Bankruptcy is a legal procedure that allows people to get a handle on their debts, either by putting a plan in place to get them paid off, or by discharging them so that the person no longer needs to pay them. Bankruptcies come in two forms, liquidation or reorganization. Most liquidations occur under Chapter 7, which requires a person to sell certain qualifying assets in order to pay off the debts that they can. Most reorganizations take place under Chapter 13, which sets up a monthly payment plan for the next three to five years that covers a portion of a person’s outstanding debt.
Chapter 7 Bankruptcy in Lake County
Chapter 7 bankruptcies are the major type of liquidation bankruptcy available to consumers. The rules of Chapter 7 bankruptcy require people to liquidate some of their property to pay off part of their debts. However, a person need not sell all their property. The law exempts some types of property like furniture and clothing. Once a person does this, the bankruptcy discharges most of the debt that they did not offer collateral for.
The rules change in regard to debt with collateral, such as a mortgage guaranteed by a house. Chapter 7 bankruptcies give the person three options to handle these secured debts. They may continue to pay them off, if the lender consents. The may allow the lender to take possession of the collateral. Or, they may pay the lender the item’s fair market value all at once.
The law also places a couple constraints on Chapter 7 bankruptcies. For instance, certain debts, like child support or back taxes, cannot be eliminated this way. Additionally, some people cannot file for Chapter 7 bankruptcy at all. If a person’s income could fund a Chapter 13 plan, then the court will not allow them to use Chapter 7
Chapter 13 Bankruptcy in Lake County
Chapter 13 reorganizations allow people to pay off their debts without having to liquidate their property. A person who files for Chapter 13 bankruptcy must work out a plan to pay back a portion of all their debts. The precise amount a person must repay depends upon a number of factors including, the size of their debt, their salary, and the amount a person would pay under Chapter 7.
Chapter 13 also handles secured debt differently from Chapter 7. People in Chapter 13 bankruptcy may include the secured debt in their repayment plan. If they keep up with the plan and pay off the debt, then they can avoid losing their collateral.
Not everyone can take advantage of Chapter 13 bankruptcy. First, a person must have income sufficient to fund a repayment plan. Second, the government limits Chapter 13 bankruptcies to people who have less than $336,900 in unsecured debt and $1,010,650 in secured debt.
Lake County Bankruptcy - Other Types of Reorganizations
The law also provides for two other types of reorganization bankruptcies under Chapter 11 reorganizations tend to apply to business because they are costlier and longer than Chapter 13 bankruptcies; however, they can be the best option for some people. For example, those whose debts exceed the limits on Chapter 13 bankruptcies might find a use for Chapter 11. Chapter 12 bankruptcies look very similar to chapter 13, except that it only applies in cases where a large portion of a person’s debt comes from farming. Chapter 12 comes with higher debt limits, and an expanded ability to discharge certain secured debts.
If you have bankruptcy questions, please contact us at Newland & Newland today. We provide legal help to We provide support to clients in Lake County, McHenry County, Cook County, DuPage County, Crystal Lake, Arlington Heights, Barrington, Palatine, Rolling Meadows and throughout Northern Illinois.