In this article, we explain the Chapter 7 bankruptcy process in Illinois. We will explain the difference between Chapter 7 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 that in your Chapter 7 bankruptcy case.
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
A Chapter 7 bankruptcy is also known as a liquidation bankruptcy. In a Chapter 7 bankruptcy, the Trustee looks to see if the debtor has assets to sell. If so, then the debtor’s assets are sold to help repay the creditors. Many assets can be protected by using exemptions as part of your bankruptcy petition. In most Chapter 7 bankruptcies, there are no assets to be sold. They are known as no-asset bankruptcies.
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, debtors work out a payment plan with their creditors. The debts are paid off in part or in whole over the course of 3 to 5 years. There are specific debt limits that apply to a Chapter 13 filing. Be sure to disclose all of your debts to your attorney so that they can properly determine whether you qualify for a Chapter 13.
Is Chapter 7 Bankruptcy Right For Me?
The first step in filing for bankruptcy is to determine whether Chapter 7 bankruptcy is the right fit. First, you need to ensure that your dischargeable debts are significant enough to warrant filing bankruptcy. For smaller amounts of debt, you may want to work out payment plans directly with creditors. Generally, you should have about $10,000 in debt before considering bankruptcy.
Most debts are dischargeable. Some are not. For example, child support arrearages and some kinds of tax debts are not dischargeable. Student loan debts are still generally non-dischargeable. This may change as the law develops and new legislation is introduced. If most of your debt is non-dischargeable, then it does not make sense to file a Chapter 7 bankruptcy.
If you have enough dischargeable debt that filing bankruptcy makes sense, then you need to examine your assets. Are there any significant assets that you can’t protect with an exemption? To learn more about how to make this determination, check out our article regarding maintaining possession of your house and cars.
You must then determine whether you qualify for a Chapter 7 bankruptcy. The U.S. Bankruptcy Code establishes a “means test” to determine whether a debtor qualifies for a Chapter 7 bankruptcy. The test looks at your household income and compares it to the average income in your ZIP code. If you make more than the average, then you may still qualify—it just requires a deeper analysis of your financial situation. You also need to ensure that you haven’t recently filed a Chapter 7 bankruptcy. If you file too soon after your last bankruptcy, then you are not eligible for a discharge.
Chapter 7 bankruptcy may be your best option if you have more than $10,000.00 in dischargeable debt, do not have significant non-exempt assets, and meet the legal prerequisites for a Chapter 7 bankruptcy.
How To File For Chapter 7 Bankruptcy
The first step in filing for Chapter 7 bankruptcy is to take a court-approved credit counseling course. These are usually nominal in cost and take no more than a few hours. Once the course is complete, you will receive a certificate that you will file when opening your Chapter 7 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. How To Prepare For Chapter 7 Bankruptcy provides information about the documents that must be filed along with your bankruptcy petition.
Once your bankruptcy petition is filed, the clerk of court will set a date for the first “Meeting of Creditors,” which you must attend. The clerk will also send a notice of the bankruptcy filing and the meeting date to all of the creditors listed on your bankruptcy schedules.
What To Expect From The First Meeting Of Creditors In A Chapter 7 Bankruptcy
The First Meeting of Creditors is a meeting between you, your attorney, the Chapter 7 bankruptcy Trustee, and your creditors (if they choose to attend). The Chapter 7 Trustee is an attorney appointed by the court to review your bankruptcy documents and 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 your creditors.
Although your creditors are invited to attend the Meeting of Creditors, they almost never do. A typical meeting lasts for about 10 minutes, during which the Trustee will ask some basic questions about the information on your bankruptcy schedules. If your schedules have been prepared properly and you do not have significant non-exempt assets, then the Trustee will conclude the meeting finding no assets and recommending a discharge.
What Happens In A Chapter 7 Bankruptcy After 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. Once the course is complete, you must file the certificate of completion before the court will enter your discharge order. Creditors have 60 days after the 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 the result of you committing a fraud. If no creditors object, then your case will be closed and your discharge order will be entered.
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