The downturn in the economy that began several years ago has left many individuals with mounting debt that is threatening everything they had worked their entire lives to earn. If you can count yourself among those who have been overwhelmed by debt due to unforeseen circumstances, then you have probably given a lot of thought about bankruptcy. Although you may not know the specifics about the bankruptcy process in Illinois and what, exactly, it can do for you, it can seem like a magical end to all of your financial worries.
Any experienced bankruptcy lawyer will tell you that, when used properly, bankruptcy can be a fantastic tool to get you through particularly rough patches and back into financial freedom. However, bankruptcy is not a cure-all. Those who tell you that bankruptcy does not have a downside are lying, ignorant or trying to sell you something. Understanding if bankruptcy is right for you is a matter of weighing the pros and cons. It also helps if bankruptcy is only one part of a greater strategy to fix your financial problems and mitigate the risk of them occurring again.
Deciding to File Bankruptcy
The decision to file bankruptcy is not one that you have to make alone. An honest and experienced bankruptcy lawyer will provide you with a free consultation to help you determine whether filing bankruptcy is your best option. During the consultation, your bankruptcy lawyer should listen intently to your story and take all of your evidence into consideration. At the end of the initial interview, you should be presented with multiple options and given the knowledge to make an educated choice.
In some instances, bankruptcy may not be the right choice. If your income is steady and sufficient, then it may be possible to enter into debt negotiations with your creditors through your bankruptcy lawyer. This may help you pay your debt quickly without marring your credit report with a bankruptcy case.
Chapter 7 or Chapter 13
If you decide that bankruptcy is the right choice for you and your family, then another choice immediately presents itself: choosing between Chapter 7 and Chapter 13 bankruptcy. Chapter 7 is what most people think of when they talk about bankruptcy. This is sometimes referred to as true bankruptcy. Any unsecured debts that cannot be paid by liquidating personal assets are discharged under Chapter 7. This form of bankruptcy is best for individuals with unstable or low income and few personal assets.
If your income is stable and you have assets you would like to protect, then it may be more advantageous for you to file Chapter 13 bankruptcy. This type of bankruptcy is a form of debt restructuring or reorganization. Under Chapter 13, your debts will be negotiated by your bankruptcy lawyer, the bankruptcy court and your trustee. The negotiated amounts are consolidated and distributed by the court. All you have to do is make a monthly payment to the court for a period of three to five years. After the final payment, you emerge from the process free of debt.
Advantages of Bankruptcy
Although bankruptcy may not permanently solve all of your financial problems and end all of your worries, it has several advantages that can be helpful in eliminating your debt and preventing it from building again. Following are the top advantages of bankruptcy:
• Most forms of unsecured debt can be discharged, which eliminates your obligation to pay them. However, typically, student loans and court-ordered payments cannot be discharged through bankruptcy.
• As soon as you file bankruptcy, the court puts a stay on your obligations to make payments on your debt. During this time, creditors may not attempt to collect debt or seize property held for secured debts, such as car loans and mortgages.
• Bankruptcy provides tools to help you modify or eliminate secured debt.
Disadvantages of Bankruptcy
Bankruptcy can be a powerful tool in eliminating debt, but it does have a few disadvantages, including the following:
• If you file Chapter 7 bankruptcy, then you must sell any personal assets that are not exempt. The money from the sale of these assets, which may include real estate, automobiles and jewelry, is divided among your creditors to pay as much of your debt as possible before being discharged.
• Bankruptcy stays on your credit report for 10 years. The exact effect of this, however, cannot be predetermined. Some people are able to obtain favorable loans almost immediately after their bankruptcy cases are complete.
• Bankruptcy does not solve the underlying problems that caused your debt to grow out of control. Bankruptcy must be used as part of a greater financial plan for its maximum benefits to be realized.
Important Disclaimer: The information discussed above and throughout this website should not be relied upon to make any decisions without first speaking to a bankruptcy attorney. There are many intricate rules of law governing bankruptcy with many exceptions to the general rules that could change the advice given by an attorney based on the differing facts in each person’s special set of circumstances. THEREFORE, it is important to discuss any information contained in this website with one of our attorneys before taking any action or refraining from taking any action.
