What is the definition of bankruptcy and what is chapter 13 bankruptcy Illinois? The “Bankruptcy Code” governs bankruptcy, which is a court action governed by federal law. The Bankruptcy Code is designed to help persons and other businesses in financial trouble get rid of some or all of their debt. Bankruptcies are handled by the United States Bankruptcy Court, which is a separate federal court division.
What kinds of property am I allowed to keep if I declare bankruptcy?
Any property that qualifies for an exemption under federal or Illinois law is entitled to be kept by anyone who files for bankruptcy. The value and amount of property that an individual can claim as exempt is infinite for some types of property, such as family photos, necessary wearing clothes, worker compensation benefits, eligible retirement plans, IRAs, and life insurance. In other situations, however, the amount of exempt equity that an individual can claim is capped. The following are some examples of such exemptions:
- Your home (equity of $15,000, or $30,000 for married couples filing jointly);
- Personal injury claims compensation ($15,000);
- Automobile (equity of $2,400 per individual owner);
- $1,500 for tools or literature used in your line of work.
Individuals in Illinois also have the authority to exempt up to $4,000 in equity for any other personal property, such as cash or bank accounts. If a husband and woman file for bankruptcy together, each spouse is eligible for certain exemptions.
What happens if I apply for Chapter 13 bankruptcy?
You do not have to liquidate assets to pay your creditors in a Chapter 13 case; instead, you create a plan to repay all or a portion of your debts over time, allowing you to keep most or all of your property. You make your regular payments to the trustee assigned to your case during the plan’s duration, who then distributes the funds to your creditors. For debtors whose current monthly income is less than the state median for a household of the same size, the applicable commitment time for payment under a Chapter 13 plan is three years, and five years if it is more. Your unsecured creditors must be paid at least as much as they would be if your nonexempt assets were liquidated under Chapter 7. In addition, your unsecured debt plan payments must be equal to your discretionary income (the difference between your net monthly income and your court approved monthly expenses). To put it another way, you can’t keep a cash reserve every month. You must have regular income and fulfill specified debt limitations for your unsecured and secured obligations in order to file for Chapter 13 bankruptcy (unsecured debts must be less than $383,175 and secured debts must be less than $1,149,525 as of 2015). A Chapter 13 bankruptcy can be filed by individuals, single proprietorship businesses, or spouses. Filing a petition for Chapter 13 bankruptcy with the bankruptcy court, just like filing a Chapter 7 bankruptcy, automatically stops most debt collection operations against you. Your repayment plan must be filed either with your petition or within 14 days of the filing of your case.