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Are unpaid bills and mounting debts causing you endless stress? You’re not alone. Even hardworking individuals and families can find themselves in quicksand-like debt situations. Constant harassment from creditors, lawsuits, wage garnishments, and home foreclosures can leave you feeling overwhelmed and powerless.

But there is hope for a better financial future. The Illinois law recognizes that sometimes good people fall on hard times, and filing for bankruptcy can be a fresh start towards stability. Our Chicago bankruptcy attorneys at Swietkowski & Swietkowski, P.C., understand the complexities of filing for bankruptcy relief under Chapter 7, Chapter 11, and Chapter 13 of the Bankruptcy Code..

At Swietkowski & Swietkowski, P.C., we have helped countless clients find relief from their financial struggles, including credit card debt, business debt, tax debt, medical bills, and more. Let us tailor our services to meet your unique needs and guide you towards a brighter future.

Types of Bankruptcy in Chicago

Bankruptcy is a legal process that can help individuals and businesses struggling with overwhelming debt. It’s like a financial reset button that provides protection from creditors and can help eliminate some or all of your debts. When someone files for bankruptcy, they become the debtor, and the people or businesses they owe money to are called creditors.

Filing for bankruptcy in Chicago triggers an “automatic stay,” which is a legal order that stops creditors from collecting payment or taking legal action against the debtor. This can provide a huge relief to debtors who are dealing with constant harassment from creditors, such as numerous letters and incessant phone calls. Depending on the type of bankruptcy, some or all of your debts may also be discharged, meaning you no longer have to pay them.

There are three main types of bankruptcies for individuals and businesses: Chapter 7, Chapter 11, and Chapter 13. These are named after the chapters of the U.S. Bankruptcy Code under which they are filed. Each type serves different purposes and has specific eligibility requirements.

Chapter 7 Bankruptcy

Chapter 7, also known as “liquidation” or “straight” bankruptcy, is the most common form of bankruptcy in Chicago for people with limited assets. It allows eligible debtors to discharge (wipe out) most of their unsecured debts, such as credit card debt, medical bills, and personal loans.

The Bankruptcy Code allows the debtors to keep some or all of their assets, through the use of Illinois specific exemption laws, including a primary residence, car, or personal belongings, up to certain limits. If the assets are above the exemption limits, debtors may have to sell some of their non-exempt assets to pay off creditors. To qualify for this bankruptcy, debtors must pass a “means test,” which considers their income, expenses, and family size.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy, typically used by businesses, is a complex reorganization process that allows companies to restructure their debts and continue operating. Individuals with significant debts and assets may also file for Chapter 11.

Under this chapter, the debtor proposes a reorganization plan to repay creditors over time while preserving the business. The debtor remains in control of the business as a “debtor in possession,” subject to the supervision of the bankruptcy court. Creditors and the court must approve the reorganization plan for it to be confirmed.

Chapter 13 Bankruptcy

Also known as “wage earner’s” bankruptcy,Chapter 13 is designed for individuals with regular income who want to pay off their debts over time. In this type of bankruptcy, debtors propose a repayment plan that typically lasts three to five years, during which they make monthly payments to a bankruptcy trustee who then distributes the funds to creditors.

Chapter 13 allows debtors to keep their property, including homes and cars, as long as they continue making payments under the plan. To qualify for Chapter 13, debtors must have a regular income and meet specific debt limits outlined in the Bankruptcy Code.

The bankruptcy process in Illinois is governed by both federal and state laws, including the U.S. Bankruptcy Code and Illinois exemption laws. These laws can be extremely complicated, making it important to consult with a knowledgeable bankruptcy lawyer in Chicago, IL, to determine the best course of action for your specific situation.

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Reasons to File for Bankruptcy

Here are a few reasons why you might consider filing for bankruptcy:

It can eliminate most of your unsecured debts, such as medical bills, credit card debt, and personal loans, providing you with a clean financial slate.

Automatic stay: When you file for bankruptcy, an automatic stay goes into effect, instantly stopping most collection actions, including harassing phone calls, wage garnishments, lawsuits, and foreclosure proceedings.

Protection of assets: Depending on the type of bankruptcy filed and the applicable exemption laws, you may be able to protect most of your important assets, such as your home, car, and personal belongings, from liquidation.

Repayment plan: In a Chapter 13 bankruptcy, you can create a manageable repayment plan to pay off your debts over a period of three to five years. This can help you retain assets, such as your home or car, that might otherwise be lost in a Chapter 7 bankruptcy.

Relief from creditor harassment: Filing for bankruptcy provides relief from aggressive collection tactics by creditors and collection agencies, giving you peace of mind.

