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Chicago Bankruptcy Question: What is a Chapter 7 bankruptcy?

Chicago Bankruptcy Question of the Day: What is a Chapter 7 bankruptcy?  Chapter 7 bankruptcy is what most people think of when they consider bankruptcy.  Properly titled "Liquidation", but commonly called "complete bankruptcy" or "straight bankruptcy", Chapter 7 is a process wherein the federal court reviews a person's financial situation, determines eligibility for a discharge, liquidates any non-exempt assets, and then issues a discharge, relieving that person of their legal liability to repay their most of their debts.

There is a lot that goes into filing for Chapter 7 bankruptcy protection and having an experienced Chicago bankruptcy attorney is vital in the process, but with that said, here are the basics.  First, a determination must be made that you are qualified to file for bankruptcy protection using a "means test", which was the subject of yesterday's blog.  Assuming that you pass the means test, a series of schedules are prepared showing all of your assets, liabilities, income, expenses and allowed exemptions.  Most assets that are reasonably necessary are exempt using Illinois exemption statutes, but you want to be certain of this before filing, as the Trustee assigned to your case has the right to sell (liquidate) any non-exempt assets and use the proceeds to pay your creditors.  Your budget must also show that you do not have the current ability to repay your creditors and that your household expenses are reasonable and necessary.  Along with these schedules, some supporting documents, such as a Statement of Financial Affairs, Statement of Intention and various others are prepared.

Before you can file your Chapter 7 bankruptcy, you must review and sign the schedules and statements which collectively comprise your bankruptcy petition.  You must also complete a Consumer Credit Counseling Course that has been approved by the US Trustee's office.  Your attorney should facilitate the completion of this course.

Once your case is filed with the federal bankruptcy court, the court will assign a case number, a Trustee and a date and time for your Meeting of Creditors.  Contrary to the name, creditors rarely attend this meeting.  It is here that the Trustee assigned to your case reviews the schedules and statements that have been filed on your behalf to verify that they are accurate, to ensure that there are no non-exempt assets that could be sold to pay your creditors, and to ensure that there is nothing shady or questionable going on that could keep you from receiving a discharge.  This meeting should be the only appearance that you make and your bankruptcy attorney should be there with you.

Once the meeting has been concluded, assuming there are no assets that the Trustee wants to liquidate, it will take about three months for a discharge to be issued.  The discharge eliminates your liability for all debts that are dischargeable, leaving you only with those secured debts that you elected to maintain, such as your mortgage or car payment, and those debts that are non-dischargeable in Chapter 7.

Please keep in mind that this is a very simplified and brief overview of the process.  Every bankruptcy case is unique and carries it's own risks and issues, so be sure to review the details of your financial situation with a qualified and experienced Chicago bankruptcy attorney.  We at Ledford & Wu are happy to take the time to offer you a free in-person consultation with one of our experienced Chicago bankruptcy lawyers to see if filing for Chapter 7 is the right option for you.

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