A Chapter 7 bankruptcy allows the discharge, or remove liability, of most debt owed on the date the bankruptcy is filed. It is typically a three-month process.
Some property may be lost in this bankruptcy. Property transferred before the bankruptcy filing may be reversed to the debtor.
Bankruptcy does not protect certain debts. These include spousal or child support and criminal fines or restitution. It is also difficult to exempt personal income taxes, student loan debt, and liability for passing bad checks or using fraudulent credit cards.
A bankruptcy estate is comprised of the debtor’s property and income that is accessible to creditors. It includes all property owned by the debtor when the bankruptcy is filed and any income that was earned even if it was not received.
A bankruptcy estate may also include property that is not owned on the filing date. Expected inheritances, proceeds of a divorce settlement or decree obtained within 180 days of the filing, and tax refunds may be part of the estate.
Creditors can try to claim property that was transferred, sold, or given away two to four years before filing where the debtor did not receive payment for its reasonably equivalent value. They may also try to lay a claim amounts of $600 or more paid to a creditor within 90 days before filing or paid to a relative or friend within one year before filing.
Essential property exempted
The law protects some essential property from seizure. Essential property includes a vehicle, home, furniture, professional tools, and retirement accounts.
Dollar limits apply to exempt property and claims must be filed for exemptions. Debtors can claim the exemptions provided under Illinois or federal bankruptcy laws.
A Chapter 7 bankruptcy can remain on credit reports for up to 10 years. This could be an obstacle to seeking credit or loans.
A debtor is not eligible for another Chapter 7 filing for seven years, so it is important to follow a plan to resolve financial issues. But it is easy to fall in debt again if a debtor lacks medical or automobile liability insurance.
Bankruptcy and debt is complicated and important rights may be lost if a debtor is unaware of their options or does not follow the correct procedures. An attorney can help protect rights and guide debtors through this process.