How to File for Bankruptcy in Chicago: A Complete Legal Guide
When overwhelming debt makes it difficult to see a path forward, filing for bankruptcy can provide the fresh start you need. The cost to file bankruptcy in Illinois is $338 for a Chapter 7 bankruptcy in Illinois and $313 for a Chapter 13 bankruptcy, based on the US bankruptcy court fee schedule. If you are considering filing for bankruptcy, understanding the process, costs, and requirements can help you make informed decisions about your financial future.
Bankruptcy is not a sign of failure. It is a legal tool designed to help individuals and families regain control of their finances. Many people in Chicago and throughout Cook, DuPage, and Lake Counties have successfully used bankruptcy to eliminate overwhelming debt and rebuild their financial lives.
This comprehensive guide will walk you through what you need to know about filing for bankruptcy, from determining which chapter may be right for you to understanding what happens after your case is complete.
Understanding Bankruptcy Types in Chicago
When you decide to file for bankruptcy in Chicago, you will need to choose between two main types of consumer bankruptcy: Chapter 7 and Chapter 13. Each serves different financial situations and offers distinct advantages.
Chapter 7 Bankruptcy: Liquidation
Chapter 7 bankruptcy, often called “liquidation bankruptcy,” is designed for individuals and families who cannot afford to repay their debts. Chapter 7 bankruptcy is often less expensive. It mainly focuses on liquidation, and it eliminates a huge chunk of your unsecured debt. This type of bankruptcy can discharge most unsecured debts, including credit card balances, medical bills, and personal loans.
To qualify for Chapter 7, you must pass the means test, which compares your income to the median income in Illinois. For example, as of April 1, 2024, a single person must have an income of $66,950 or less to pass the test, while the limit for a four-person household is $125,022. If your income exceeds these limits, you may still qualify if your allowable expenses reduce your disposable income sufficiently.
The Chapter 7 process typically takes four to six months from filing to discharge. During this time, a bankruptcy trustee will review your case and may sell any non-exempt assets to pay creditors. However, according to national statistics, about 90 percent of all Chapter 7 filings are “no asset” cases. That means the trustee didn’t seize any property in the case.
Chapter 13 Bankruptcy: Reorganization
Chapter 13 bankruptcy works differently than Chapter 7. Instead of eliminating debts immediately, Chapter 13 bankruptcy, suitable for individuals who can repay their debts, involves organizing debts into a payment plan over a three to five-year period. This option is ideal for people who have regular income but need time to catch up on secured debts like mortgage or car payments.
The unsecured debts must be less than $419, 275.00. Secured debts (things like a home, a car) must be less than $1, 257, 850.00. Chapter 13 allows you to keep your property while making manageable monthly payments to a bankruptcy trustee, who then distributes the funds to your creditors according to your court-approved plan.
One significant advantage of Chapter 13 is that if you’re behind on payments when filing for Chapter 13, you have an option not available in Chapter 7. You can catch up on the payments over time through the plan. This makes Chapter 13 particularly valuable for homeowners facing foreclosure.
Eligibility Requirements for Filing Bankruptcy in Chicago
Before you can file for bankruptcy in Chicago, you must meet specific eligibility requirements that vary depending on which chapter you choose.
Chapter 7 Means Test Requirements
The means test is the primary qualification tool for Chapter 7 bankruptcy. The Means Test for Chapter 7 bankruptcy in Illinois involves evaluating the filer’s income and financial situation. It helps determine if they meet the state’s income limits to qualify for Chapter 7 bankruptcy.
The test works in two parts. First, your average monthly income over the past six months is compared to Illinois median income levels for your household size. As of April 2024, if a filer’s income is below the median income for their household size, they automatically qualify.
If your income exceeds the median, the second part of the means test comes into play. If the income exceeds the median, further calculations are needed to assess disposable income. Disposable income is determined after deducting allowable monthly expenses. If the disposable income is below $7,475 over five years (approximately $124.58 monthly), the individual passes the Means Test and is eligible to file for Chapter 7.
Chapter 13 Income and Debt Limits
Chapter 13 has different requirements focused on your ability to make regular payments and your total debt levels. You must have regular income sufficient to make monthly plan payments, and your debts cannot exceed specific limits.
First, the individual has to have less than $465,275 of unsecured debt. Next, an individual cannot have over $1,395,875 in secured debt. These limits ensure that Chapter 13 cases remain manageable for both debtors and the bankruptcy system.
Pre-Filing Requirements
Regardless of which chapter you choose, you must complete credit counseling from an approved provider within 180 days before filing your bankruptcy petition. The credit counseling course, which must be completed within six months prior to the bankruptcy filing, is designed to provide you with financial education. Failure to complete this course can result in the inability to file for bankruptcy.
