Can I File a Chapter 7 Bankruptcy?

The answer is “Yes.” But the real question is whether a Chapter 7 is in my best interest?

The main questions are:

  1. Are  my debts dischargeable? Most debts are: such, credit cards, medical  bills, pay day loans, vehicle repossession debts. There are some that  are not: recent income tax (last 3 years), child support debts; parking  tickets, red light tickets, toll way fines, criminal fines, actual  speeding tickets and, of course, student loans. Often a Chapter 13 is  the better option if debts that won’t be discharged can’t be handled  after a Chapter 7 is discharged.
  2. Is my income too high?  The vast majority of our clients don’t have a problem. There is what is  called a Means Test. The law basically says if you are a high income  earner you belong in a Chapter 13. I have a separate blog on the  subject: Beat The Means Test
  3. Do  you have assets? This mainly comes into play if you have a great deal  of equity in your home. Illinois has skimpy Homeowners Exemptions:  $15,000 for a single person and $30,000 for a married couple. There are,  of course, other assets that might stop you from filing a Chapter 7: a  very valuable car with no liens or a pending Personal Injury case. A  Chapter 13 may well be the best avenue; in most instances the pay out to  unsecured creditors will be small.
  4. Do you have a debt  that is secured where you are behind but want to keep the asset?  Individuals may be behind on their auto loan (including a car that has  just been repossessed) and you want to keep the car. Homeowners may be  in arrears on their mortgage and want to keep their home. A Chapter 13  would likely be a better option.

The  above is very simplified but covers 90% or more of individuals looking  to get out of debt. It is always wise to consult with a lawyer who has  experience in Consumer Bankruptcy. Experienced lawyers know the “ins and  outs” of the Bankruptcy laws: they know how to make the laws work best  for you.

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