With the new year brings many changes in Illinois laws. What are the new laws for bankruptcy in Illinois? This article will answer that question and also provide an overview of the most commonly used forms of consumer bankruptcy laws in Illinois.
Bankruptcy Laws are governed by Federal Laws. There do not appear to be any significant changes in the Federal Bankruptcy Code for 2024. However, states can make some adjustments to the Bankruptcy Code, where permitted.
Overview of Chapter 13
What is Chapter 13 bankruptcy? Chapter 13 bankruptcy is one of the most common consumer bankruptcy chapters that is used. Chapter 13, as it is commonly known, may be a good solution for some debtors. Chapter 13 is used to re-organize debts into a payment plan. Chapter 13 is a viable option for debtors that have the ability to repay their creditors in full. If the debtor cannot pay the creditors in full, then the debtor must pay all his or her disposable income to creditors for a period of three to five years.
In order for a debtor to be eligible for Chapter 13 bankruptcy, there are a few things to know before filing. The unsecured debts must be less than $419, 275.00. Secured debts (things like a home, a car) must be less than $1, 257, 850.00. Further, a debtor cannot file for Chapter 13 bankruptcy, if during the 180 day prior to filing for a new bankruptcy, a prior bankruptcy was dismissed because the debtor failed to file a court order or the debtor requested a dismissal. Prior to filing for bankruptcy, the debtor must participate in credit counseling from a court approved credit counseling agency.
It is also good to know what a Chapter 13 bankruptcy can and cannot do for the debtor. Bankruptcy can prevent wage garnishments, and further harassment from collection agencies. Bankruptcy also triggers what is called an “automatic stay”, which is a court order preventing creditors from pursing such things as a foreclosure and evictions actions. Chapter 13 bankruptcy will not discharge the following debts:
- Unpaid child support;
- Unpaid maintenance ;
- Unpaid fines;
- Student loans;
- Unpaid state and federal taxes;
- Criminal restitution orders;
- Debts from a marital property settlement in a divorce; and
- Other debts.
What Happens in a Chapter 13 Bankruptcy?
The debtor must propose a repayment plan to the Bankruptcy Court. If it is approved, a court-appointed trustee will receive the payments. At the confirmation hearing, the court will either confirm or deny the proposed payment plan. Payment plans are denied if there is not sufficient income to cover monthly living expenses and the repayment to the creditors. If approved, as stated above, the debtor will make monthly payments to the trustee and the trustee then pays the creditors. The debtor must complete the debt repayment plan within in three to five years, then the debts will be discharged.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, unlike Chapter 13, discharges the qualified debts of the debtor. An example of some of these qualified debts include: medical bills, high credit card balances, and personal loans. As listed above in the Chapter 13 bankruptcy section, the same types of debts are also non-dischargeable in a Chapter 7 bankruptcy as well.
In a Chapter 7 bankruptcy, a debtor’s qualified debt will be wiped out. This is accomplished by a court ordered bankruptcy trustee to sell the debtor’s nonexempt property, which is property that is not protected by creditors under the bankruptcy code. Most household goods can be exempt, however, luxury items are usually not exempt. A car is usually exempt if it is not a luxury vehicle. Also, tools of the debtor’s trade are also usually exempt under the bankruptcy code.
Chapter 7 bankruptcy, unlike Chapter 13 bankruptcy, is a good option for low to no income debtors. There are income requirements for filing Chapter 7 bankruptcy. If a debtor makes too much income, then Chapter 13 bankruptcy is the better choice for filing for bankruptcy.
What Does the Chapter 7 Bankruptcy Trustee do?
As stated above, the bankruptcy court will appoint a bankruptcy trustee for a Chapter 7 bankruptcy case. The trustee’s duty is to see that the creditor’s are paid as much as possible for the debt the debtor owes. Further, the trustee will be paid more as the trustee recovers more assets from the debtor to sell to pay the creditors.
