you need to add $9,900.00.
If a debtor cannot meet the income requirements above, then the debtor must pass what is called the "Means Test". The purpose of the "Means Test" is to determine how much disposable income a debtor has left after paying for expenses. If the disposable income (money left over after paying for expenses) is too high, then the debtor will not qualify for Chapter 7. Using this "Means Test" tool can help you determine if you will qualify. The "Means Test" portion of the Bankruptcy petition will go more into detail as to the debtor's expenses.
There are two more factors one needs to consider to determine eligibility. One is whether any assets or real property such as real estate has any equity. If there is $5,000-$15,000.00 worth of equity on the home, there is no need to concern as an experienced Bankruptcy attorney will be able to exempt that amount. Exempt means that the Bankruptcy Trustee cannot touch those assets because there is equity. Exemptions are good for the debtors. The Homestead Exemption is available to all debtors and it allows Debtors to exempt up to $15,000.00 worth of equity in the home. In other words, just because a debtor has $15,000.00 worth of equity in a home does not mean the Trustee can force the debtor to sell the property to retrieve the $15,000.00 after filing Bankruptcy if the debtor applies the Homestead Exemption. However, if the debtor is looking at more than $15,000.00 of equity in the home, then a discussion with the Chapter 7 Bankruptcy attorney will be needed to look at all of the options. More equity can result in the trustee forcing the debtor to sell the home to collect that equity amount so the creditors can be paid. There are also other exemptions available for different property such as a motor vehicle exemption ($2,400.00) and a Wildcard exemption ($4,000.00 ) where you can apply the exemption amount to any asset or property outside of your home. However, there may be some nonexempt property subject to the trustee's control. This could be additional cars or homes. As you can see, Bankruptcy law is complex, and a Chapter 7 Bankruptcy lawyer is needed for ensure a smooth Bankruptcy discharge and to apply all benefits afforded to the Debtor pursuant to Bankruptcy law.
The other factor that is to be considered to determine if a debtor qualifies is prior Bankruptcy filings. Debtors must wait 8 years after a Chapter 7 Bankruptcy discharge to refile for another Chapter 7 case. That means that if a debtor has filed Chapter 7 Bankruptcy and received a discharge within the last 8 years or less then the debtor will have to wait until the 8-year mark has passed. In addition, a debtor must wait 6 years after receiving a Chapter 13 discharge before filing for Chapter 7.
The first step is to consult with a Chapter 7 Bankruptcy lawyer. You should be able to determine if this type of Bankruptcy is right for you based on the types of debt that you have, the effects of Bankruptcy on your credit and whether you qualify to file. We have filed hundreds of Bankruptcy petitions over the years, and we represent clients all over the Northern District as a Will, Kane, Cook and DuPage County Bankruptcy Lawyer.
If you have decided to file for Chapter 7 then the next step will be the information gathering process. Credit reports will be filed to ensure that all debts are listed on the petition. You will be required to provide a copy of your Social Security card and Driver's license to your lawyer. You will also need to provide your last 6 months of paystubs, last 2 years of Federal Tax Returns and (depending on the County where you reside) Bank statements. These documents will go to the Bankruptcy Trustee for review. The Bankruptcy Trustee has a fiduciary duty to your creditors, and they have a role to monitor your Bankruptcy and take necessary action that benefits your creditors.
During this part of the process, you will also provide information to your lawyer regarding the types of assets you own (real and personal), your monthly income and expenses and other information such as if anyone owes you money, your list of creditors and if you stand to inherit anything. This part of the Bankruptcy process is long but very important as this information will be displayed on your petition. This information will be in the Bankruptcy petition and filed. The trustee will review this information before meeting with you.
All filers must receive a credit counseling certificate from an approved credit counseling agency within 180 days prior to filing for the Chapter 7. This can be done online and you will be given a list of providers by your lawyer. As a DuPage County Bankruptcy Lawyer, we provide the best cost effective course providers for our clients.
After all of the information is gathered to file for Chapter 7 Bankruptcy, you will now review the Petition for accuracy and sign. The Petition is long and it will take some time to review but it is important to review every page as any errors or omissions will lead to an amendment of the Petition needing to be made. The actual amount of pages that need your signature is only a handful. Once everything looks good and signed, your Chapter 7 Bankruptcy lawyer will file the Bankruptcy petition and a Case number will be assigned to your case. When the case number is generated, the meeting with the Trustee (called a 341 Meeting) will also be scheduled and a judge will be assigned to your Bankruptcy case. You will also find out who your Trustee is during this time. The proof of claims for creditors will also be determined at this point. This is typically 70 days from the date of the filing and 180 days for government entities like the IRS. The proof of claim is a document filed by the creditor stating the amount of debt owed to them.
Once the Bankruptcy is filed, the Automatic Stay comes into place. The Automatic Stay is a Bankruptcy protection for all debtor's once they file for Bankruptcy. It means that during this stay, no creditors can take action for their debt against the debtor or the debtor's property. Pending cases must be dismissed, collection proceedings and attempts must cease, and creditors cannot contact the debtors regarding the debts as well. In fact, if any of these events occur, then the creditor would be in violation of the Automatic Stay which could result in monetary damages to the debtor.
Before the 341 Meeting with the Trustee, there may be instances where amendments need to be filed because of errors or omissions.
The meeting with the Trustee will typically be between 10-20 minutes and is typically somewhere a month out after the filing. The 341 Meeting is actually called Meeting of Creditors and Creditors have a right to appear at the meeting to contest the Bankruptcy. However, this is rare. Trustee meetings are now through Zoom in the Northern District of Illinois. The purpose of this meeting is for Creditors to appear and participate in the meeting and the Trustee to go over the Petition with you. The Trustee will ask you about the assets listed on the petition and other information that would be deemed relevant for Bankruptcy discharge. Those typically present at the meeting will be the Debtor, Debtor's Chapter 7 Bankruptcy attorney and the Trustee. If the Trustee has no issues with the petition then the Trustee will conclude the meeting. If the Trustee wants additional documentation then the Meeting will be continued for that. We a DuPage County Bankruptcy lawyer, we have attended a lot of Trustee's meetings with the Chapter 7 DuPage Trustee's. We also have attended a lot of Trustee's meetings in the surrounding counties such as Will County.
After the conclusion of the meeting, Debtors will have 60 days to complete a personal financial management course. Also, creditors will have 60 days after the meeting to object to the Bankruptcy discharge for reasons such as debt being incurred due to fraud, stealing or concealed information. If there are no objections and the course is completed, then you will get a Chapter 7 Discharge and your debts will officially be discharged.
Contact us to help you obtain a "clean slate". We are an experienced Chapter 7 Bankruptcy lawyer licensed in the Northern District of Illinois and we ready to help you get the peace of mind that you deserve. Let's stop the creditor harassment. Contact us now.
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