Cook County Attorneys Explaining Chapter 7 Bankruptcy
a. Concept
Chapter 7 is called "liquidation," also known as "straight" or "total" bankruptcy. The law allows you to keep some of your property such as a home, cars, household goods, clothing etc. within certain limits, called exemptions, and the bankruptcy trustee may sell any assets above those limits to pay your debt. Most people file Chapter 7 because they don't have any assets above those limits, so there is no actual liquidation in such "no-asset" cases. Chapter 7 is nice and fast-if all goes well, the bankruptcy court typically will issue an order, called discharge, a couple of months after you filed your petition, legally forgiving any of your debt that can be forgiven.
Chapter 7 is ideal for people who owe a large amount of unsecured debt such as credit cards, medical bills, payday loans, and back utility bills without a lot of assets. If you have a car loan or mortgage that you feel you cannot afford to pay, you can also give up the car or house without owing anything. Filing Chapter 7 doesn't necessarily mean that people will lose their homes or cars. Consult an attorney for details.
Any entity, including individuals and businesses, is eligible for Chapter 7 as long as the entity is not barred by law from doing so. Under certain circumstances, however, some debts may not be discharged, and some people may not be able to receive a general discharge. Consult an attorney to see any of those exceptions apply to you.
b. Process
As in all bankruptcy cases, filing of a Chapter 7 case usually triggers immediate court protection known as the "automatic stay." It means that most collection actions, such as lawsuits, judgments, garnishments and harassment against the debtor, must stop.
The court sends notices of the bankruptcy to all listed creditors. The case is assigned a federal judge and a bankruptcy trustee. The trustee's primary job is to look for assets that are not exempt, take it over and sell it to pay the creditors. As previously stated, most cases are "no-asset" cases, where debtors get to keep their property.
All debtors are required to attend a meeting of creditors. Creditors have the right to attend the meeting and ask the debtor questions, but few show up. Typically, the debtor just meets with the trustee, who asks a few questions about the debtor's debts, assets, income, expenses and financial affairs. If you elect to hire us to represent you, we will be with you at this meeting. After the meeting, the trustee either issues a no-asset report, meaning the trustee is finished with the case, or makes a finding of assets, in which case the trustee will pursue such assets for the benefit of the creditors.
The trustee, U.S. Trustee and creditors have two months after the meeting of creditors to challenge a Chapter 7 case, if they feel they have the right to do so. In most cases, it does not happen. Once the deadline passes, the debtor is entitled to a discharge, and will receive it soon from the court by mail. A business, however, does not receive a Chapter 7 discharge. A debtor may not file two Chapter 7 cases within eight years.
Common Questions About Chapter 7
How much does a Chapter 7 cost?
How much does a surgery cost? The truth is, it depends. A case involving five properties, three cars and four lawsuits will likely cost more than one without any of these things. No two cases are the same. We do not charge a fee based solely on the amount of the debt involved. Instead, our fee is based on the complexity of the case, which can only be determined by an experienced bankruptcy attorney. We will be able to quote a reasonable fee at your free consultation after examining each individual case closely.
Why do I have to fill out these forms? I just want to talk to an attorney and know my options and how much you charge.
Obviously, you are in our office because you need legal advice, but what we tell you is based on what you tell us. No two cases are the same. It’s impossible to properly advise you without knowing what’s going on in your financial situation. In addition, federal law requires a person filing bankruptcy to disclose all of her debts, assets, income, expenses and financial affairs in recent years. The more accurate and complete your information is, the better advice we can give you. Based on the information that you provide, we analyze your situation, explain your options, recommend the best course of action and quote you a fee.
All information we obtain during the phone consultation and face-to-face interview (and the entire course of representation if you hire us) is confidential.
Do I need to go to court?
