Frequently Asked Questions
Bankruptcy can raise many questions about debt, property, credit, foreclosure, and the legal process. The following answers provide general information about common bankruptcy issues. Because every financial situation is different, consider speaking with a qualified bankruptcy attorney about your specific circumstances.
What is bankruptcy?
Bankruptcy is a legal process designed to help qualifying individuals and businesses address debts they are unable to manage. Depending on the type of bankruptcy filed, certain debts may be discharged or reorganized through a repayment plan.
For individuals, Chapter 7 and Chapter 13 bankruptcy are two of the most common options.
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 bankruptcy may allow qualifying individuals to discharge certain unsecured debts, such as credit card balances, medical bills, and personal loans.
Chapter 13 bankruptcy generally allows eligible individuals with regular income to reorganize debts through a court-approved repayment plan, typically lasting three to five years.
Which option may be appropriate depends on your income, assets, debts, and overall financial circumstances.
How do I know if I qualify for Chapter 7 bankruptcy?
Chapter 7 eligibility depends on several factors. Many individuals must complete a bankruptcy means test that considers household income and certain permitted expenses.
Income above the applicable median does not automatically mean Chapter 7 is unavailable. Additional calculations and other eligibility requirements may apply.
Will bankruptcy eliminate all of my debts?
No. Bankruptcy can discharge many qualifying debts, but some obligations may remain.
Certain taxes, domestic support obligations, many student loans, and some other debts may not be discharged. The treatment of a particular debt depends on the type of debt and circumstances of the bankruptcy case.
Can bankruptcy eliminate credit card debt?
Qualifying credit card debt is generally unsecured debt and may be dischargeable through Chapter 7 bankruptcy.
Credit card balances can also be addressed through a Chapter 13 repayment plan. Exceptions may apply depending on how and when the debt was incurred.
Can medical bills be included in bankruptcy?
Medical bills are generally considered unsecured debts and may be eligible for discharge in Chapter 7 bankruptcy or included in a Chapter 13 repayment plan.
Bankruptcy may therefore be worth exploring when substantial medical expenses have become difficult to manage.
Will filing bankruptcy stop debt collectors?
Filing bankruptcy generally creates an automatic stay that stops many qualifying collection activities while the bankruptcy case is pending.
Depending on the circumstances, this may stop collection calls, collection lawsuits, wage garnishments, bank levies, and certain other creditor actions. Exceptions apply.
Can bankruptcy stop wage garnishment?
The automatic stay created by a bankruptcy filing can generally stop many qualifying wage garnishments.
Whether bankruptcy provides a long-term solution depends on the type of debt involved and whether that debt can ultimately be discharged or otherwise addressed through bankruptcy.
Can bankruptcy stop foreclosure?
Bankruptcy may temporarily stop or delay certain foreclosure proceedings through the automatic stay.
Chapter 13 may provide some homeowners with an opportunity to address mortgage arrears through a repayment plan while continuing required ongoing payments.
Bankruptcy does not automatically allow every homeowner to keep a home, so individual circumstances are important.
Will I lose my home, car, or other property if I file bankruptcy?
Filing bankruptcy does not automatically mean losing all of your property.
Bankruptcy exemptions may protect certain property and equity. Whether you can keep a particular asset depends on its value, available exemptions, liens, the bankruptcy chapter filed, and other circumstances.
What is a bankruptcy trustee meeting?
Most bankruptcy filers must attend a Meeting of Creditors, commonly called a 341 Meeting or trustee meeting.
The bankruptcy trustee generally asks questions about the information contained in the bankruptcy documents, including income, debts, property, expenses, and recent financial transactions.
How will bankruptcy affect my credit?
Bankruptcy can remain on a credit report for several years and may affect your ability to obtain credit.
However, rebuilding credit can begin after bankruptcy. Paying ongoing obligations on time, maintaining manageable debt levels, reviewing credit reports, and using new credit carefully may help improve your financial profile over time.
Can I get credit again after bankruptcy?
It may be possible to obtain credit after bankruptcy, although the terms may initially be less favorable.
Carefully reviewing interest rates, fees, and payment obligations before accepting new credit can help prevent future financial difficulties.
Are student loans discharged in bankruptcy?
Student loans generally receive different treatment from ordinary unsecured debts and are not automatically discharged in most bankruptcy cases.
In certain circumstances, a borrower may seek discharge by demonstrating the required level of hardship through additional bankruptcy procedures. The applicable legal standards can be complex.
Can tax debt be discharged through bankruptcy?
Certain older income tax debts may potentially qualify for discharge when specific bankruptcy requirements are satisfied.
Other tax obligations may remain after bankruptcy. The type of tax, age of the debt, filing history, assessment dates, and other factors can affect how tax debt is treated.
How long does bankruptcy take?
The length of a bankruptcy case depends on the chapter filed and circumstances of the case.
A typical Chapter 7 case may be completed within several months, although some cases take longer. Chapter 13 generally involves a repayment plan lasting approximately three to five years.
Should I file bankruptcy?
Bankruptcy may be worth considering when debt has become difficult to manage, creditors are pursuing collection actions, or existing repayment efforts are no longer sustainable.
However, bankruptcy is not the right solution for everyone. Your income, assets, debts, financial goals, and available alternatives should all be considered before filing.
How can I learn more about my bankruptcy options?
If you are dealing with credit card debt, medical bills, foreclosure, wage garnishment, creditor harassment, or other financial problems, consider discussing your circumstances with a bankruptcy attorney serving the Chicago area.
Understanding the differences between Chapter 7, Chapter 13, and other debt-relief options can help you make a more informed decision about your next step.