Step-by-Step Process to File Bankruptcy in Chicago
Filing for bankruptcy involves several detailed steps that must be completed accurately and on time. Understanding this process can help you prepare effectively and avoid common mistakes.
Step 1: Assess Your Financial Situation
Before filing, conduct a thorough review of your debts, assets, income, and expenses. List all creditors, including the amounts owed and types of debt. Gather financial documents such as tax returns, pay stubs, bank statements, and records of all debts and assets.
Consider whether your debts are primarily secured (backed by collateral like a house or car) or unsecured (credit cards, medical bills, personal loans). This distinction will influence which bankruptcy chapter is most appropriate for your situation.
Step 2: Complete Pre-Filing Credit Counseling
Schedule and complete the mandatory credit counseling session with an approved provider. The cost of these courses typically ranges from $20 to $100. You will receive a certificate of completion that must be filed with your bankruptcy petition.
Step 3: Determine Which Chapter to File
Based on your means test results, debt levels, and financial goals, decide whether Chapter 7 or Chapter 13 is more appropriate. Consider consulting with a bankruptcy attorney in Chicago to ensure you choose the best option for your circumstances.
Step 4: Prepare and File Your Bankruptcy Petition
Your bankruptcy petition includes numerous forms and schedules detailing your financial situation. These documents must be accurate and complete, as providing false information can result in criminal charges and case dismissal.
Key forms include:
- Statement of Financial Affairs
- Schedules of Assets and Liabilities
- Statement of Current Monthly Income
- Statement of Intention for secured debts
Step 5: Pay Filing Fees
The filing fee for Chapter 7 bankruptcy is set by the federal government and is currently $338. The filing fee for Chapter 13 bankruptcy is currently $313. If you cannot afford the filing fee, you may request a fee waiver or payment plan from the court.
Step 6: Attend the 341 Meeting of Creditors
Approximately 30 days after filing, you must attend the 341 meeting of creditors. Despite its name, creditors rarely attend these meetings. Instead, you will meet with the bankruptcy trustee assigned to your case, who will ask questions about your financial situation and bankruptcy forms under oath.
Step 7: Complete Debtor Education Course
Before your debts can be discharged, you must complete a debtor education course from an approved provider. The debtor education course, which needs to be taken before debts can be discharged, offers financial education to assist you in managing your finances post-bankruptcy. Like the credit counseling course, this typically costs between $20 and $100.
Step 8: Receive Your Discharge
In Chapter 7 cases, if no objections are raised and you complete all requirements, you will receive a discharge of eligible debts approximately 60 to 90 days after the 341 meeting. In Chapter 13 cases, discharge occurs after you complete all payments under your three to five-year plan.
Costs Associated with Filing Bankruptcy in Chicago
Understanding the full cost of bankruptcy helps you budget appropriately and avoid surprises during the process.
Court Filing Fees
The mandatory court filing fees are set by federal law and are the same throughout the United States. The cost to file bankruptcy in Illinois is $338 for a Chapter 7 bankruptcy in Illinois and $313 for a Chapter 13 bankruptcy. These fees must be paid when you file your petition, although the court may allow payment plans in certain circumstances.
Attorney Fees
Attorney fees vary significantly based on the complexity of your case and the attorney’s experience. Bankruptcy attorneys in Chicago can cost an estimated $1,170. Bankruptcy attorneys in Aurora can cost an estimated $1,170. Bankruptcy attorneys in Naperville can cost an estimated $1,075.
For Chapter 13 cases, Right now, they are $4000.00 plus costs. in the Northern District of Illinois under the “no-look fee” structure. Most attorneys in this district who do Chapter 13 cases will take a down payment towards the full fees, with the rest of the fees and costs paid from your Chapter 13 plan payments.
Additional Costs
Beyond court fees and attorney fees, expect to pay for:
- Credit counseling course: $20-$100
- Debtor education course: $20-$100
- Credit reports and document preparation: $30-$50
- Miscellaneous court costs and trustee fees
Illinois Bankruptcy Exemptions: What You Can Keep
Bankruptcy exemptions protect essential property from being sold to pay creditors. Illinois has its own set of exemptions that determine what you can keep when you file bankruptcy.
Homestead Exemption
In Illinois, the homestead exemption amount is $15,000. If you’re married, filing bankruptcy jointly, and own the home with your spouse, you can double this to $30,000. This exemption protects the equity in your primary residence, including houses, condominiums, mobile homes, and cooperative apartments.
The homestead exemption also applies to sale proceeds from the sale of any real or personal property for up to one year from the date you sell the property and it’s automatic. You don’t have to file a homestead declaration to claim the homestead exemption in bankruptcy.
