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What Happens If I Decide To File? The Bankruptcy Process

The Bankruptcy Process

Q: What is the Means Test?

A: As part of the bankruptcy process, you are required to complete a Means Test. This process serves two purposes: 1) to determine whether you qualify for a Chapter 7 bankruptcy; and 2) if filing a Chapter 13 bankruptcy, it may establish your payment depending on your monthly disposable income. There are four ways in which you may qualify for Chapter 7 bankruptcy under the means test. The steps are somewhat complicated, so the information below is a summary.

First, it compares your household’s average gross income for the 6 months prior to filing bankruptcy to your state/county’s median monthly gross income adjusted for household size. If your household’s average monthly gross income is below the median, the means test stops here and you must now prepare a budget looking forward after you file bankruptcy to see if you will qualify for a Chapter 7 bankruptcy.

Second, if your household’s average monthly gross income is greater than the state/county’s median, the next step will compare your household’s average monthly gross income to expenses, some actual and some Internal Revenue Service standard expenses, to determine your household’s monthly disposable income. If your household’s projected disposable income for the next five years (your household’s monthly disposable income times 60 months), is less than $6,000, you should qualify at this step and the means test would stop here and again you need to prepare a budget looking forward after your bankruptcy is filed to see if you will qualify for a Chapter 7 bankruptcy.

Third, if your household’s projected disposable income for the next five years exceeds $6,000, a third step is necessary. This step will compare your household’s projected disposable income for the next five years to 25% of your non-priority, unsecured debts. If your household’s projected disposable income for the next five years is less than 25% of your non-priority, unsecured debts, you may still qualify for Chapter 7 bankruptcy.

Fourth, if your debts are primarily non-consumer debts (business, investment real estate,  and income taxes are a few examples) then you stop before you begin and don’t even need to do the means test and will qualify for a Chapter 7 bankruptcy.  See our post “But my attorney said I didn’t qualify for Chapter 7”.

For updated information, you may go to the U.S. Trustee Program’s Census Bureau Median Family Income by Family Size table.

Q: Can I make a payment plan for my attorney fees?

A: The attorney fee payment plan varies by attorney, but Covey Bankruptcy Law Firm, P.C. understands it is difficult to make a large payment while undergoing financial struggles. As a result, you may develop your own easy payment plan that meet your needs, whether weekly, monthly, etc. However, the Northern District of Illinois Bankruptcy Courts require that 100% of the attorney fees in a Chapter 7 bankruptcy be paid prior to filing the bankruptcy. A portion of the attorney fees in a Chapter 13 bankruptcy must be paid prior to filing and the remaining can be added to the bankruptcy payment plan.  To assist you in paying our fees we accept Visa, Master Card, American Express and Discover.  Of course, we cannot take one of your cards, but if you have family or friends that are willing to help then that is fine.

Q: Why is there a court fee to file bankruptcy?

A: The bankruptcy court charges an administrative fee for services provided by the bankruptcy court. Here in the Northern District of Illinois the filing fee for Chapter 7 bankruptcy is $306 and for Chapter 13 bankruptcy is $281.

Q: Why do I have to take a credit counseling course before I file?

A: Because Congress thought it was a good idea to require credit counseling as part of the bankruptcy process. You must take a credit counseling course either online or over the phone within 180 days of filing bankruptcy.  A certificate of completion must be filed at the same time your bankruptcy is filed.   It is important that you take your credit counseling course from an approved credit counseling company.

Q: Why do I have to take a financial management course after I file?

A: Again, Congress thought it was a good idea to require another credit counseling as part of the bankruptcy process.  A person filing bankruptcy must take a financial management course after the bankruptcy is filed but prior to the scheduled date of discharge in the bankruptcy which is usually two months after the creditors meeting. Once the course is completed, a certificate of completion must be filed with the bankruptcy court prior to your debts being discharged. If the certificate of completion is not filed with the court prior to the scheduled discharge date, the bankruptcy court will simply close your bankruptcy without issuing a discharge of debts. If your case is closed without a discharge you will still owe all the debt you included in your bankruptcy unless you pay a reopening filing fee and attorney fees to file a motion to have the case reopened.

Q: Where can I take my credit counseling and financial management?

A: It is important to take the course through an approved company or you will be required to retake the course.