Usually, no. Your case will be filed in the federal bankruptcy court and assigned to a federal judge, but the judge usually does not do anything unless there is a legal dispute. Most Chapter 7 cases are handled administratively by a bankruptcy trustee. You do need to attend a meeting of creditors and meet with the trustee. Yes, we always attend this meeting with you. In most cases, that is the only official appearance you need to make.
Is my employer going to be notified?
Usually, no. That is not a standard procedure. However, some people may want their employer to be notified of bankruptcy filing when their wages are being, or about to be, garnished. The notice will tell the employer to stop the garnishment immediately. Also, keep in mind that the information on a bankruptcy petition is public record. While it usually does not get published on the newspaper or broadcast on TV, anyone can access such information from the court record if they want to take the time and pay the expense of doing so.
Are they going to take my house, car, stuff in the house and tax refund?
In most cases, no. The law allows a debtor to exempt certain assets, including a tax refund, from creditors, within a limit. In Illinois, as in most states, the exemption is determined by state law. The limit is sufficient for most people in Illinois. You must, however, be current with your mortgage payment, car payment, etc and have all necessary insurances if you want to keep these assets, or the court may allow the lender to foreclose on or repossess the collateral.
Do I have to close my bank account?
Usually not. The only time you would have to close your account is if you have a debt owed to your bank. Our attorney will explain the details.
Can you guarantee my case will work before I pay you?
No. There is no such thing as absolute guarantee in any legal case because many things are beyond the control of the lawyer. For example, a debtor must tell the truth, fulfill the documentation requirements, attend the meeting of creditors, cooperate with the trustee and U.S. Trustee, and undergo credit counseling and debtor education, etc. If the debtor does not do her job, or worse yet, lies to the court, the case will fail and can have other disastrous results. What we can guarantee is that we will provide you with excellent legal representation and advice, make you aware of all of your responsibilities and assist you in fulfilling them, be available to answer your questions and do our best to ensure that the process goes smoothly. If we do not believe that a case will work, we will not let you hire us even if you want to pay us. If we believe that there may be an issue, we will let you know well in advance.
Common Misconceptions About Chapter 7
"If I file Chapter 7, I will lose my house (or car, or computer, etc)."
That's just not true. Most people who file for Chapter 7 keep their homes, cars and other assets. Those you do lose their assets either chose to surrender them and eliminate the debt against them, agreed to the risk of losing their assets prior to filing or simply did not get proper legal advice before filing. Each case is different, however, which is why you need to meet with an experienced bankruptcy attorney. We will let you know if you can keep your assets in a Chapter 7 after analyzing your case at your free consultation.
"I can't keep my doctor (or credit union, or divorce lawyer, etc) if I list him as a creditor."
The law requires you to list all debts, whether your want to or have to pay them or not. However, bankruptcy does not mean you cannot pay your debt. You are free to pay any or all of your debt once your case is completed. The difference bankruptcy makes for you is you don't have to. Most professionals (and credit unions) see a lot of bankruptcy notices and will work with you after your case is discharged to allow you to continue paying them.
"Filing bankruptcy will ruin my credit for the next 10 years (5 years, forever, etc.)!"
Again, that's just not true. While the bankruptcy filing will initially lower your credit score, it also wipes out most if not all of your debts. Your credit will begin to rebuild immediately upon your discharge and usually will fully recover within two to three years. There are several factors that are important to rebuilding your credit and we will help you with the process.
"It is better for my credit to try debt consolidation first."
Wrong. Going through a debt consolidation or a debt settlement program often creates more problems for your credit than a bankruptcy. Your credit score is reduced because your creditors are being paid late and being paid less than your obligation. Nobody has the legal right to reduce your debt other than your creditors and the bankruptcy court, so all those promises of reduced payments and overall debt are not guaranteed. They rely on the creditor agreeing. Most of these programs also fail because they take years of you making regular payments.
Ledford & Wu has offices in Downtown Chicago, Evergreen Park, Calumet City, North Riverside/Berwyn, Northside/Jefferson Park, Schaumburg, Bolingbrook, Aurora and Elgin
