Frequently Asked Questions

Our highly-accredited and highly-reviewed Chicago lawyers at Lakelaw have fairly represented tens of thousands of individuals, families, and businesses across various types of courts, including the Supreme Court.


For over 50 years, we have accumulated a vast list of frequently asked questions about personal and business bankruptcy. Find the answers to these questions below.

General Bankruptcy FAQs

What is bankruptcy?

Think of bankruptcy as a reset button. It’s a way to manage all your debts in one place – the Bankruptcy Court.

Here’s what you need to know:

  1. It’s for honest folks who need a fresh start
  2. It solves all debt claims in one place
  3. Everyone who you owe money to is treated fairly

How does bankruptcy work?

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.

What are the different kinds of bankruptcy?

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.

Do I qualify for bankruptcy?

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.

How will bankruptcy affect my credit score and for how long?

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.

What debts can I erase in bankruptcy?

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.

Can I keep my stuff after I file for bankruptcy?

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.

How much does filing for bankruptcy cost and can I afford it?

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.

How long does the bankruptcy process take?

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.

What is the difference between a secured debt and an unsecured debt?

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.

Will I still be responsible for co-signed loans if I file for bankruptcy?

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

Can bankruptcy stop foreclosure, repossession, wage garnishment, and lawsuits?

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

Do I need a lawyer to file a bankruptcy case or can I do it myself?

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.

What does the bankruptcy trustee do?

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.

Is debt settlement a good alternative to bankruptcy?

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.

Chapter 7 Bankruptcy FAQs

What's Chapter 7 and how's it different from other types of bankruptcy?

Chapter 7 is a type of bankruptcy that people call “straight bankruptcy”. It’s when you give all your belongings that you’re not allowed to keep (non-exempt assets) to someone called the Trustee. This person then sells your property for cash and gives it to the people you owe money to (creditors), based on who should get paid first. After that, you are forgiven for those debts. It’s mostly for people who don’t have much property, or property that’s already under loans or can’t be taken.

Not everyone can file a Chapter 7 though. If you make more money than the average, you can’t file a Chapter 7 unless you pass a “means test” showing you don’t have enough spare cash to pay back your debt in a Chapter 13 case.

How do I qualify for Chapter 7?

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.

What is the “Means Test”?

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.

How long does Chapter 7 take?

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

What debts can be erased in Chapter 7?

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

What debts cannot be erased in Chapter 7?

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”

Can I get rid of tax debts through Chapter 7 bankruptcy?

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.

Will I lose my house or car if I file Chapter 7?

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.

What can I keep in a Chapter 7 case?

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.

How will Chapter 7 affect my credit score and for how long?

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.

Can I switch my Chapter 7 case to a Chapter 13 case if my situation changes?

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.

What does the bankruptcy trustee do in Chapter 7?

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.

Can I keep any credit cards in Chapter 7?

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.

What are the long-term effects of filing a Chapter 7 case?

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.

How often can I file for Chapter 7?

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.

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