Debts could spiral out of control, leaving someone worrying about a foreclosure on their Illinois property. Several reasons may cause someone to struggle hopelessly with both secured and unsecured debt. Rather than continue to deal with creditors and balances that never drop, a debtor may explore options for personal bankruptcy. Knowing what to expect may make the initial steps easier when seeking bankruptcy protection.
Going into bankruptcy court
Among the first and foremost things to understand about filing for bankruptcy is that the process occurs in federal court. A judge oversees the proceedings and makes final determinations about everything.
One significant benefit of filing for bankruptcy centers on the suspension of collection actions. That is, creditors can no longer harass or seek debts owed. Some unsecured debt may become discharged in a Chapter 7 proceeding, meaning the debtor no longer must pay.
A drawback to bankruptcy involves the damage done to their credit score. Such negative information remains on the report for years, complicating someone’s financial life. That said, the current debt situation may be the more pressing issue.
Categories of bankruptcy
Personal bankruptcy proceedings may involve filing for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy involves selling off non-exempt assets to pay a significant portion of obligations. That is why Chapter 7 is also known as liquidation bankruptcy.
Those considering Chapter 7 must pass a means test. If they cannot meet the requirements for Chapter 7, filing for Chapter 13 becomes the alternative. While some debt gets discharged in Chapter 13, other debts become part of a payment plan. With the payment plan, the debtor pays a portion of their obligations back over three to five years.