How Chapter 7 bankruptcy works

On Behalf of | Apr 19, 2022 | personal bankruptcy |

If you struggle to pay debts, bankruptcy may help you remove some of them. Many filers in Will County, Illinois, choose Chapter 7 over other types of bankruptcy. Learn how Chapter 7 works and if you should file.

How Chapter 7 bankruptcy works

Chapter 7 bankruptcy liquidates your nonexempt assets, such as second homes and luxury items, and divides proceeds among creditors. When you fill out the bankruptcy petition, you must list all your debts, income sources, and nonexempt assets. Illinois law allows you to choose between state or federal exemptions to save some nonexempt property up to a dollar amount.

Chapter 7 only removes certain unsecured debts, such as credit card and medical bills, or debts without collateral. Chapter 7 does not discharge every unsecured debt, such as child support, alimony, debt accrued from drunk driving, or recent tax debt.

If you wish to keep a secured property, you must reaffirm the debt, or work out new terms, with the creditor. If you complete all the bankruptcy requirements, you should get most debts discharged in four to six months.

When to file Chapter 7

If you don’t have many assets or earn less than minimum wage, you may pass the means test and qualify for Chapter 7. The means test compares income from the past six months to the state average for your household size.

If you keep getting collection calls from third-party collectors, filing Chapter 7 enacts the automatic stay. The automatic stay temporarily prohibits them from seeking legal action against you, such as foreclosure and wage garnishment. You could consider filing if your credit score is already low, since bankruptcy stays on the credit report for several years.

Bankruptcy is a useful tool in many circumstances when you see no other way out. However, it pays to have legal representation for a smooth process.

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