If you’ve found that your debts are simply unmanageable, you may be considering filing for bankruptcy. While doing so can affect your credit score, future loan rates and potentially more in Illinois, bankruptcy may be your best option for starting fresh. As you begin the bankruptcy process, you’ll learn that there are different types of consumer bankruptcy. Which is right for you?
Chapter 7 bankruptcy
With Chapter 7 consumer bankruptcy, you’ll essentially sell off your non-exempt assets to pay your creditors. When you file for this type of bankruptcy, the court will determine what your exempt and non-exempt assets are. Exempt assets may include your primary residence and your car. Non-exempt assets may include secondary or vacation homes, secondary cars, investment accounts, boats, RVs and bank accounts.
All of your assets that are deemed non-exempt by the court are sold off by an appointed trustee. The proceeds are then used to pay off your debts. Once all the non-exempt assets are sold off, the remaining debts are discharged. Such debts includes most unsecured debts, like credit card debt, medical expenses, personal loans and more.
Chapter 13 bankruptcy
With Chapter 13 bankruptcy, you’ll likely get to keep your assets. However, you’ll need to repay your debts over a specified period of time. The time period will typically be between three and five years. The bankruptcy court will appoint a trustee who will collect your monthly payments and distribute them to your creditors. This type of bankruptcy is commonly used to prevent foreclosure and property seizures, and can be a better fit for those with more stable income or those who do not qualify for Chapter 7.
Determining your eligibility
The Means Test will be used to determine which type of consumer bankruptcy you’re eligible to apply for. This test takes your median income over the last full six months and compares it to the average annual median income for your household size in Illinois. If your income is less than the average, you will be eligible to apply for Chapter 7. If your income is more, then you may only be eligible to file for Chapter 13, depending on the specifics of your income. A bankruptcy attorney can assist in helping to determine which type of bankrutpcy is right for you given your unique circumstances.