Chapter 7 Bankruptcy: A Clean Slate, Done in Months

Chapter 7 bankruptcy ends most unsecured debt permanently, and it works faster than any other form of bankruptcy. If you qualify, it can clear credit card balances, medical bills, personal loans, and most other unsecured debt in about three to four months. There is no repayment plan and no years of monthly payments.

At Lakelaw, David P. Leibowitz brings more than 50 years of personal bankruptcy experience, and the firm has served the Chicago area for over 25 years. David also offers something few attorneys can: for more than 35 years he has served as a Chapter 7 trustee in the Northern District of Illinois, administering over 10,000 cases. He knows what trustees look for because he has been one, and that knowledge shapes how we prepare every case we file.

Use our free Means Test Calculator and Chapter Eligibility Quiz to get an initial read on your situation before you call. When you are ready, the consultation is free, confidential, and with a real lawyer.

The moment you file a Chapter 7 case, a federal court order called the automatic stay takes effect (11 U.S.C. § 362). Creditor calls, wage garnishments, bank levies, lawsuits, and foreclosure proceedings stop immediately, by operation of law.

A court-appointed bankruptcy trustee then reviews your assets and liabilities. In the large majority of consumer cases, the trustee finds no non-exempt assets to sell, closes the case, and you receive a discharge under 11 U.S.C. § 727: a permanent federal court order that extinguishes your legal obligation to repay the listed debts. Start to finish, most cases run about three to four months.

Chapter 7 discharges most unsecured debts, including:

• Credit card balances (including interest and penalty fees)
• Medical and hospital bills
• Personal loans and lines of credit
• Payday loans
• Utility arrears
• Deficiency balances after vehicle repossession or property foreclosure
• Personal obligations on a co-signed debt (the co-signer remains liable)
• Income tax debt that meets the discharge requirements (see the tax timing rules below)

What Chapter 7 does not discharge (11 U.S.C. § 523):

• Income taxes less than three years old, or taxes where the return was filed late
• Child support, alimony, and other domestic support obligations
• Most student loans, unless you can demonstrate undue hardship, an area we focus on (see our Student Loans page)
• Debts arising from fraud, embezzlement, or intentional harm
• Criminal fines and restitution

Having non-dischargeable debts does not necessarily mean Chapter 7 is wrong for you. It means we need to be precise about what gets discharged and what remains, so you enter the process with clear eyes.

Chapter 7 has income eligibility rules designed to make sure it serves people who genuinely need it. You qualify if any of the following is true:

1. Your income is below the Illinois median. For a single-person household in Illinois, the current median income figure is roughly $67,000, and it is updated periodically by the U.S. Trustee Program. Larger households have higher thresholds. If you are below the median, you qualify automatically.

2. Your debts are primarily business debts. Business owners and self-employed people whose debts are not primarily consumer debts may qualify regardless of income level.

3. You pass the means test. If your income is above the median, we run a standardized calculation, the means test, that measures your disposable income after allowed expenses, secured debt payments, and certain other obligations. If the result shows you cannot fund a meaningful Chapter 13 plan, Chapter 7 remains available to you.

Our Means Test Calculator walks through this calculation using current IRS expense standards and Illinois income data. Run it before your consultation so we can spend that time on strategy rather than arithmetic.

This is the question we hear most often. The reassuring answer: most people keep everything they own.

Illinois law provides exemptions, which protect equity in specific kinds of property from creditors and trustees. As long as your property falls within these limits, it is safe in a Chapter 7 case. Here are the key Illinois exemptions, as updated effective January 1, 2026 under Public Act 104-0120:

The 2026 update also protects ordinary household goods item by item, with no overall dollar cap, and shields the first $1,000 in a bank account from garnishment automatically. For most of our clients, retirement accounts are protected, vehicle equity is within the exemption, and the house (if they own one) is either within the homestead exemption or carries a mortgage that brings the equity below the threshold. The Liquidation Analysis calculator lets you enter your actual numbers and see the result under Illinois law before you walk in the door.

If you have equity that genuinely exceeds the available exemptions, we will tell you directly and discuss whether Chapter 13 is a better fit.

David P. Leibowitz is also admitted in Wisconsin and represents Wisconsin filers. Wisconsin cases are filed in the U.S. Bankruptcy Court for the Eastern or Western District of Wisconsin, and Wisconsin sets its own exemption amounts, which differ from the Illinois figures above. If you live in Wisconsin, we will walk you through the exemptions and rules that apply to you.

Step 1: Free consultation.
We listen to your situation, review your income, debts, and assets, and give you a straight assessment of whether Chapter 7 is right for you and whether you qualify.

Step 2: Credit counseling.
Federal law requires a brief credit counseling course (available online, usually under $25) before filing. We provide the approved provider list.

Step 3: Case preparation.
We gather your financial records (tax returns, pay stubs, bank statements, and a complete list of creditors) and prepare the petition. Accuracy at this stage matters enormously, because errors or omissions can create serious problems later.

Step 4: Filing.
Your case is filed in the U.S. Bankruptcy Court for the Northern District of Illinois (Dirksen Federal Building, Chicago). The automatic stay takes effect immediately on filing.

Step 5: The 341 Meeting of Creditors.
About 30 to 45 days after filing, you attend a short meeting with the bankruptcy trustee, now conducted by video. The trustee asks about your petition: income, assets, and the circumstances that led to the filing. Creditors may attend but rarely do. We prepare you for every question the trustee is likely to ask, and the meeting usually takes 5 to 10 minutes.

Step 6: Discharge.
If no objections are filed and all requirements are met, your discharge is entered 60 days after the 341 Meeting. Your legal obligation to repay the discharged debts is permanently extinguished.

Step 7: Debtor education.
Before the discharge is entered, you complete a short financial management course, also available online. We provide the approved providers.

The entire process, from petition to the discharge order, usually takes three to four months.

For 35 years, David P. Leibowitz has served as a Chapter 7 trustee in the Northern District of Illinois, administering more than 10,000 cases. He has seen how cases go wrong and how they go right.

When we prepare a Chapter 7 petition, we are not guessing at what the trustee will scrutinize. We know, because we have sat in that chair. We know what triggers a follow-up inquiry, which asset disclosures matter most, and how to present a case that closes quickly and cleanly. That perspective is built into every case we handle.

A Chapter 7 filing stays on your credit report for 10 years from the filing date. Your score will drop initially, though for most of our clients it was already suffering from missed payments and high balances before they filed.

In practice, scores often begin recovering within 12 to 18 months of discharge: the discharged balances are reclassified to zero, your debt-to-income ratio improves, and you are no longer in active default. Many people qualify for a car loan within a year and an FHA mortgage about two years after a Chapter 7 discharge, though the outcome depends on the steps you take afterward. Our full guide walks through them: Life After Bankruptcy — What to Expect and How to Rebuild.

Chapter 7 is the right choice for many people, but not everyone. We will recommend a different path when:

• You have significant equity in your home that exceeds the Illinois homestead exemption and you want to keep the property
• You are behind on your mortgage and your main goal is to save the house, which Chapter 13 is better built to do
• Your income disqualifies you and you do not pass the means test
• You have non-dischargeable debts that will dominate your financial picture regardless, in which case we will discuss whether bankruptcy serves any real purpose in your situation
• You have recently filed, since you cannot receive a Chapter 7 discharge if you received one in the prior eight years

If Chapter 7 is not the right fit, Chapter 13 or Chapter 11 may be. We will explain your options clearly.