Over the years, several Supreme Court Justices have declared that the Bankruptcy Code gives an “honest but unfortunate debtor” a fresh start. The vast majority of all debtors are honest, although the occasional fraud cases, like the 2016 Dance Moms bankruptcy saga, always make the headlines. Moreover, the vast majority of bankruptcy debtors are also unfortunate. The tales of people who buy high-priced luxury items with their credit cards and then refuse to pay the bills are largely inventions of the moneylenders’ imaginations.
So, most distressed debtors in Illinois and Indiana qualify for bankruptcy. What path should they follow?
Filing Chapter 7 Bankruptcy in Indiana
The aforementioned credit cards are unsecured debts, because the account holder simply promised to pay the bill. Other examples of unsecured debts include medical bills, which occasion most bankruptcy filings, and Small Business Association loans. Payday loans are unsecured as well, although the moneylenders often try to convince people otherwise.
Most unsecured debts are dischargeable in an Illinois Chapter 7. The largest exceptions are student loans, which are dischargeable if the debtor has a hardship, and back income taxes, which are generally dischargeable if they are at least three years old.
At the same time, most of the debtor’s assets are exempt, at least up to certain amounts, which means that the trustee (person who oversees the bankruptcy for the judge) cannot seize them, sell them, and distribute the proceeds to creditors. Some exempt assets include:
- – Home equity,
- – Retirement accounts,
- – Personal vehicles,
- – Bank accounts, and
- – Personal property.
An Illinois attorney can maximize these exemptions by correctly valuing the property. For example, the bankruptcy value of a home is often different from its fair market value, because the Bankruptcy Code requires debtors to declare the asset’s as-is cash value.
Procedurally, most Chapter 7s only last a few months in Indiana, and the debtors quickly receive their fresh starts.
How Does Chapter 13 Bankruptcy Affect Me in Illinois?
If the debtor falls behind on secured debt payments, such as a car loan or home mortgage, the creditor can repossess the asset due to the nonpayment. Chapter 13 bankruptcy puts an immediate stop to any such adverse action, and it cannot resume while the bankruptcy is pending unless the judge grants special permission. Adverse action also includes things like lawsuits and wage garnishment.
Furthermore, Chapter 13 debtors have up to five years to pay any past-due amounts. Significantly, the monthly debt consolidation payment plan is based on what the debtor can afford and not on what the moneylender demands.
After the repayment period, any remaining unsecured debt, which is generally all of it, is discharged.
Pursuing a Chapter 20 Bankruptcy in Indiana
This chapter is not in the Bankruptcy Code, but it is popular with many debtors, especially those with a great deal of past-due secured debt. The debtor initially files a Chapter 13, and if the monthly payment is unmanageable, the debtor voluntarily converts the case to a Chapter 7. The debtor gets a fresh start much faster and is free to rebuild credit.
Connect With Experienced Attorneys
Distressed debtors have several bankruptcy options. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours visits are available.