In this article, we explain the Chapter 7 Bankruptcy process in Illinois. We will explain the difference between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy, how to determine if Chapter 7 Bankruptcy is right for you, how to file for Chapter 7 Bankruptcy, what to expect from the First Meeting of Creditors, and what happens after the First Meeting of creditors in a Chapter 7 Bankruptcy case.
In a Chapter 7 Bankruptcy all of the debtor's dischargeable debt is wiped out. If the debtor has assets over and above certain exemption amounts, the assets will be collected by the bankruptcy trustee and applied toward the debtor's debts. Usually, debtors who file for Chapter 7 bankruptcy do not have non-exempt assets to collect.
Debtors file for Chapter 13 Bankruptcy when either their income is too high to qualify for Chapter 7 or they have significant non-exempt assets that would be lost in a Chapter 7. In a Chapter 13 Bankruptcy, the debtors work out a payment plan with their creditors whereby their debts are paid off in whole or in part over the course of 3 to 5 years using the debtor's income rather than through liquidation of assets.
To learn more about this, check out our article: Chapter 7 vs. Chapter 13 Bankruptcy.
The first step in filing for bankruptcy is to determine whether Chapter 7 Bankruptcy is right for your specific situation. First, we want to ensure that your dischargeable debt is significant enough to warrant bankruptcy as opposed to negotiating payment plans with creditors outside of bankruptcy. A rule of thumb is that you should have at least $10,000.00 in dischargeable debt before considering bankruptcy.
Part of this analyis is determining whether your debt is dischargeable. Most types of debt are dischargeable. However, student loans, child support arrearages, and some types of tax debts are not dischargeable.
If you have enough dischargeable debt that bankruptcy makes sense, the next step is to determine whether you have significant non-exempt assets that you would be at risk of losing in a Chapter 7 Bankruptcy. To learn more about how to make this determination, check out our article: If I File For Bankruptcy Can I Keep My House and Cars?
Chapter 7 Bankruptcy may be your best option if you have more than $10,000.00 in nondischargeable debt, do not have significant non-exempt assets, and meet the legal prerequisites for Chapter 7 Bankruptcy (e.g. you have not gone through Chapter 7 in the past years).
The first step in filing for Chapter 7 Bankruptcy is to take a court-approved online credit counseling course. These are usually nominal in cost and take a few hours. Once the course is complete, you will receive a certificate that you will file when opening your Chapter 7 Bankruptcy Case.
Next you will prepare and file your Bankruptcy Petition along with the required accompanying documents. These include schedules that list your assets, liabilities, income and expenses. To learn more about the documents that must be filed along with your bankruptcy petition, check out our article: How to Prepare for Chapter 7 Bankruptcy.
Once your bankruptcy petition has been filed, the clerk of court will set a date for the "First Meeting of Creditors," which you must attend. The clerk will also send out notice of the bankruptcy to all of the creditors listed in your bankruptcy documents.
The First Meeting of Creditors is a meeting between you, your attorney, and the Chapter 7 Trustee. The Chapter 7 Trustee is an attorney appointed by the court to review your bankruptcy documents and essentially manage the bankruptcy case. The Trustee is responsible for determining whether there are any non-exempt assets to collect, and, if so, for collecting and liquidating those assets and distributing the proceeds to creditors.
Although creditors are invited to attend the First Meeting of Creditors and ask questions of the debtor on the record, they very rarely do so. Typically the meeting lasts for about 10 minutes, during which the trustee will ask some basic questions about the information you list in your bankruptcy schedules.
If your schedules have been prepared properly and you do not have significant non-exempt assets, the trustee will conclude the meeting finding no assets and recommending a discharge.
For more on this, check out our article: What Happens in the First Meeting of Creditors?
After the First Meeting of Creditors is concluded, you will be required to take a second online course regarding financial management and file a certificate of completion. Creditors will have 60 days after the First Meeting of Creditors to object to the discharge of your debt. Again, this rarely occurs unless the creditor has a basis to argue that the debt is a result of you committing a fraud. If no creditors object, your case will be closed and your debts discharged after this time period elapses.