Bankruptcy can help you clean up your finances and start fresh. Declaring bankruptcy means filing a bankruptcy petition and other paperwork in a United States District Bankruptcy Court. Since bankruptcy is governed by federal law, the process for filing is essentially the same in every state, but certain aspects of the process are determined by state law.
Before You File
In every state, you must complete a qualified credit counseling course before you can file your bankruptcy case. You must also choose what type of personal bankruptcy case you will file: a Chapter 7 bankruptcy, which is a liquidation of assets, or a Chapter 13 bankruptcy, which is a plan to repay all or part of your debt. The type of bankruptcy you choose determines which forms you will use to start your case.
Chapter 7 Qualifications
Not everyone can file for Chapter 7, as you must pass a means test to qualify. If your income is less than Illinois’ median income, you can file. As of November 1, 2012, the median income for one earner in Illinois is $46,522, and the amount increases by family size. For example, the median income for a family of four is $79,138. If you make more than the median income for your family size, your net monthly income over five years must be less than $11,725 or a certain percentage of your debt. If you do not qualify for a Chapter 7 case, you can file for a Chapter 13 bankruptcy.
In the bankruptcy system, exemptions are categories of assets that are not included in your bankruptcy estate. In Chapter 7 bankruptcy, exemptions determine what property you can keep, such as your home, car, pension or personal belongings. The goal of exemptions is to allow you to get your life back on track during and after bankruptcy rather than losing your basic necessities through your bankruptcy case. If property is non-exempt, the court-appointed bankruptcy trustee may sell it to pay your creditors. By the time your exempt property is removed from consideration in your bankruptcy case, there are often no remaining assets to sell. In Chapter 13 bankruptcy, exemptions determine how much you have available to pay creditors under your repayment plan.
In some states, you can choose which exemptions you want to use, federal or state. However, Illinois requires you to use the state exemptions. Illinois exemptions include a vehicle up to $2,400 in value, clothing, family pictures, some life insurance proceeds and certain retirement plans. Illinois even has a “wildcard” exemption under which personal property up to $4,000 ($8,000 for married couples) can be excluded even if it doesn’t qualify under any other exemption. Illinois also allows you to exempt up to $15,000 in home equity per person filing. However, you must have some recorded ownership interest in the property, so unless both spouses are listed on the title of their home, they cannot both qualify for the $15,000 exemption.
To initiate your bankruptcy case, you must file a bankruptcy petition along with the required forms and schedules for your type of case. These required forms are available from the bankruptcy court or online, and Form 200 describes the exact paperwork required for each type of case. You must also pay the appropriate filing fee at the time of filing, or you may make arrangements to pay it in installments or have it waived.