Credit score recovery: While bankruptcy does negatively impact your credit score, it may be the first step towards rebuilding your credit. As you eliminate debt and start making timely payments on any remaining obligations, your credit score can gradually improve over time.

Improved financial management: The bankruptcy process often involves credit counseling and financial management courses, which can help you develop better budgeting and money management skills for future financial stability.

Stop wage garnishments: Wage garnishments occur when a creditor obtains a court order to withhold a portion of your earnings to repay a debt. This can cause significant financial strain, as it reduces your take-home pay and may make it difficult to meet your other financial obligations. Filing for bankruptcy can help stop or reduce these income executions, allowing you to keep more of your hard-earned income.

Resolve tax debts: Bankruptcy can provide relief from specific tax debts under certain conditions, giving you a chance to regain financial stability. Filing for bankruptcy may help you discharge or restructure tax debts in various ways.

For example, in Chapter 7 bankruptcy, you may be able to discharge certain income tax debts if they meet specific criteria, such as:

  • The tax debt is for income taxes only
  • The debt is at least three years old
  • You filed a tax return for the debt at least two years before filing for bankruptcy
  • The IRS assessed the tax debt at least 240 days before your bankruptcy filing
  • You did not commit tax fraud or willful tax evasion

If your tax debt meets these requirements, you may be able to eliminate it entirely through a Chapter 7 bankruptcy.

Similarly, in a Chapter 13 bankruptcy, you can restructure your tax debts into a more manageable repayment plan. While you may still need to pay the full amount of the tax debt, you can spread the payments over the duration of your Chapter 13 plan, typically 3 to 5 years. This can help reduce the financial burden and make it easier for you to pay off your tax debts.

That said, please note not all tax debts are dischargeable or eligible for restructuring in bankruptcy, and complex rules govern the process. The resourceful bankruptcy lawyers at Swietkowski & Swietkowski, P.C. can help you determine the best course of action for your unique situation.

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Property Exemptions in Chicago Bankruptcy Cases

In Illinois, when you file for bankruptcy, certain property is protected by exemptions. These exemptions allow you to keep a portion of your assets while still receiving the benefits of bankruptcy. Here is a list of some common exemptions:

  • Homestead exemption: You can exempt up to $15,000 of equity in your primary residence ($30,000 for married couples filing jointly).
  • Personal property exemption: You may be able to exempt personal property such as necessary clothing, family pictures, school books and prescribed health aids.
  • Personal injury awards: You can exempt up to $15,000 of proceeds you receive from a personal injury lawsuit.
  • Motor vehicle exemption: Illinois allows you to exempt up to $2,400 of equity in one motor vehicle.
  • Retirement accounts: Most retirement accounts, including pensions, 401(k)s, IRAs, and other tax-exempt retirement savings, are protected under federal law and exempt in bankruptcy.
  • Tools of trade exemption: You can exempt up to $1,500 worth of tools, books, and other items used for your profession or trade.
  • Wildcard exemption: Illinois offers a wildcard exemption of up to $4,000 that can be applied to any personal property of your choice.
  • Public benefits: Public assistance, unemployment benefits, workers’ compensation, and Social Security benefits are exempt.
  • Spousal and child support: Spousal maintenance and child support that you receive or are entitled to receive are also exempt.
  • Life insurance: The cash value or proceeds of life insurance policies may be exempt, depending on the policy’s terms and conditions.

*These exemptions apply to both Chapter 7 and Chapter 13 bankruptcies filed in the State of Illinois.

Frequently Asked Questions About Filing Bankruptcy in Illinois

What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7 bankruptcy, also known as “liquidation,” involves the sale of non-exempt assets to pay off debts. Chapter 13 bankruptcy, or “reorganization,” allows the debtor to establish a 3-5 year repayment plan to settle their debts gradually and systematically.

How long does the bankruptcy process take?

The duration of the bankruptcy process depends on the chapter filed. Chapter 7 cases typically last 4-6 months, while Chapter 13 cases last for the duration of the repayment plan, usually 3-5 years.

Will filing for bankruptcy eliminate all my debts?

No. It can help eliminate many types of debts, but not all debts can be discharged. Some debts are considered “non-dischargeable” and will remain after the bankruptcy process. These include:

  • Certain tax debts (recent income tax debts typically incurred within the last three years; payroll taxes and tax fraud penalties)
  • Student loans (except in rare circumstances where you can demonstrate undue hardship)
  • Child support and spousal maintenance
  • Debts obtained through fraud
  • Personal injury debts (i.e., debts resulting from personal injury or death caused by your willful or malicious actions, such as driving under the influence)
  • Court fines and penalties (in criminal cases)
  • Certain Homeowners’ association (HOA) or condominium fees that accrue after you file your bankruptcy petition
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How will bankruptcy affect my credit score?

