Illinois Bankruptcy Laws
Deciding to declare bankruptcy is a tough decision. It can have a permanent negative effect on your credit rating. But there are times--like after job loss or serious illness--when bills cannot be paid on time. If it does not look like that debt can be paid back within 5 years, it is worth looking into bankruptcy. Illinois has some specific conditions that are unique to that state. It is always advisable to consult with an attorney as to how the law pertains to your specific case.
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Chapter 7
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Chapter 7 bankruptcy is also called liquidation. The federal laws will require a "means test" to determine whether you are eligibile to file Chapter 7, but the median income for the state of Illinois will be the main factor, with monthly expenses taken into consideration. As per the Internal Revenue Service (IRS) collection standard, you are not eligible for Chapter 7 bankruptcy if you can pay $100 a month to unsecured creditors for 5 years. Once the bankruptcy is filed, there is a 341 hearing with the creditors to confirm that the debts cannot be paid off.
Chapter 13
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Chapter 13 bankruptcy differs quite a bit from Chapter 7. Chapter 13 is actually an extension of pay-off rather than a wiping out of debt. Chapter 13 allows you to pay off at least part of the debt in 3 to 5 years. It is considered a "reorganization plan" used to bring mortgages, loans and other debts current. In order to declare Chapter 13 bankruptcy, you must have a stable income. The court will determine what amount you are able to pay out after living expenses.
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What's Not Covered
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There are certain things that can never be eliminated by bankruptcy, such as alimony and child support, most student loans, recent back taxes, luxury purchases made within 90 days of the filing, government fines and penalties, debts that were obtained in fraud and cash advances taken with 70 days of the filing date that total more than $825.
What You Can Keep
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Bankruptcy does not force you to give up everything. You may be able to keep your house and your car depending on the equity. Less than $7,500 of equity in the state of Illinois allows you to keep your house with a "homestead exemption." You are allowed to keep your car if the value after the loan is subtracted is $1,200 or less. (It is possible to also keep the car loan and continue to pay it after the proceedings.) Under Illinois law, you are also entitled to money from unemployment, workers' compensation and disability, social security and veterans' benefits, retirement plans, life insurance and personal injury and wrongful death suits. Personal property allowed includes books and photos, health equipment, clothing and items needed for work up to $750.
Consideration
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In 2005, the President of the United States signed the 'Bankruptcy Abuse Prevention and Consumer Protection Act" to limit Chapter 7 bankruptcies, increase the amount of payments in Chapter 13 bankruptcies, increase penalties and reduce judicial discretion. The law also requires a meeting with a designated credit counselor 6 months prior to filing. In addition, the new law makes it mandatory to file overdue taxes within weeks of Chapter 7 filing.
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