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BANKRUPTCY FOR INDIVIDUALS
Bankruptcy is a court proceeding under a federal statute called the "Bankruptcy Code". The Bankruptcy Code allows persons or other entities in financial distress relief from some or all of that person’s debt. Bankruptcies are administered through a separate federal court called the United States Bankruptcy Court.
Yes, there are several types of bankruptcies. For individuals, the two main types of bankruptcy filings are cases under Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 cases are also referred to as "liquidation" cases. Chapter 13 cases are commonly referred to as "debt adjustment" or "wage earner" cases. Individuals can also be eligible for Chapter 11 reorganization, but Chapter 11 is normally used by debtors in business or debtors with extremely high amounts of debt. Farmers can also file a separate type of bankruptcy available only to farmers under Chapter 12 of the Bankruptcy Code. The word "Chapter" is simply a reference to a chapter number in the Bankruptcy Code.
Yes, in most cases under the Bankruptcy Code, only one person can file for bankruptcy relief in a case. However, the Bankruptcy Code allows a husband and a wife to file bankruptcy proceeding jointly in one case. The question of whether a husband and a wife file a bankruptcy together depends on whether both are liable on the debts involved. You should remember that filing bankruptcy generally only protects the person who filed the bankruptcy.
The first thing that happens in a Chapter 7 case is that the bankruptcy court issues an automatic stay to your creditors. An automatic stay prohibits creditors from proceeding with collection outside of the bankruptcy case, unless the bankruptcy judge approves it. The automatic stay does not affect criminal proceedings. When the case is filed, the bankruptcy court appoints a bankruptcy trustee to review your assets and financial affairs. The trustee has the power to liquidate assets which exceed the amount of exemptions which the law allows you. In most cases, after the Chapter 7 trustee reviews the amount of assets which you are entitled to claim as exempt, the trustee does not liquidate any of those assets. After the trustee has completed this review process, and if no objections are allowed by the bankruptcy court, the court issues a debtor a bankruptcy discharge. The discharge relieves the debtor from liability for most unsecured debt. Liens on a debtor’s property itself are called "secured debts." Secured debts can be such things as a mortgage on your home or a lien on your car. A discharge in bankruptcy, by itself, does not set aside any liens on your property.
In some cases, the bankruptcy court can set aside or reduce a lien on property. Additionally, individuals who want to keep the property secured by a lien commonly enter into reaffirmation agreements with the secured creditor. A reaffirmation agreement is a voluntary written agreement to continue to pay a specific secured creditor despite the bankruptcy, so that the individual can also keep the property involved. All reaffirmation agreements must be presented to the bankruptcy court.
Each individual who files a bankruptcy is entitled under Illinois law to keep certain property claimed as "exempt." For some types of property, such as family pictures, workmen’s compensation benefits, retirement plans, IRAs and life insurance, the value and amount of property an individual can claim as exempt is unlimited. In other cases, the equity an individual can claim as exempt is limited by a fixed dollar amount. Common examples of such dollar amount limitations for each individual are:
In addition, Illinois law also gives each individual the right to exempt $2,000.00 in equity in any other personal property, including cash or money in the bank. If a husband and a wife file a joint bankruptcy petition, each spouse is entitled to claim these exemption amounts.
A discharge in Chapter 7 will not affect some of your debts such as alimony, child support, certain taxes, fines, certain debts arising from education loans, and debts you fail to disclose properly to the bankruptcy court. A specific creditor may also request the bankruptcy court to exclude it from your discharge debts resulting from loans you received by giving a lender a false financial statement as well as debts arising from fraud, embezzlement, drunk driving or certain other willful or malicious acts. If the bankruptcy judge rules in that creditor’s favor, the debt to that creditor will not be discharged in bankruptcy.
In a Chapter 13 case, the bankruptcy court issues an automatic stay to your creditors just like in a Chapter 7 case. However, in a Chapter 13 case, a person filing bankruptcy generally keeps most or all of his or her property instead of liquidating assets, and proposes a plan to repay all or a portion of the debts over time. The Chapter 13 plan payment period is usually three years, but can be as long as five years. During the period the "plan" is in effect, you make regular payments to a Chapter 13 trustee, who, in turn, distributes the money to your creditors. In order to be eligible to file a Chapter 13 case, you must have regular income and meet certain debt limitations for your unsecured and secured debts. Only individuals can file a Chapter 13 bankruptcy.
Individuals consider filing a Chapter 13 case because the provisions of Chapter 13 have advantages to some persons who are considering bankruptcy. For example, you might have more equity in a home than can be protected with the exemption for real estate. The Chapter 13 plan could allow you to keep the home. Certain debts which are not dischargeable in Chapter 7, such as those based on fraud, may be discharged if you successfully complete a Chapter 13 plan. When a co-signer is involved in consumer debt situations, a Chapter 13 proceeding could protect the co-signer who has not also filed for bankruptcy protection.
Different people have different experiences obtaining credit after they file a bankruptcy case. As a general rule, most people find it more difficult to obtain long-term credit, such as a home mortgage, shortly after a bankruptcy has been filed. On other types of credit, experiences of people after bankruptcy differ. The Bankruptcy Code prohibits your employer from discharging or discriminating against you solely because you have filed a bankruptcy case.
The answer to that question depends on many factors, such as the equity in your home and whether you are seriously delinquent in your mortgage payments at the time you file bankruptcy. You should consult an experienced bankruptcy attorney to answer this question based on your circumstances. However, in most bankruptcy cases, individuals do not lose their homes in the bankruptcy.
Any person has a right to file a legal case and represent himself or herself at all court hearings, but remember that bankruptcy is a court proceeding. Some bankruptcy courts in Illinois require that the bankruptcy materials themselves be filed electronically and not through written papers. In every bankruptcy case, each individual is required to prepare and submit to the court detailed forms concerning his or her property, debts and financial affairs. Options available to each individual, such as properly claiming exemptions, filing jointly with a spouse or what type of bankruptcy to file probably cannot be properly assessed without the assistance of an experienced attorney.