Five Things to Know About Chapter 7 Bankruptcy for Consumers

Are you considering filing for Chapter 7 bankruptcy? While a liquidation bankruptcy may seem relatively straightforward upon initial consideration, it is important to remember that consumer bankruptcy is extremely complex. Even when you have relatively few assets, Chapter 7 bankruptcy requires individuals to provide detailed information in a wide variety of documents. As such, you should always work with a dedicated Oak Park bankruptcy attorney on your Chapter 7 filing. In the meantime, however, we want to provide you with some basic facts about Chapter 7 bankruptcy. The following are five things you should know before you consider filing.

Individuals Must Pass the “Means Test” in Order to Qualify
The “means test” is a way of determining whether a debtor has enough income or assets such that it does not make sense for that person to file for Chapter 7 bankruptcy. In general, a consumer takes the means test by deducting monthly expenses from his or her current monthly income to determine how much disposable income is available. If the amount of disposable income is high enough, then the person does not pass the means test and cannot file for Chapter 7 bankruptcy. In most situations where an individual cannot pass the means test, that person will file for Chapter 13 bankruptcy instead.

It is a Liquidation Bankruptcy, But Some Property is Exempt From Liquidation
Chapter 7 is a liquidation bankruptcy, as the U.S. Courts website explains. This means that all non-exempt property of the debtor will be liquidated (i.e., sold) in order to repay creditors. Once non-exempt property is liquidated and the bankruptcy process is complete, debtors can be eligible to receive a discharge of their debts in order to get a “fresh start.

Debtors in Illinois must use Illinois bankruptcy exemptions. For example, some examples of exempt property include:
  • Homestead exemption (735 ILCS 5/12-901) of up to $15,000 equity in your home;
  • Motor vehicle exemption of up to $2,400 in a motor vehicle;
  • Wildcard exemption of up to $4,000 in a single or multiple items excluding real estate;
  • Spousal support or maintenance;
  • Insurance and disability benefits;
  • Pensions and retirement benefits;
  • Certain types of personal property like necessary clothing and family photos; and
  • 85% of your gross earnings.
Not All Debts Are Dischargeable

Under the U.S. Bankruptcy Code, not all types of debts are dischargeable. You should speak with a lawyer about your specific debts, but examples of non-dischargeable debts include child support and certain tax debt.

You Must File Numerous Documents to Receive a Discharge
A Chapter 7 filing requires the debtor to file numerous documents, including:
  • Bankruptcy petition;
  • Schedule of assets and liabilities;
  • Schedule of current income and expenditures;
  • Statement of financial affairs;
  • Schedule of contracts and unexpired leases;
  • Copies of tax returns;
  • Certificate of credit counseling;
  • Copy of debt repayment plan developed through credit counseling;
  • Evidence of payment from an employer received 60 days prior to the filing;
  • Statement of monthly net income; and
  • Record of interest in federal or state education accounts.
Most Debtors are Required to Pay a Filing Fee
Most debtors who file for Chapter 7 bankruptcy must pay the $245 case filing fee, a $75 miscellaneous administrative fee, and an additional $15 trustee fee for a total of $335. In some cases where a debtor’s total income totals less than 150% of the poverty level, the court is permitted to waive Chapter 7 fees.

Contact a Bankruptcy Lawyer in Oak Park for More Information

Do you have questions or concerns about filing for Chapter 7 bankruptcy? A bankruptcy attorney in Oak Park can help. Contact the Emerson Law Firm today to speak with a consumer protection advocate at our firm.


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