Frequently Asked Questions

When you declare bankruptcy, any ongoing legal actions related to your debts stop. Any non-essential assets you own may be sold to pay back the people you owe money to. How much they get depends on the type of claim they have. However, most people don’t lose their belongings in a typical bankruptcy case.

There are three main types: Chapter 7, Chapter 11, and Chapter 13.

Chapter 7 is for people with low income and few assets. Chapter 13 is for people with a higher income or assets they want to keep. Chapter 11 is for businesses and individuals with large debts. There’s also Subchapter V of Chapter 11 for small businesses.

This depends on your income, type of debts, and your spending habits.

In general, you qualify for Chapter 7 if your income is below average, or if you pass certain tests. For Chapter 13, you need a regular income and debt less than $2.75 million. Small businesses with debt less than $7.5 million can qualify for Subchapter V of Chapter 11.

Remember, bankruptcy isn’t the best choice for everyone. You’ll need to talk to a lawyer about your situation.

Initially, bankruptcy will lower your credit score, but it might already be low due to your debts. Your credit report will show your bankruptcy for 10 years, but your score can improve over time, especially if you make regular payments on any debts you still have.

Many debts can be erased in bankruptcy, but there are exceptions like recent income taxes, child support, alimony, and student loans. Also, secured debts (debts backed by property like a house or car) can’t be fully erased, the property can still be taken if you don’t pay.

As a bankruptcy attorney, I try not to do things for which I’m not qualified, like change the brakes on my car or do my own plumbing. The money you pay a qualified bankruptcy lawyer will save you a great deal of money in the long run. It will also save you from making potentially catastrophic mistakes.

We aim to keep your property safe when filing bankruptcy. In Illinois, for example, you can keep all your clothes, some equity in a car or house, retirement funds, and more. Depending on your situation, different chapters of bankruptcy can help protect your property.

The cost varies depending on your situation and the type of bankruptcy you’re filing for. We at Lakelaw will work with you to make it affordable.

This depends on the type of bankruptcy. Chapter 7 usually takes a few months, Chapter 13 can take 3-5 years, and Chapter 11 varies a lot.

Secured debt is backed by property like a house or car, which can be taken if you don’t pay. Unsecured debt, like credit card debt or student loans, isn’t backed by property.

You won’t, but the other person who co-signed the loan will still be responsible.

Bankruptcy can temporarily stop these actions, but it depends on the situation.

While you can file bankruptcy on your own, it’s not just about filling in forms. It’s better to get a lawyer to avoid costly mistakes.

The trustee’s job is to check if you have any assets that can be sold to pay your debts and to ensure you’re following bankruptcy rules.

While it might sound good, debt settlement usually doesn’t work out well. It’s often better to consider bankruptcy if you can’t negotiate with your creditors or budget your expenses.

To file a Chapter 7 case, you need to earn less than the average income for a person in a household of your size. For someone in Illinois, that’s currently $67,102. But you can also file if you make more than the average if your debts are mostly from non-consumer property, like business debts or debts not from personal or household use. Lastly, you can still file a Chapter 7 case if you pass the “means test” even if you make more than the average income.

The “Means Test” is a way to see if you have enough money left over after paying your bills to pay back your debt under Chapter 13. It takes into account things like certain expenses and payments you have to make. If you still have money left over after doing the “means test”, then that money must be used to pay back your debt under Chapter 13 for 5 years.

Usually, Chapter 7 can start and finish in less than 120 days if everything goes as planned.

Most debts that are not secured by collateral can be erased. These include:

• Credit card debt
• Payday loans
• Personal loans
• Medical debt
• Debts from when something you financed was taken away
• Debts for co-signed items, but the other person still has to pay
• Income tax debt that is over 3 years old if you filed your taxes on time

Some debts can’t be erased in Chapter 7. These include:

• Recent income tax debt (less than 3 years old)
• Taxes that were supposed to be paid for someone else
• Alimony, child support, and other family support debts
• Debts owed to an ex-spouse from a divorce agreement
• Student loans unless you can show they cause “undue hardship”

Some tax debt can be eliminated, but not all. If you filed your tax returns on time, you could get rid of income tax debt that is over 3 years old. But don’t decide this on your own, make sure you get advice from a lawyer.

There’s a good chance you can keep your house and car in Chapter 7. The rules allow you to keep some property, like $15,000 worth of your house and $2,400 worth of your car, maybe even more if your spouse is also on the title. Usually, if your car or house is worth less than what you owe, they’re safe.

You can keep some things like $4,000 worth of personal property, all your necessary clothes, your retirement plan, a vehicle worth up to $2400, a residence worth up to $15,000, and $1,500 in work-related tools.

Filing for bankruptcy stays on your credit report for 10 years and it will initially lower your credit score a lot. But if you keep up with payments on some debts or get a secured credit card and make payments, your credit score can improve after a few years.

Usually, if the trustee wants to sell your property, you can switch to a Chapter 13 case if you were honest about your belongings from the start. But if you weren’t, you might lose something you didn’t disclose.

The trustee has a lot of responsibilities, like making sure you’re following all the rules and checking if you have any property that can be sold to pay your debts. Their job is to get this done as quickly as possible.

Usually, your credit cards will be cancelled as soon as you file any bankruptcy case. After your bankruptcy, you might be able to get a new one if you can give security to assure payment.

Having a bankruptcy on your credit report could make getting credit in the future more expensive. You probably won’t be able to get a mortgage for at least two years and insurance might be more expensive. But in the long run, being free from heavy debt is worth these short-term issues.

Once you’ve filed a Chapter 7 case and your debts were forgiven, you can’t file another Chapter 7 for 8 years. And, trust me, you don’t want to make this a habit.