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Filing for Bankruptcy Requires Legal Help

Filing for bankruptcy is a serious matter and should not be undertaken without assistance from an attorney. While there are numerous books and do-it-yourself kits for doing your own bankruptcy, the complexity of the procedure as well as the risk of doing something wrong is too great. Even determining which type of bankruptcy is appropriate can be difficult.

There are four basic types of bankruptcy filings under the Federal Bankruptcy Code: Chapter 7, 11, 12 and 13. Most personal bankruptcies are either Chapter 7 or Chapter 13 filings. A Chapter 7 bankruptcy, a quick and decisive bankruptcy, discharges (or cancels) most of your debts for overdue bills and credit cards. In a Chapter 7 bankruptcy, the person filing for bankruptcy must surrender all of his or her non-exempt property to the bankruptcy trustee. This property is sold so that a pool of money is made available from which to pay the people or businesses that are owed money.

Unlike Chapter 7, a Chapter 13 bankruptcy is usually a more time-consuming process and is designed to give the debtor (a person who owes money) more time to reorganize their financial situation and pay all or a portion of his or her debts. The usual amount of time is three years, although under certain circumstances, the court will give the debtor five years to repay the debt.

The typical Chapter 13 filer is someone who has a lot of non-exempt property that he or she could lose if he or she files under Chapter 7, or has secured debt (debt which is backed or secured by collateral in order to reduce the risk associated with lending). Examples of these are a home mortgage or a car loan. Because Chapter 13 has to do with reorganizing - not canceling a person's debt - the debtor must be able to prove to the court that he or she has the ability (a source of income) to pay off the reorganized debts over the time period ordered by the court.

Businesses, or persons with unsecured debts over $750,000, file for debt reorganization under Chapter 11, whereby they can continue "business as usual" while reorganizing their finances to meet the claims of those to whom it owes money. If creditors approve, all or part of the debt can be negotiated. Chapter 12 is used for family farmers.

Filing for bankruptcy is a serious matter that has long-term consequences. Other options besides bankruptcy when faced with a large amount of debt may be available. To discuss these options, seek the advice of a licensed attorney.

Note: This information was prepared as a public service by the Illinois State Bar Association. Every effort has been made to provide accurate information at the time of publication. For the most current information, please consult your lawyer. If you need a lawyer and do not have one, visit our lawyer referral page

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