Bankruptcy Basics: Chapter 7 and Chapter 13

Author: Joe Pioletti Posted on: . Filed in: Bankruptcy.

Bankruptcy

No one is immune to financial troubles, and an onslaught of unexpected events can turn even the most responsible consumer’s finances on their head. While other options, such as debt settlement and consolidation exist; for some, filing for bankruptcy might be the only way out of a tough situation.

Once an individual has filed for bankruptcy, all activity from collection agencies and creditors must stop, and foreclosures and repossessions cannot go forward without the permission of the Bankruptcy Court. It is illegal for an employer to discriminate against an employee who files for bankruptcy, and a government agency cannot deny an individual a license because he or she has filed for bankruptcy.

Under the traditional form of bankruptcy, Chapter 7, the court liquidates most of an individual’s assets and uses it to pay off as much debt as possible. Chapter 13 bankruptcy is a bit more extensive, as an individual develops a plan to pay off his or her debts over a specific period of time.

When considering filing for bankruptcy, it is important to weigh the circumstances. Filing for bankruptcy can provide a fresh start; and garnishments, foreclosures, and repossessions are stopped. However, there are also negative long-term impacts. For example, a bankruptcy filing stays on an individual’s credit rating for 10 years and can impact their ability to obtain credit in the future.

Chapter 7 bankruptcy is available to debtors with an average monthly income over the previous six months that is less than the median income for a family of the same size for Illinois. For cases filed in the past year, the Illinois median income for an individual is about $48,232[i]. That number significantly increases for each additional member of a household. Individuals with incomes higher than the median may only file for Chapter 7 bankruptcy if they pass a means test. The Chapter 7 means test calculates monthly expenses, income, and debts and determines whether there should be money left over each month to pay back creditors.

Chapter 13 bankruptcy works a little differently than does Chapter 7. In a Chapter 13 a person designs a plan to pay back a portion of money owed to their creditors by making monthly payments. For those that make less than the median income for Illinois, a plan typically lasts for 36 months and for those making more than the median then for 60 months.

Federal courts have exclusive jurisdiction over bankruptcy cases, and therefore bankruptcy cases cannot be filed in state court. If you do choose to file for bankruptcy, you must file in the district in which you live. Illinois bankruptcy court is divided into the Northern (Chicago), Central (Springfield), and Southern (East St. Louis) Districts, and each district has additional divisional offices. While bankruptcy is governed by federal procedure, some aspects of bankruptcy law are determined by the State of Illinois.

An attorney can walk you through the ins and outs of Illinois bankruptcy law, and help you make a decision of whether or not bankruptcy is right in your situation.

Joe Pioletti

Joe Pioletti

Attorney Joe C. Pioletti was born and raised in Eureka, IL.Joe received his Bachelor of Arts Degree in Business Management from Eureka College where he also minored in Spanish.Joe then received his Juris Doctor from Southern Illinois University School of Law.While in law school Joe worked in the Domestic Violence Advocacy Clinic and was a three-time recipient of the Charter Class Campaign for Academic Excellence Scholarship.
Joe Pioletti