At Johnson, Westra, Broecker, Whittaker & Newitt, P.C., our attorneys work throughout Chicago and the surrounding areas to assist individuals, families, and businesses in seeking protection and relief from creditors through Chapter 7 and Chapter 13 bankruptcy proceedings.
In today’s tough economy, it is all too easy for individuals and businesses to fall behind on their debts. The loss of a job, an extended illness, or a slow business cycle can be enough to push one’s finances beyond the ability to rein them back in without outside help. The Bankruptcy Code was established to save people from financial ruin, to give them the breathing room or the opportunity for a fresh start, so that they can get back on their feet financially.
While there are several different bankruptcy filing options available, two of the most popular and frequently used are Chapter 7 (for individuals or businesses) and Chapter 13 (for consumers only). While either Chapter provides immediate protection and various levels of debt relief, each Chapter has its own distinct advantages, depending upon the particular needs of the debtor.
In a Chapter 7 “straight bankruptcy,” assets of the debtor which are not exempt from bankruptcy are sold (liquidated), and the proceeds are used toward paying off creditors in an established priority order. Once those proceeds are applied, the remaining debts are discharged by the bankruptcy court, meaning that the debtor is no longer responsible for paying them off.
In many cases, it is possible to have a “no asset” bankruptcy, which means that all of the debtor’s assets are exempt from the bankruptcy. The debtor in a “no asset” bankruptcy receives a discharge without having to sell off any property.
Although some debts are nondischargeable, such as domestic relations orders, most student loans, and certain tax debts and civil judgments, enough debt is forgiven that most Chapter 7 bankruptcies basically “wipe the slate clean” and give the debtor a fresh start. Chapter 7 is normally most attractive to consumers with a large amount of unsecured debt, such as medical bills or credit card debt, or business owners who wish to close up shop and start over fresh.
Consumers whose household income is below the median level in the state are automatically eligible to file for Chapter 7. For those above the median amount, a means test is used to determine whether the debtor has any disposable income to apply toward paying off debt or should be allowed to have those debts discharged. Debtors who are ineligible to file Chapter 7 may still find relief through a Chapter 13 bankruptcy.
In a Chapter 13 debt adjustment, the debtor works with creditors and the bankruptcy court to develop a payment plan to pay off debts over a three or five-year period. Creditors are required to accept the amounts established in the court-approved plan as payment of debt. Once the plan has been completed, any remaining debt is discharged by the bankruptcy court. Chapter 13 has the advantage of collecting all the creditors and bills in one place. The debtor need only make one monthly payment to the bankruptcy trustee, who disburses the funds to the creditors in accordance with the plan.
One of the most attractive features of Chapter 13 is that it can save a home from foreclosure. A debtor who is behind in mortgage payments and is facing foreclosure can catch up late or missed payments by rolling them into the payment plan. As long as the homeowner stays current going forward and adheres to the plan, the bank will not be allowed to foreclose on the home.
A Chapter 13 payment plan is commonly referred to as a “wage earner’s plan,” since it requires the debtor to have a certain amount of monthly disposable income to apply toward the repayment of debt. Chapter 13 is most suited to people who have a steady job and are able to make some payment each month, but have fallen behind on their debts and need a way to catch up and get back on track to financial health.
The Automatic Stay
Once a bankruptcy is filed, the court invokes an automatic stay, prohibiting creditors from taking any further action to collect on a debt without first going to court and applying for relief from the automatic stay. This stay applies to foreclosures and repossessions, as well as harassing bill collection tactics, such as multiple phone calls at home and work, threatening letters, talking to friends and neighbors, etc. The automatic stay provides immediate relief and breathing room, allowing the debtor to proceed with the bankruptcy in a logical and orderly fashion.
Professional Service with a Personal Touch
Financial strain is emotionally distressing and difficult to deal with, and it can be hard to know what to do or where to turn for help. At JWBWN, our attorneys take the time to listen to you and learn your situation. We can advise you on which type of bankruptcy is best for you, or whether you should consider an alternative to bankruptcy instead. Once you have decided, our firm has both the transactional and courtroom experience to expertly prepare your petition, negotiate with creditors, and handle any litigated matters that may be necessary to see your case all the way through to discharge with positive and successful results. If you are considering bankruptcy and need to learn more about your options, contact Johnson, Westra, Broecker, Whittaker & Newitt, P.C. to discuss your situation with one of our skilled and knowledgeable lawyers.