This is Dial-Law with information on Bankruptcy, which describes the laws now in force under the federal Bankruptcy Code and Rules.
The Bankruptcy Code provides several ways in which an individual may be legally released from most debts or be allowed a longer time to pay these debts. This information will describe a Chapter 7 bankruptcy, which allows for the elimination or discharge of most debts. Chapter 13 of the Bankruptcy Code, which deals with paying all or a percentage of debts over an extended period is discussed in Dial Law #46.
As most people are aware, in 2005 there were significant changes made to the Bankruptcy laws. While these changes will not affect the ability of most individuals to file a Chapter 7 case, there are a few mandatory requirements those individuals seeking to file a Chapter 7 should be aware of. The requirements are quite important because if you are unable to comply with the new requirements, your case will be subject to automatic dismissal.
In a Chapter 7 case you can receive a discharge of your debts if:
1. Prior to filing a Chapter 7 case you obtain a credit certificate stating that you have completed a credit-counseling course from an approved credit-counseling agency. A list of approved credit counselors can be found at www.usdoj.gov/ust – once at this site click on the heading "Credit Counseling & Debtor Education" and this will lead to a list of approved agencies in this district.
2. You have filed all of your state and federal tax returns.
3. You are able to produce receipts of all sources of income received for the 6 months prior to filing a Chapter 7 case.
4. Your income is below the median income for your state and family size. A chart of income based on family size can be found at www.usdoj.gov/ust under the heading "Means Testing Information."
5. You file a bankruptcy petition together with a true and correct statement of all of your assets and your liabilities existing on the date you file bankruptcy.
6. You surrender to a court appointed Trustee all of your assets existing on the dates you file a petition except those which are exempt by law.
7. After you file your case, you attend a financial education course. A list of approved Debtor Education Providers can be found at the same site referenced in paragraph 1 above. Both the pre-filing and post-filing courses are available at various locations in person, via telephone and via the internet.
You will not receive a discharge, however, if a creditor objects and is able to successfully persuade the Court that you have been guilty of one or more of the following:
1. You have transferred, concealed, or destroyed property with intent to hinder, delay, or defraud a creditor or an officer of the bankruptcy estate.
2. You have concealed, destroyed, falsified, or failed to keep or preserve important records of your financial condition or affairs.
3. You have knowingly or fraudulently, in connection with the case, made a false oath, presented a false claim, been a party to a bribe or similar transaction, or withheld information from the Trustee.
4. You have failed to explain satisfactorily any loss of assets or deficiency of assets to meet your liabilities.
5. You have refused to obey an order of Court or answer a material question except pursuant to a valid ground of privilege against self-incrimination.
6. You have received a discharge in a bankruptcy proceeding beginning within eight years prior to the existing case.
7. You have been convicted of certain felonies, owe a debt in violation of federal securities law, or caused a debt arising out of criminal, intentional or reckless conduct that seriously injures or causes the death of an individual in the preceding 5 years.
Even if you receive a discharge, you will not be released from liability for certain types of debts such as:
1. Income taxes less than three years old.
2. Withholding taxes or taxes for which a later return was filed within 2 years of the filing of the Bankruptcy case, or a fraudulent return or no return at all.
3. Claims by creditors who have been cheated or defrauded.
4. Claims by persons who were not listed as creditors in your bankruptcy petition.
5. Alimony, maintenance, child support and property settlements
6. Educational loans, unless they first came due more than seven years before the filing date of your bankruptcy petition, or unless you can show you will suffer undue hardship if forced to make these payments.
7. Injuries, which arose as a result of your reckless actions, such as driving while, intoxicated.
Aside from these obligations, your creditors may not sue you or garnish your wages once your bankruptcy petition is filed and a creditor may not repossess your property without permission from the Bankruptcy Court. Utility companies may not stop electricity, gas, water or other services merely because you have filed a bankruptcy petition.
Once the petition is filed, a Trustee will be appointed. The Trustee will examine your statement of assets and debts that you filed and will question you under oath as to your property and your debts. If you have property, which is not exempt, the Trustee will take it and sell it for the benefit of your creditors. You will, however, be allowed to keep any property, which is exempt under applicable state law. Those exemptions in Illinois presently are:
1. Up to $15,000 of your equity in your residence, including your farm, land, condominium, cooperative or personal property representing equity in your residence;
2. The necessary wearing apparel, bible, school books, and family pictures of you and your dependents;
3. Your equity not to exceed $4,000 in value in any other property;
4. Your interest not to exceed $2,400 in value in any one motor vehicle;
5. Your interest not to exceed $1,500 in any implements, professional books, or tools of your trade
6. Professionally prescribed health aids for you and your dependents
7. All proceeds payable because of your death and the aggregate net cash value of any and all life insurance and endowment policies and annuity contracts which are payable to your spouse or to your children, parents, or other persons dependent upon you;
8. Social security benefits
9. Veterans benefits
10. Disability, illness or unemployment benefits; and
11. Alimony, support, or separate maintenance to the extent reasonably necessary for your support and the support of your dependents.