Q: Should I obtain a credit report before I file bankruptcy?

A: We strongly recommend you obtain a credit report to supplement what you already know about your creditors. It is easy to forget about a creditor you owed several years ago that is no longer sending bills to you.  Recent laws entitle you to a free credit report annually. This site is listed on the Internal Revenue Service website and will not charge you a fee unless you have received a credit report from this site in the past year.

Q: How often can I file bankruptcy?

A: Chapter 7 bankruptcy:

  • If you have received a discharge in a previous Chapter 7 bankruptcy, you are not eligible to file another Chapter 7 bankruptcy for eight years. The eligibility is eight years from the date of the filing of the first bankruptcy.
  • If you have received a discharge in a previous Chapter 13 bankruptcy, you are generally not eligible to file a Chapter 7 bankruptcy within six years before the date the filing of the petition; however, there are some exceptions. You can refer to Title 11, Section 727 for the exceptions and timing rules.

Chapter 13 bankruptcy:

  • If you received a discharge in a previous Chapter 7 bankruptcy, you are not eligible to file a Chapter 13 bankruptcy for four years and receive a discharge.
  • If you received a discharge in a previous Chapter 13 bankruptcy, you are not eligible to file another Chapter 13 bankruptcy for two years and receive a discharge.
  • It is possible to file a Chapter 13 bankruptcy prior to the time frames listed above, but you will not receive a discharge of your debts. However, this may be a viable option if you are trying to avoid foreclosure on your home or repossession of a car or truck after having received a discharge in a previous bankruptcy filing.
  • Additionally, if your case was dismissed and not discharged there is no waiting period.
  • For the timing rules see 11 USC 727.

Q: How long will my bankruptcy last?

A:  The length of the bankruptcy process varies depending on the type:

  • A Chapter 7 bankruptcy is discharged approximately 95 – 110 days after the day the bankruptcy is filed. The final decree closing the case is usually entered shortly after the discharge date.  However, if your case has assets that the Trustee is administering or investigating then your case will remain open until the Trustee is finished liquidating and distributing assets or abandons your assets.
  • A Chapter 13 bankruptcy is discharged after all payments have been made to the Trustee as outlined in the bankruptcy plan which is usually 3-5 years.

Q: How will my creditors know that I filed bankruptcy?

A: As part of the bankruptcy process in both Chapter 7 and Chapter 13 bankruptcy, the court will send a Notice of Meeting of Creditors within a few days of filing, notifying the creditors of your bankruptcy filing and the date of the meeting of creditors.

Q: What if I owe maintenance or child support when I file bankruptcy?

A: Maintenance and child support are not dischargeable in either Chapter 7 bankruptcy or Chapter 13 bankruptcy. There is also no stay imposed on domestic support obligations (maintenance or child support) when you file bankruptcy. As a result, you must continue to pay on-going alimony and child support payments. If you are behind on maintenance or child support when you file a Chapter 13 bankruptcy, you will want to include the amount you are behind, arrearages, in your Chapter 13 bankruptcy so they can be paid through your plan by the Chapter 13 Trustee. You should notify your county and state child support agency of your bankruptcy filing.

Q: What if I owe student loans when I file bankruptcy?

A: Student loans are not dischargeable in either Chapter 7 bankruptcy or Chapter 13 bankruptcy. In most cases, you will continue to make direct payments to the student loan creditor after your bankruptcy is filed.  If you file Chapter 13, your payments may be deferred until the end of your case but will continue to accrue interest.

Q: What if I owe taxes when I file bankruptcy?

A: Taxes are usually not dischargeable in Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, you will need to arrange a payment plan with the taxing agency after your bankruptcy is completed or file an offer in compromise and try to settle the debt.  In a Chapter 13 bankruptcy, the taxes owed at the time of filing should be included in your plan payments to the Chapter 13 bankruptcy Trustee and must be paid in full with no further interest or penalties during your plan. There are exceptions to taxes being nondichargeable and you should consult with your attorney to see how your taxes will be treated once you file.

Q: Will I need to go to court during my bankruptcy?

A: Regardless of whether you file Chapter 7 bankruptcy or Chapter 13 bankruptcy, you will be required to attend a meeting of creditors (341 meeting) after your bankruptcy is filed. This meeting usually occurs 30 – 45 days after your bankruptcy is filed and is conducted by the bankruptcy Trustee. Your creditors are given notice of this meeting and have the right to attend, although they almost never do.

