Bankruptcy in Illinois, Part 2
Continued from Bankruptcy in Illinois, Part 1
Federal vs. state exemptions? Not in Illinois
Fifteen states allow Chapter 7 debtors to choose between federal exemptions or state exemptions. Illinois is not one of those states. Instead, Illinois has a fixed schedule that applies, in turn, to real property, homesteads, household goods, tools of the trade, and so on. However, Illinois does allow doubling of the individual's exemption for couples filing jointly. According to Illinois Legal Aid:
You can keep exempt property as long as it is not subject to a lien (a mortgage or security interest). Liens on prompt generally survive a Chapter 7 bankruptcy. In 2010, the major types of exempt property are:
- Up to $15,000 of equity in a home, including a mobile home, cooperative or condominium
- Up to $2,400 of equity in one motor vehicle
- Necessary clothing
- Up to $4,000 of personal property of any kind
- Tools of the trade
- Pension benefits and qualified retirement accounts
The main takeaway is that these exemptions can protect a variety of assets, from property to jewelry, from wages to insurance policies and retirement benefits. Even if you do have to liquidate some assets, you can protect your core assets necessary to getting on with a new start.
Some debt not discharged
The Legal Aid office also reminds that although "[m]ost debts are discharged, or cancelled so you no longer owe them. Debts that are not dischargeable in a Chapter 7 bankruptcy include:
- Child support
- Most taxes
- Criminal restitution orders
- Debts due to fraud, theft or embezzlement
- Damages to another person caused by drunk driving or willful and malicious conduct
- Debts arising out of a property settlement in a divorce
- Student loans unless paying back the student loan would be an undue hardship
- Some other types of debts."
Legal Aid also list some advantages of filing for Chapter 13 protection as opposed to the more-quickly discharged Chapter 7.
Advantages of Chapter 13 over Chapter 7
In addition to the benefits of Chapter 7, you can:
- keep property that is secured by a lien by paying for it through the Chapter 13 plan. This can save a home from foreclosure, or stop repossession of a car;
- stop evictions, if filed before the 5 day notice or other lease termination expires and if you can pay the back rent owed through the Chapter 13 plan. If you cannot repay all of your debts, but have made the best effort to pay that you can, you can get a discharge of the balance left on your debts, although you cannot remove a lien unless you have paid it off through the plan;
- discharge all debts, except alimony, child support, criminal fines and restitution, damages to individuals caused by drunk driving or intentional torts, money owed due to fraud, theft or embezzlement, most taxes and long term debts, such as mortgages. Student loans are not discharged unless denying a discharge would cause an undue hardship to the debtor.
Special rules for Chapter 13
If you fall behind on your payments, the payments can be deducted directly from your paycheck. While you are in Chapter 13 you cannot get new credit without the trustee's approval.
There are also limits the the amount of debt you can have and still be eligible for Chapter 13. A debtor cannot have secured debts over $1,081,400 or unsecured debts over $360,475. [Note: As mentioned in Part 1, individuals who owe more than these limits can file under Chapter 11, which is more expensive but also can be more flexible than Chapter 13.]
Overview of the process
Legal Aid also provides a technical, if somewhat gloomy, overview of the initial process. I'll have an explanatory note about the 341 meeting at following this excerpt:
During bankruptcy proceedings, you file court papers listing all your debts and all property you own, your recent and current income, your expenses, and answer some other questions about your finances. All of these forms must be answered honestly and completely or else you will not receive the benefits of a bankruptcy. To file your court papers, you must pay a filing fee to the Bankruptcy Court's Clerk. In 2010, the filings fees were $274 for a Chapter 13 bankruptcy and $299 for a Chapter 7 bankruptcy. If you cannot pay the fee in a Chapter 7 filing, you can ask the Court to let you file for free.
After your court papers are filed with the Bankruptcy Court, you must go to a "meeting of creditors". At this meeting the trustee, who represents your creditors, will ask you questions about your court papers and about your finances. Before the meeting you must provide copies of recent tax returns and paystubs to the trustee. Also, any individual creditor can appear and ask you questions at the "meeting of creditors".
That's all true enough, as far it goes. And in one sense, it doesn't go far enough. For instance, the trustee can ask for just about anything within reason that documents your true financial status and helps eliminate the possibility of fraud--they're bears about preventing bankruptcy fraud, a trait we should all admire and encourage. However, the "meeting of creditors, " more commonly referred to as "the 341 meeting" is rarely anything resembling a Spanish Inquisition, and with most consumer bankruptcies creditors rarely even show up at all.
Continued in Bankruptcy in Illinois, Part 3.
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