Chapter 7

iStock_000002289637_ExtraSmallWill I be able to keep my furniture, electronics, and other household furnishings?

Items such as these are considered miscellaneous assets and fall within the “wild card” exemption amount of $4,000 for an individual debtor, $8,000 for a joint bankruptcy filing.  Although the trustee may or may not take an interest in any such assets that may not be exempt, they must nonetheless be valued.  Miscellaneous assets are valued at replacement cost, taking into consideration age and condition (commonly viewed as “garage sale” value).

Will I be able to keep my clothing?

All clothing that is considered to be necessary wearing apparel is exempt and you are entitled to keep the clothing without claim from the trustee.  The “necessary wearing apparel” exemption also includes some personal items, such as a family Bible, items of family history, and the like.

Is my life insurance an asset?

Life insurance may be considered an asset of your bankruptcy case if the policy has a “cash value”.  Certain types of insurance policies, such as “whole life” or “universal life” have a cash value but may be exempt from claim by the trustee if your spouse or dependents are the beneficiaries of the policy.  Term life insurance policies do not have cash value and, therefore, are not subject to claim.

Are tools necessary for my employment a part of my bankruptcy case?

The Bankruptcy Code acknowledges this circumstance and provides a specific exemption for “tools of the trade”.  Under Illinois law, you are permitted to exempt $1,500 (or $3,000 if filing jointly) in the value of such tools.

If I am due a refund for income taxes, will I be permitted to keep it?

If you are entitled to an income tax refund (and do not owe prior unpaid taxes), you may be permitted to keep the refund as long as the amount does not exceed your “wild card” exemption, taking into consideration the exemptions used for any other property.  Additionally, you are permitted to retain that portion of the refund which is attributable to an Earned Income Credit or the Additional Child Tax Credit.

What is the First Meeting of Creditors?

The First Meeting of Creditors (called a Section 341 hearing for the section of the Bankruptcy Code establishing the meeting) is a formal hearing where the trustee asks questions of you based on the information in your case documents.  The questions seek to determine if non-exempt assets exist that the trustee may require to be liquidated and the proceeds paid to your creditors.  If the trustee determines that non-exempt assets exist, you typically are permitted to pay the cash value (if possible) to keep the assets.  We will discuss the potential for the turn-over of any assets during the preparation of your case.  Your creditors also have an opportunity to attend the hearing and ask questions of you about your financial circumstances if they choose to do so.  However, the appearance of creditors at such a meeting is fairly rare.

Chapter 13

How does a Chapter 13 work?

Using the information you provide us, an analysis of your assets, income, and debts is conducted to determine whether a Chapter 13 filing is appropriate.  Your allowable living expenses are deducted from your net income to determine the amount of disposable income that you have on a monthly basis.  The disposable income must be sufficient to pay back priority creditors in full during the term of the Plan (i.e., arrearages on any secured debts as well as those deemed to be unsecured priority creditors such as unpaid income taxes and child support).  Additionally, the Plan must provide for at least 10% of your unsecured, non-priority debts to be repaid over the term of the Plan.  The Plan must then be submitted to the court, along with all other documents in the case, for approval.  As long as there are no objections from the trustee or any creditors, and the Plan is feasible, it will be confirmed.  Monthly payments under the Plan must be made within 30 days of the case being filed with the court and continue throughout the term of the Plan.  Payments are made directly to the trustee, either by you (via certified funds or electronic funds transfer) or by a wage deduction order directed to your employer.  Once all payments required under the Plan have been made in a timely manner as required by the Plan and all funds distributed by the trustee, the trustee will indicate to the court that the Plan has been completed and any unsecured debt that remains will be discharged and the case closed.

Is it better for me to pay the trustee directly or have payments deducted from my wages?

The choice is up to you.  If you are able to make timely payments on your own and wish to purchase certified funds each month, you may do so and send the payments to the trustee’s lock box address.  However, if payments are not made in a timely manner or in full each month, such lacking payments could result in a motion from the trustee requesting that the court dismiss your case for failure to make payments.  For this reason, it is recommended that payments be made via a wage deduction order.  In this way, late payments or partial payments could be avoided and the potential for successful completion of the Plan remains high.

How is past due child support treated in a Chapter 13 bankruptcy?

Such obligations are deemed domestic support obligations under the Bankruptcy Code and are not subject to discharge in bankruptcy.  The repayment of such obligations under the Plan is given priority status and such arrearage must be paid in full during the term of the Plan.

May I pay off my Chapter 13 Plan early or in a lump-sum payment?

In the Northern District of Illinois, with certain exceptions, a debtor is permitted to pay off their Plan earlier in time.

Why might I choose to file a Chapter 13 bankruptcy if I qualify for a Chapter 7?

  • To save your house or other secured property on which you are in arrears and cannot bring the payments current prior to the filing of the case.
  • You have assets with considerable equity that cannot be exempt in a Chapter 7 case and would likely be subject to claim and liquidation by the trustee.
  • After deducting your actual allowed living expenses from your net income, disposable income remains that is sufficient to pay at least 25% of your unsecured debt over a five-year period of time.  You received a discharge of debts in a prior Chapter 7 case that was filed less than 8 years ago.

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