Once the Chapter 7 bankruptcy is filed, a notice of a creditors meeting will be sent to the debtor and the creditors that a meeting has been scheduled. The bankruptcy trustee will conduct the meeting. The bankruptcy trustee will swear in the debtor, and the debtor under oath, will be asked about the bankruptcy filing and the papers that have been filed. These meetings are usually short in duration and are usually the debtor’s only trip to the courthouse.
What Happens at the End of a Chapter 7 Bankruptcy?
The debtor’s debts are discharged by the court except: debts that cannot be discharged like child support, tax debts, and student loans. Debts that also cannot be discharged, are those the court has determined to be unable to be discharged because a creditor may have objected, or maybe the debtor attempted to use the bankruptcy court as a way to deceive creditors.
Credit Counseling and Debtor Education
The process of filing for bankruptcy isn’t just about eliminating debts; it’s also about gaining financial knowledge. Credit counseling and debtor education play a crucial role in this.
The credit counseling course, which must be completed within six months prior to the bankruptcy filing, is designed to provide you with financial education. Failure to complete this course can result in the inability to file for bankruptcy. Similarly, the debtor education course, which needs to be taken before debts can be discharged, offers financial education to assist you in managing your finances post-bankruptcy. These courses are integral to the bankruptcy process and can equip you with valuable financial knowledge.
Modified Protections Against Debt Collection Actions
. The automatic stay in bankruptcy is a legal provision that halts all creditor collection efforts, including foreclosures and legal proceedings. This provision remains unaltered in the 2024 updates, standing as a protective shield for debtors.
The recent modifications to the Illinois Bankruptcy Code have introduced several measures to safeguard against debt collection activities. These include:
- Constraints on attorney fees for collectors in collection lawsuits
- Safeguards against collection abuse
- Limitations on the frequency of calls made by debt collectors
These changes can offer a layer of protection, helping you navigate the bankruptcy process with less stress and worry in dealing with bankruptcy courts.
Legal Nuances in Secured vs. Unsecured Debt Treatment
Delving deeper into the complexities of bankruptcy laws, it’s vital to comprehend the legal subtleties in the treatment of secured versus unsecured debt. The distinction between these two types of debt can significantly impact your bankruptcy process. Secured debt is supported by collateral, while unsecured debt lacks collateral.
The 2024 Illinois Bankruptcy Code have set specific limits for secured and unsecured debts, including credit card debt. Unsecured debts are required to be under $419,275, while secured debts, such as those pertaining to a residence or vehicle, must be under $1,257,850. Understanding these legal nuances can help you navigate the bankruptcy process more effectively.
What are the Illinois Bankruptcy Laws for 2024?
As discussed above, Bankruptcy Laws are governed by Federal Laws. There do not appear to be any significant changes in the Federal Bankruptcy Code for 2024.
Frequently Asked Questions
What assets are exempt from bankruptcy in Illinois?
In Illinois, assets exempt from bankruptcy include necessary clothing, personal injury recoveries up to $15,000, proceeds from the sale of exempt property, and Illinois College Savings Pool or ABLE accounts. Be sure to consult a legal professional for specific advice.
What is the income limit for Chapter 7 bankruptcy in Illinois?
In Illinois, the income limit for Chapter 7 bankruptcy is between $7,475 and $12,475 per month for the next 60 months, depending on the means test.
What is the difference between Chapter 7 and 13 bankruptcy in Illinois?
In Illinois, Chapter 7 bankruptcy is suitable for simple cases, while Chapter 13 is more appropriate for complicated bankruptcies, offering more control over certain creditors and non-exempt assets.
How much equity can I have in my home and still file Chapter 7 Illinois?
In Illinois, you can protect up to $15,000 of home equity when filing for Chapter 7 bankruptcy. It is crucial to consider this exemption before deciding to file for bankruptcy.
What are the main changes in the 2023 Illinois Bankruptcy Code?
In 2023, the Illinois Bankruptcy Code has been updated to offer clarity on new bankruptcy laws, with changes to exemption adjustments, the role of the bankruptcy trustee, and their impact on bankruptcy fraud penalties.
If you have any questions about Chapter 7 or Chapter 13 bankruptcy law, please contact one of our experienced bankruptcy attorneys at 630-324-6666.
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