Frequently Asked Questions: Illinois Lawyers: Lakelaw Bankrupcy Center Attorneys serving Waukegan

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Q: What is a consumer bankruptcy case? What are the differences between Chapter 7 and Chapter 13?
A: Chapter 7 allows you to eliminate almost all of your debt. A trustee will be appointed to determine if any of your assets should be sold. However, most chapter 7 debtors can use exemptions to protect their assets. In addition, assets which are subject to liens, like your house or car, in many cases, will not be sold by a bankruptcy trustee. So if you reaffirm these debts, you stand a good chance to be able to keep these assets. Under BAPCPA, most debtors who were previously eligible to file a chapter 7 still are eligible to do so. For debtors who make more than the state median income and fail to qualify for chapter 7 under a series of rather complex financial tests, Chapter 13 is still available. Under chapter 13, you pay your disposable income to a trustee for a period of years from which your creditors are paid all or some of what you owe them.

Q. How does the "means test" work?
A. *The test will require your income and expenses to be examined in detail to see how they compare to an IRS-determined standard for your area. If you earn less than the median income for a family of your size in your state, you will be exempt from the means test and can automatically file for Chapter 7 bankruptcy. But, looking back over the past six months from the time you file, if your income is greater than the median income and you can pay at least $6,000 over five years or $100 a month toward your debt, you cannot file for Chapter 7. You will be required to file for Chapter 13 bankruptcy instead, which will require you to repay at least a portion of your debts over three to five years. Extenuating circumstances will not be taken into consideration in doing the six-month “look-back,” so if you suffered a medical hardship or sudden job loss, or even calamitous loss in Hurricane Katrina, those circumstances will not be considered any differently than if you chose to run up your credit cards on a shopping spree.

Q. If I must file under Chapter 13, what will this mean for me?
A: Consider the following points:
• If, because of the means test, you are required to file under Chapter 13, then your *monthly expenses will be compared to the IRS National and Local Standard Expense guidelines*. The new law places strict limits on the amount that you can claim as living expenses. The court may order you to eliminate or greatly reduce spending on luxury items (like expensive cars, SUV’s, jewelry, etc.), extracurricular events for children (sports, etc.), vacations, etc.

• The new law provides for *certain additional, allowed expenses*, including up to $1,500 per year per child, to send a dependent under age 18 to a private or public elementary or secondary school. Additionally, charitable contributions up to a total of 15 percent of gross income can be made to qualified religious or charitable entities or organizations. Actual expenses that are deemed “reasonable and necessary” for the care and support of an elderly, chronically ill, or disabled family member are also allowed.

• Part of the new means test *requires that you disclose, or file if you haven’t filed, your most tax return*, to verify your actual earned income.

• Under Chapter 7 bankruptcy you will be able to wipe out all your unsecured debt, such as your credit card debt and personal loans, but *will still owe all your secured debt, including your mortgage*.

• If you are filing for Chapter 13 bankruptcy *you will have to pay the full loan amount owed on your car loan regardless of the condition of the car*. Previously you only had to pay what your car was worth (“blue book” or fair market value). Many debtors will find it less expensive to abandon their vehicles rather than to assume automobile payments which are too high

• You will be required to satisfy and maintain all Domestic Support Obligations (payments to your spouse, ex-spouse or for child support) both past due and present as a condition of any chapter 13 relief

• You will not be able to discharge certain debts in chapter 13 which were dischargeable under chapter 13 in the past, such as debts incurred by reason of fraud, intentional misconduct and driving while intoxicated among others

Q: When should I consider filing Chapter 13?
A: If you are not eligible to file a bankruptcy case under chapter 7 under the complex "means test", you must seek relief under chapter 13. In addition, if you have obtained a discharge under chapter 7 anytime within the past 8 years, you can only seek relief under chapter 13. You can catch up on the payments you are behind under Chapter 13. Most chapter 13 plans require you to set aside money you have from your pay-check after paying for your normal expenses in order to pay back your creditors. You will have to do this for 5 years. If you do this, you can keep your house or car even if you were behind on your payments.

Q: Why should I consider filing a chapter 13 to pay a portion of my bills instead of a chapter 7 to eliminate all my bills?
A: Under BAPCPA, people must file a chapter 13 for several reasons:

Q: Are there alternatives to Chapter 7 or Chapter 13
A: Under prior practice, it was often possible to work out an informal composition of your debts with creditors. Now they will have less incentive to deal with you. In addition, forgiveness of indebtedness can often lead to the unintended consequence of "forgiveness of indebtedness income" on which you would have to pay income tax. It may be possible to obtain relief in business cases under state law or common law. If you live in Wisconsin, you may be eligible for relief under Chapter 128 of that State's laws. Illinois laws regarding exemptions will be liberalized somewhat in January, 2006, which may have an ameliorative effect for debtors.