Q: What happens at the meeting of creditors also known as the creditors’ meeting?

A: The meeting of creditors is an opportunity for your creditors to question you about your financial situation and the debts you owe them. Often, there are no creditors at your meeting of creditors. The trustee will conduct the meeting of creditors and will also ask you a series of standard questions about your bankruptcy paperwork filed with the court. In the information we provided you at your initial consultation there is a list of standard questions the trustee will ask you.


Q: Who is the Bankruptcy Trustee?

A: A Chapter 7 bankruptcy trustee is a person, usually an attorney, who is appointed by the Department of Justice to oversee your bankruptcy “estate.” The trustee reviews your case to determine if there are any non-exempt assets which he/she can liquidate (sell) to pay your creditors.  Most Chapter 7 bankruptcy cases are “no asset” cases in which there are no assets to liquidate and pay your creditors.  We would not file your case if it looked like you would loose an asset without first discussing it with you in great detail.

A Chapter 13 bankruptcy trustee also oversees your estate.  The Chapter 13 trustee is responsible for making sure that you are paying creditors what they are entitled to receive and that your plan payment represents your best effort to pay back what you can afford to pay back. The Chapter 13 trustee receives your monthly Chapter 13 bankruptcy payments and distributes this money to your creditors based on the priority as established in the Chapter 13 bankruptcy plan.


Q: Where does the meeting of creditors take place?

A: The meeting of creditors is held in various locations depending on where you live and the type of bankruptcy you file. We will let you know the location of your meeting of creditors at your bankruptcy signing appointment. Below is a list of creditors meeting locations:

Chapter 7 Creditors Meeting Locations

Kane County
105 S. Third St., Room
Room 250
Geneva, IL

DuPage
505 S. County Farm Rd.
Room 2017
Wheaton, IL

Kendall, Will, LaSalle and Grundy
150 W. Jefferson St.
2nd Floor
Joliet, IL

Chapter 13 Creditors Meeting Locations

The address for Chapter 13 DuPage and Kane §341 Meetings is:

801 Warrenville Road
Suite 655 Lisle, IL 60532

801 Warrenville Road is on the south side of Warrenville Road, two miles east of our current location, 0.4 miles east of Illinois Highway 53.

341 meeting parking is on the roof of the parking garage.
When you turn off Warrenville Road into the driveway for the 701 and 801 Warrenville

Road buildings the parking garage is right in front of you.
Turn left (toward 701) then turn right and proceed to the entrance to the parking deck.

For handicapped parking, turn right (toward 801) and immediately turn right again. There are ten or so handicapped parking places.

Q: What is a Chapter 13 “Plan”?

A: The “plan” is a document used by the Chapter 13 bankruptcy Trustee and the court to administer your bankruptcy. It also gives instructions to the Trustee on how to distribute your plan payments.  Your plan will outline your monthly payment, the number of months you will make payments and you your creditors are to be treated and paid.

Q: What is a discharge in bankruptcy?

A: A discharge is the goal of the bankruptcy process.  Your discharge means you are no longer legally required to pay the debts owed to creditors which were listed in your bankruptcy and discharged. The court can deny a discharge if you fail to take and file the financial management course prior to the date scheduled for discharge. The time frame for discharge varies by the type of bankruptcy filed.

  • In a Chapter 7 bankruptcy, the discharge from the court is usually issued approximately 95 – 110 days from the date your bankruptcy is filed or approximately 65 – 70 days after the first date scheduled for the meeting of creditors. Some debts, including auto loans or mortgage loans, are not discharged if a reaffirmation agreement is signed.
  • In a Chapter 13 bankruptcy, the discharge from the court is issued after all plan payments have been made to the Trustee, usually within 3-5 years from filing the bankruptcy, and after a motion for discharge has been filed with the court.

Q: What is a dismissal in bankruptcy?

A: The court may dismiss your Chapter 13 bankruptcy if you fail to make payments to the Trustee. If your bankruptcy is dismissed by the court you will be responsible for all your debts and the creditors may proceed with collection actions against you as well as proceed with foreclosure and/or repossession.

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