If you’ve looked into bankruptcy, you know there are two options can choose from. Chapter 7 helps you discharge debt within 90 days of filing, but may result in you losing property. Chapter 13 arranges a 3-year or 5-year repayment schedule for your debt and helps you keep most, if not all, of your property. But it takes a long time to get through.
So how do you know when to file bankruptcy Chapter 7, as opposed to filing Chapter 13? At Lorraine M. Greenberg & Associates, we can answer your questions and you advise you of you options. Contact us today.
Do You Have Income or Valuable Property?
If you have no income except Social Security, no property other than a basic car and household items, and all your property is exempt, you’re judgment-proof. A creditor wouldn’t be able to collect anything from you, so you don’t need to file bankruptcy.
If you do have an income and valuable property, creditors may try to take it from you. Usually, however, unsecured debt — medical bills, credit card balances, utilities, and loans — require the creditor to go to court to begin collection procedures. This makes it easy to decide when to file bankruptcy Chapter 7, since bankruptcy temporarily stops litigation and other collection action with an “automatic stay.” Speak with a bankruptcy attorney right away if you’re served with a collection notice.
How Much Money Do You Make?
Filing for Chapter 7 makes sense if you have little or no non-exempt property, and your income is low. It does require a means test. If you’ve made less than the state median income for a household of your size for the past six months, on average, you’re eligible; that’s when to file bankruptcy Chapter 7. For one person, the amount for Illinois is $3961.33 as of late 2018. If you make more than that, you may still be eligible based on your monthly expenses and debt-load.
Warning: Some debts can’t be discharged no matter what.
In Illinois, these debts include:
- Child support
- Most student loans
- Most unpaid taxes
- Criminal restitution orders
- Debts based on embezzlement, fraud, and theft
- Damages caused by drunk driving
- Deliberate property damages
- Property settlement debts from a divorce
How Much Property Do You Have?
Some of your property will be exempt from seizure for bankruptcy payments. However, anything that is non-exempt can be taken by your Chapter 7 trustee and sold to cover some or all of your debts. In Illinois, exempt property includes:
- Your home, with an equity of up to $15,000
- A car up to $2,400 in value
- 85% of personal income or 45 times the state or federal minimum wage, whichever is greater
- Necessary clothing
- Health aids
- School books
- Proceeds from sales of exempt property
- Most Illinois College Savings Pool accounts
- Wrongful death rewards
- Personal injury rewards up to $15,000
- Most pensions and public benefits
- Social Security
- Tools of your trade up to $1,500
- Alimony and child support received
- Specific business partnership property
- A $4,000 “wildcard” for any property
Just about everything else is considered non-exempt and may be sold by the trustee in order to pay off your creditors. This may include (but isn’t limited to):
- Family heirlooms
- Collections (stamps, coins, and more)
- Second homes
- Vacation homes
- Second or third vehicles
- Cash, bank accounts, stocks, bonds, and investments
- Expensive musical instruments (unless you’re a professional musician)
Is Chapter 7 Bankruptcy Right for You?
This is an important consideration. Basically, will you discharge enough debt to make a difference when you file Chapter 7? The answer is a resounding yes if your debt is high, and you have enough exempt property. By the time most of us get to the point of bankruptcy, all our non-exempt properties, like those in the list in the previous section, have been sold off to pay bills. This makes it worthwhile to proceed with your bankruptcy.
To Learn More About When to File Bankruptcy Chapter 7
At Lorraine M. Greenberg & Associates, we’re dedicated to helping Chicagoans get a fresh start when they need it. If you’re unsure whether you should file bankruptcy, or what type to tile, give us a call for a consultation.