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Is Bankruptcy Right for Me? – Filing Bankruptcy in Illinois

Q: What can filing bankruptcy do for me?

A: Filing Bankruptcy in Illinois in Kane, DuPage, Kendall and Will County. The filing of a Chapter 7 bankruptcy or Chapter 13 bankruptcy will immediately stop your creditors from taking legal action against you. Once a bankruptcy is filed, there goes into effect an automatic stay that stops creditors from attempting to collect money from you including the harassing phone calls, foreclosures, repossessions, wage garnishments (with some exceptions), lawsuits, etc. The automatic stay is automatic and goes into effect immediately after your case is filed.

Q: What is the Automatic Stay?

A: When your bankruptcy is filed with the court, an automatic stay immediately goes into force, regardless of the type of bankruptcy filed. This means your creditors cannot proceed with foreclosure, repossession or any other legal actions against you unless they obtain permission from the bankruptcy court. An exception to the automatic stay is that Child support and maintenance payments are usually not stayed. The automatic stay also does not apply to criminal charges against you. Additional details regarding the automatic stay can be found under Title 11, Section 362 of the US Bankruptcy Code.

Q: What are the exceptions to the automatic stay?

A: The bankruptcy automatic stay does have some exceptions including:

  • Commencement or continuation of criminal actions or proceedings
  • Establishment or modification of domestic support obligations (Child support, alimony)
  • Collection of and withholding of income for domestic support obligations (Child support or maintenance)
  • Repeat filers
    • Two cases pending in 1-year period after first case was dismissed, automatic stay limited to 30 days but can be extended
    • Three cases pending in a 1-year period after first two cases were dismissed, no automatic stay but can be imposed with court order

Q: How will bankruptcy affect my credit?

A: You should first understand the difference between your credit score and your ability to obtain credit. Often, these words are used interchangeably and confusion can occur. Your credit score is the number the credit reporting agencies assign to your credit. It is based on your history of making payments on your debts. Your ability to obtain credit is based on your ability to make payments in the future and is determined by your income and your debts. If your debts exceed your ability to make payments, you may be unable to obtain credit even if you have consistently paid your debts on a timely basis. In other words, you may have a good credit score yet be unable to purchase a car because you have too much debt. Filing bankruptcy will most likely reduce your credit score in the short-term. However, filing bankruptcy also eliminates many of your debts and may improve your ability to obtain credit in the future.  After your bankruptcy is discharged you will most likely receive solicitations for new credit cards and car loans.

Q: How will bankruptcy affect my spouse?

A: Assuming only one spouse files bankruptcy, the impact on the non-filing spouse will depend whether you have joint debts. If your spouse has cosigned on a debt, such as a house or car, he/she is still responsible for payment of the debt and the bankruptcy will not discharge or eliminate your spouse’s liability. This is also true for credit cards, personal loans, and any other debts your spouse has joint responsibility for. It is also important to understand that you and your spouse are jointly responsible for certain debts if you live in Illinois under the Family Expense Act and were married when the debts were incurred. As a result, some debts discharged in bankruptcy may still be the responsibility of your spouse. You are also responsible for your spouse’s medical debts and any other debts you have cosigned with your spouse.

Q: What if someone has cosigned on my debt?

A: Generally speaking, if someone cosigned a debt with you, and that debt is discharged or wiped out in the bankruptcy, the person who cosigned with you will be responsible for that debt.

Q: What are the other options to bankruptcy?

A: The answer to this question depends on why you are considering bankruptcy. If you are trying to avoid foreclosure on your home, you may be able to refinance the property or work out a loan modification with your existing mortgage company. However, in today’s economy refinancing is usually not an option and loan modifications can take years.  For an interesting show on the refinancing fiasco watch Home Loans From Hell on Dan Rather Reports.  If you are not interested in keeping the house, you could consider selling the property or even signing a deed in lieu of foreclosure with the mortgage company. However, you should be aware there may be tax implications or you may even increase your debt with these options. You should definitely seek tax and legal advice when you consider these options.

If most of your debts are unsecured like most credit cards, personal loans, etc. you may want to consider a debt consolidation. However, be extremely careful when considering a debt consolidation company, since some, have been found to prey on individuals in desperate situations. These are often short-term solutions to a problem that eventually end up on bankruptcy anyway.  In the military we refer to this as “putting a bandaid on a sucking chest wound”. Unfortunately, that decision is often reached after you have paid a considerable amount of money to the debt consolidation company and your credit score has decreased because debts are still not paid on a timely basis.

Some people also consider equity lines of credit on their home to payoff credit cards and medical bills. This can be extremely risky since you have now attached another lien to your home that ultimately gives another company the ability to foreclose on your home should you get behind on the line of credit payments.

Q: Can anyone prepare the bankruptcy for me?

A: There are bankruptcy petition preparers that will type the paperwork for a fee; however, they are unable to provide legal advice. They generally are not bankruptcy lawyers and cannot answer legal questions you may have.  A bankruptcy petition preparer cannot go to court with you or respond to questions your trustee may have. Some bankruptcy petition preparers have little training and many people like yourself have lost their property including homes, cars and cash because they did not have the proper legal advice.

Q: Am I required to have an attorney to file bankruptcy?

A:  Filing Bankruptcy in Illinois does not require you to have a lawyer.  However, you should determine if it is worth the risk of losing your property because you did not complete the forms properly or you did not use the correct exemption to protect an asset.  Even attorneys with considerable experience in other areas of law will attempt to file bankruptcy for individuals with the same unfavorable results. Please read our post on hiring a bankruptcy attorney.

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