Q: I don't think I will have enough money to even pay some of my bills in the future, now what?
A: In that case, you may be a candidate for Chapter 7. Under this type of bankruptcy case, sometimes called "straight bankruptcy", most, if not all, of your debts can be discharged

Q: Will my creditors keep bothering me?
A: Once you hire Leibowitz Law Center as your attorneys, your creditors no longer can contact you. We will determine whether you have a potential claim under the Fair Debt Collection Practices Act if your creditors have been particularly aggressive or hostile towards you.

Q: Will this affect my husband or wife?
A: A married couple may file a joint case but if you file a case on your own, your spouse’s credit is not involved. If you own property jointly with your spouse, please let us know because there are special rules which pertain to you and they vary from case to case.

Q: Is this a public record?
A: Bankruptcy records are public and available on the web. Some newspapers may choose to publish a notice of your case, but this is not typical. Most people will be unaware that you filed. Your credit report will show your bankruptcy for 7-10 years.

Q: Can I get credit again?
A: Actually, you will be surprised how quickly you can get credit again. Some credit card companies will solicit you to keep your credit card and reaffirm your debt with them. This may or may not be a good idea for you. We will advise you about your particular case.

Q: Will my employer know?
A: Usually not. And your employer can’t discriminate against you because you filed a bankruptcy case. It’s the law!

Q: Will I lose my house or car?
A: Not necessarily. In many cases, you can reaffirm your debts and keep your house or car. You also will be able to keep your qualified retirement accounts in almost every case. The Illinois exemption for homestead increases to $15,000 per person effective January 1, 2006 and Illinois also recognizes tenancy by the entireties. The Wisconsin exemption for homestead is even more liberal. Exemption law is much more complex since the exemption which applies is not necessarily that of Illinois, but rather the exemption of the state where you lived 910 days prior to the filing of your bankruptcy case. While this law was designed to prevent people from moving to Florida or Texas to take advantage of large homestead exemptions there, it does mean that people who have moved continue to bear the benefit or burden of the homestead protections of their former state. It also means that your bankruptcy attorney (oops -- your Debt Relief Agency) must become expert on the homestead laws of all jurisdictions nationwide and not just the laws of the place where you actually reside.

Q: Where can I get help?
A: We have an extensive network of resources to whom we refer our clients. We want you to succeed in your life so that your bankruptcy truly is a "fresh start".

Q: How much will this cost me?
A: Unfortunately, it will cost a lot more than it used to. Your bankruptcy attorney is now considered to be "Debt Relief Agencies" for purposes of the Bankruptcy Law. And as such, we must certify to the Court and to your creditors many facts concerning your assets and liabilities. We will have to check and verify almost everything that you tell us. We must be sure to give all of your creditors notices at the addresses they wish to be notified. We must be sure that your tax returns and paycheck stubs are attached to your bankruptcy petition. We have to be sure that you get counseling from an approved not-for-profit agency before you file and financial education before you get your discharge. If anything goes wrong, your case will be dismissed and that triggers a whole series of difficult and potentially dire consequences. Our malpractice insurance premiums will certainly increase dramatically. We will have to have a formal fee agreement with you and we also will have to provide you with various other written "disclosures". So you must be prepared to spend at least 30 and more likely 60 to 90 days with us and to devote detailed and careful attention in order to help us to prepare to file your case. We must spend a lot more time with you. And it will cost a lot more money to file your case. And even more unfortunately, you will have to pay most, if not all, of your fees and costs in advance. Experience will teach us the proper fee for consumer bankruptcy cases under the new law, but we think that your fee will be at least double, and maybe more than it was under the prior law. The filing fee has also increased to $254 for chapter 7 case, but has decreased to $189 for chapter 13 cases.

Q: Are you ready for this?
A: We certainly hope so. Our lawyers and staff has been studying BAPCPA while it has been considered by Congress over the past several years. All of us have attended seminars at the national, state and local level. We have written articles and have been invited to speak at several seminars for members of the bar and the public to discuss and explain the implications of BAPCPA. Scholars believe that BAPCPA is poorly drafted and contains many ambiguities. Practitioners believe that there will be a great deal of uncertainty and litigation in practice under BAPCPA for many years to come. We will do everything we can to make your case as uneventful as possible under these difficult circumstances.

Q: What do I need to prepare to file?
A: You must gather and provide to us a great deal of documents, records and data before we being to prepare your case. It will be to your benefit and ours if you do this before our initial meeting.

Remember, there is no substitute for qualified legal advice. Our website is designed to give you general information. Each case and each person is different. So don't take legal action based on what you read here or on any web page.

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