Filing Chapter 7 Bankruptcy in Illinois can be complex and overbearing, so let's dive into 3 things you may want to consider:
- How much would it cost to file Chapter 7 bankruptcy, and how do you know if you're eligible in the first place?
- What alternatives exist, and could any of them be more cost-efficient?
- Are there any specifics of filing for bankruptcy in Illinois that you should know?
We'll cover all of the above in this article and more. However, we also have a calculator to help estimate your qualifications and the possible cost of a Chapter 7 bankruptcy. Feel free to use it below:
1) How Chapter 7 Bankruptcy Works in Illinois
How Fast Do You Get Relief in A Chapter 7 Bankruptcy in Illinois
It usually takes around 120 days to wrap up a no-asset Chapter 7 case in the state from start to finish. A "no-asset" bankruptcy means that you don't own any fancy houses or other valuable assets that might exceed the Illinois bankruptcy exemptions. So, if you're in a situation where you don't have an excess of assets, you could be looking at a relatively speedy resolution to your bankruptcy case.
How Much Does It Cost To File Chapter 7 Bankruptcy in Illinois
The cost of Chapter 7 bankruptcy across the US typically ranges from $500 to $3,000. These prices are usually determined by a few main factors: location, your lawyer's expertise, and the difficulty of your case.
In Illinois, the price can also widely vary from city to city. For example, in Dupo, it usually costs around $800. However, in River Grove, that price increases to $1,788.
There is also the filing fee waiver to be aware of. If you qualify, this will help you possibly reduce the bankruptcy fee. To learn more, read the following: Illinois filing fee waiver.
How Do I Qualify For Chapter 7 Bankruptcy in Illinois?
When reviewing whether you qualify for Chapter 7, you may want to check the Chapter 7 Bankruptcy Illinois Income Limits. This test determines if you're eligible for a bankruptcy discharge (another way of saying your debts will be forgiven). If you pass the means test (you can estimate it below), Chapter 7 will cover most of your unsecured debts. Unsecured debts don't have any collateral, such as medical bills, personal loans, certain old income tax debts, old utility bills, credit card debts, and most personal judgments.
What about secured debts in Chapter 7?
If you want to wipe out secured debts such as car loans and mortgages, Chapter 7 bankruptcy might still be the answer. But the catch is that you'll have to give up the asset to the creditor, and the creditor will consider it as full payment for what you owe.
IMPORTANT: Chapter 7 Qualification via Illinois Means Test
A tool to help you determine your eligibility for Chapter 7 bankruptcy in Illinois is the Bankruptcy Means Test. This form will help calculate your average annual income based on your last six months of gross income. It will then compare that number to the median income of other households in Illinois. If your median income turns out to be below the Illinois median income, you might qualify for a Chapter 7 bankruptcy discharge.
Feel free to use the calculator below:
My Income Exceeded The Chapter 7 Means Test Allowable in Illinois
If your income is higher than the median income in your state, you might need to dive into part 2 of the means test or explore an alternative option. We encourage you to check out this helpful resource: passing the Chapter 7 means test when income exceeds the median.
Chapter 7 Bankruptcy Illinois Income Limits
If you're filing for bankruptcy in Illinois on or after April 1, 2024, here are the limitations for income based on household size:
Will I lose my belongings if I file Chapter 7 bankruptcy? Understand Illinois bankruptcy exemptions.
Exemptions allow you to shield your assets from being possessed by your creditors in the case of bankruptcy. The main one to be aware of is the home equity exemption, which attempts to safeguard your house. This exemption is $15,000 in Illinois regardless of age or marital status.
Furthermore, you can protect up to $2,400 in any motor vehicle.
Another exemption to be aware of has to do with tax-exempt retirement accounts. This exemption allows you to protect up to $1,512,350 of your funds.
One last thing to consider is that Illinois does allow federal bankruptcy exemptions. Therefore, you must compare the state and federal exemptions to see which would benefit you most.
Chapter 7 Bankruptcy Illinois Pros and Cons
Pros
- The speed at which you can receive a discharge: In just about 120 days, you could be debt-free and on your way to building a fresh start.
- Property exemptions: If you meet the threshold for exemptions, filing for Chapter 7 bankruptcy may allow you to keep a good percentage of your personal property.
- Stopping debt collection lawsuits: Once you file, the court will issue an automatic stay, preventing legal action against you, including calls and letters from collectors.
- Loan deficiency: When you owe more on a loan than the collateral is worth, you may be stuck with a deficiency. But with bankruptcy, that burden could be lifted.
Cons
- Income requirements for qualification: To be eligible for Chapter 7 bankruptcy, you must meet specific income requirements.
- Potential loss of home and belongings: If your assets exceed the exemption limit, there is a chance that you may have to part ways with some of your property.
- Negative impact on credit report: Filing for Chapter 7 bankruptcy can have a lasting effect on your credit report. It stays on record for a decade, making securing future loans or favorable interest rates challenging.
- Non-dischargeable debt: It's important to note that not all debts may be discharged through Chapter 7 bankruptcy. Specific obligations, such as student loans and child support payments, are typically not eligible for discharge.
2) Alternatives to Chapter 7 Bankruptcy in Illinois
a) Chapter 13 Bankruptcy
If you earn more than the income limit for Chapter 7 bankruptcy, there's still a way to get some debt relief through Chapter 13 bankruptcy. A Chapter 13 Bankruptcy in Illinois allows you to restructure your debts into a more manageable monthly plan. This restructuring can help you keep your home and vehicles, help stop foreclosure, and prevent repossession of your belongings. Furthermore, you might be able to reduce any unpaid child support, alimony, and car loan payments.
Can you afford Chapter 13 Bankruptcy?
When it comes down to understanding whether you can afford a Chapter 13 plan, it can be essential to analyze whether you have any 1) disposable income or 2) non-exempt equity. In short, those are two vital pieces of information that may impact your Chapter 13 plan.
b) Debt Settlement/Relief
Debt settlement may also be another option aside from Chapter 7 and Chapter 13 bankruptcy. Once you pursue this option, the debt settlement company negotiates a lower amount on your total debt, saving you money in the long run. However, consider its impact on your credit score and research correctly to choose a well-reputable and transparent debt settlement company.
c) Debt Management
Another option is debt management. Whereas debt settlement companies work to lower the total amount of debt you owe, debt management companies work to lower your interest rates. These programs usually last 3 to 5 years and are pricier than debt settlement. Not all creditors may be willing to work with a debt management company.
However, if you're dealing with a bunch of high-interest credit card debt, this option may reduce that interest by around 10-20%. This could translate to an eventual 30-50% savings on the debt you currently owe and allow you to pay off these debts more efficiently. Considering your situation and determining which option makes the most sense financially is essential.
d) Debt Payoff Planning
The last alternative we'll mention is debt payoff planning. This strategy does take some effort and will require you to cut your expenses and save excess income to pay down as much debt as possible. However, you can make tangible progress every month by choosing the appropriate debt payoff plan. Another thing to remember is that as you begin to pay off your debts, you will be able to compound those payments towards the remaining debts, allowing you to pay things off faster and faster.
Conclusion
Now that you've learned about Chapter 7 bankruptcy in Illinois, you should feel more informed about the requirements and other options available. If you're wondering whether you qualify and what it might cost you, try using the Chapter 7 bankruptcy means test calculator below for a quick estimate.
Lastly, if you're interested in saving on attorney fees and are willing to handle some tasks, check out our article on filing bankruptcy without an attorney. You can find it here: filing bankruptcy without an attorney.