Filing for bankruptcy will have a negative impact on your credit score. Chapter 7 bankruptcy remains on your credit report for 10 years from the filing date, while Chapter 13 bankruptcy stays on your credit report for 7 years from the filing date. During this period, potential lenders may view you as a higher credit risk, which could make it more difficult to obtain new credit, loans, or low-interest rates.

However, this impact diminishes over time. With responsible financial habits, such as paying your bills on time, maintaining low credit card balances, and avoiding excessive debt, you can gradually rebuild your credit. Many people can see improvements in their credit scores within a few years after filing for bankruptcy, eventually regaining access to credit and loans at more favorable terms.

Can I keep my home and car if I file for bankruptcy?

In many cases, you can keep your home and car if you file for bankruptcy, depending on the equity you have in them and the exemptions available under Illinois law.

In Chapter 7, assets can be liquidated to repay creditors, but certain exemptions protect a portion of your property. For instance, for your home, Illinois offers a homestead exemption of up to $15,000 in equity for an individual or $30,000 for a married couple filing jointly. If the equity in your home is within the exemption limit, you may be able to keep it.

In Chapter 13, you can usually keep your home and car as long as you continue making payments under the repayment plan approved by the court.

How much does it cost to file for bankruptcy in Illinois?

The cost of filing for bankruptcy in Chicago, IL consists of two primary components: court filing fees and attorney fees. The court filing fees are fixed and depend on the type of bankruptcy being filed, while attorney fees can vary depending on the complexity of the case and the attorney’s experience.

As of April 2023, the court filing fees for bankruptcy are:

  • Chapter 7 bankruptcy: $338
  • Chapter 13 bankruptcy: $313
  • Chapter 11 bankruptcy: $1,738

These fees may be subject to change, so it is always a good idea to verify the current fees with the local bankruptcy court or your attorney.

Do I need an attorney to file for bankruptcy?

While it is possible to file for bankruptcy without an attorney, it is generally recommended to seek legal counsel. An experienced bankruptcy attorney can help you navigate the complex bankruptcy process and protect your interests.

What is the means test, and how does it affect my eligibility for bankruptcy?

The means test is one of several factors used to assess your eligibility for Chapter 7 bankruptcy. It evaluates your financial situation by comparing your income to the median income of a similarly-sized household in your state. The test aims to ensure that only individuals with genuine financial difficulties can file for Chapter 7 bankruptcy, which discharges most of your debts without the need for a repayment plan.

This test involves two main steps:

  • Comparing your income: First, calculate your average monthly income for the six months preceding your bankruptcy filing. Then, compare it to your state’s median income for a household of your size. If your income is below the median, you generally qualify for Chapter 7 bankruptcy.
  • Analyzing your disposable income: If your income is above the median, you need to calculate your disposable income. This step involves deducting certain allowed expenses (e.g., housing, transportation, taxes) from your income. If your disposable income is below a specific threshold, you may still qualify for Chapter 7 bankruptcy. Otherwise, you may need to consider filing for Chapter 13 bankruptcy, which involves a repayment plan.
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How often can I file for bankruptcy?

You can file for Chapter 7 bankruptcy once every eight years. For Chapter 13 bankruptcy, you can file again after two years from your previous Chapter 13 case. Again, it’s highly recommended to consult with a bankruptcy lawyer to understand your specific situation and eligibility.

Find Debt Relief Solutions Tailored to Your Needs: Choose Proven and Capable Bankruptcy Attorneys in Chicago

Don’t let financial stress disrupt your life. Our skilled and resourceful bankruptcy attorneys at Swietkowski & Swietkowski, P.C. in Chicago are here to guide and support you through every step of the bankruptcy process in the Chicagoland area. Remember that bankruptcy is not a one-size-fits-all remedy. For instance, if your debt consists primarily of non-dischargeable debts like student loans or recent tax debts, bankruptcy may not provide the relief you seek.

At Swietkowski & Swietkowski, P.C., we’re committed to providing personalized, comprehensive legal support to help you navigate the bankruptcy process. We will carefully evaluate your financial situation, explore all available options, and help you make an informed decision about whether to pursue bankruptcy or consider alternative debt-relief strategies.

Take the first step towards regaining control of your financial future by contacting our Chicago bankruptcy law firm today. Let our tenacious legal team help you find the best path to a brighter financial future. Schedule your free and confidential consultation now by calling (773) 207-8983 or contacting us online.

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