Motor Vehicle Exemption
The motor vehicle exemption is $2,400. It allows you to protect $2,400 of equity in your car. Equity is calculated by taking the fair market value of your vehicle minus any outstanding loan balance.
Wildcard Exemption
Illinois also offers a $4,000 wildcard exemption. Wildcard exemptions are important because they can help you property any property that’s not already covered by an exemption. You can use this exemption to protect any personal property of your choosing, or combine it with other exemptions to increase their protection levels.
Other Important Exemptions
Illinois bankruptcy exemptions also protect:
- Necessary clothing and personal effects
- Tools of the trade exemption, which you can use to protect anything you use for your profession up to $1,500
- 85% minimum of earned but unpaid weekly wages or 45X federal minimum hourly wage
- Retirement accounts and pensions
- Life insurance proceeds paid to dependents
- Public benefits and Social Security
Understanding these exemptions is crucial because they determine what property you can keep throughout the bankruptcy process. For more detailed information about protecting your assets, consider reviewing Illinois bankruptcy exemptions explained.
The Role of the Bankruptcy Trustee
When you file for bankruptcy in Chicago, a bankruptcy trustee will be appointed to oversee your case. The trustee’s role varies depending on which chapter you file.
Chapter 7 Trustee Responsibilities
In Chapter 7 cases, the trustee’s primary job is to review your bankruptcy forms, conduct the 341 meeting of creditors, and determine whether you have any non-exempt assets that can be sold for the benefit of creditors. The trustee will examine your financial records and may ask for additional documentation to verify the information in your bankruptcy petition.
If you have non-exempt assets, the trustee will sell them and distribute the proceeds to your creditors according to bankruptcy law priorities. However, as mentioned earlier, most Chapter 7 cases are “no asset” cases where the trustee does not sell any property.
Chapter 13 Trustee Responsibilities
Chapter 13 trustees have ongoing responsibilities throughout your three to five-year repayment plan. In a Chapter 13 bankruptcy case, a trustee is appointed to oversee the repayment plan and distribute payments to creditors. The trustee fees are typically calculated as a percentage of the total amount paid through the repayment plan, usually ranging from 5% to 10%.
The Chapter 13 trustee will review your proposed repayment plan, monitor your monthly payments, and distribute funds to creditors according to the court-approved plan. The trustee also ensures that you comply with all plan requirements and may file motions to dismiss your case if you fall behind on payments.
Common Debts Discharged in Bankruptcy
Bankruptcy can eliminate many types of debt, but not all debts are dischargeable. Understanding which debts can be eliminated helps you evaluate whether bankruptcy will provide the relief you need.
Dischargeable Debts
Most unsecured debts can be discharged in bankruptcy, including:
- Credit card balances
- Medical bills
- Personal loans
- Utility bills
- Deficiency balances after vehicle repossession
- Business debts (for sole proprietorships)
- Old income taxes (with specific timing requirements)
Non-Dischargeable Debts
Certain debts cannot be eliminated in bankruptcy, including:
- Recent income taxes
- Student loans (with limited exceptions)
- Child support and alimony
- Court-ordered restitution
- Debts incurred through fraud
- Recent luxury purchases or cash advances
Understanding these distinctions helps you set realistic expectations about what bankruptcy can accomplish for your specific financial situation.
Life After Bankruptcy: Rebuilding Your Financial Future
Successfully completing bankruptcy is not the end of your financial journey—it is the beginning of rebuilding your credit and establishing healthy financial habits.
Immediate Steps After Discharge
Once you receive your bankruptcy discharge, take these important steps:
- Keep your discharge papers in a safe place
- Monitor your credit reports to ensure discharged debts are properly reported
- Begin building an emergency fund
- Create and stick to a realistic budget
Rebuilding Credit
Your credit score will be impacted by bankruptcy, but you can begin rebuilding immediately. Consider:
- Applying for a secured credit card
- Making all payments on time
- Keeping credit utilization low
- Monitoring your credit reports regularly
Avoiding Future Financial Problems
Use the lessons learned from your bankruptcy experience to avoid future financial difficulties:
- Live within your means
- Build an emergency fund
- Avoid taking on unnecessary debt
- Seek financial counseling if you encounter problems
For ongoing support and guidance, consider consulting with experienced bankruptcy attorneys who can help you navigate post-bankruptcy financial planning.
When to Consider Alternatives to Bankruptcy
While bankruptcy can provide significant relief, it is not always the best solution for every financial situation. Consider these alternatives before deciding to file for bankruptcy in Chicago.
Debt Consolidation
If you have good credit and steady income, debt consolidation might help you manage multiple debts more effectively. This involves taking out a new loan to pay off existing debts, ideally at a lower interest rate.
Debt Settlement
Debt settlement involves negotiating with creditors to accept less than the full amount owed. While this can reduce your total debt, it may have tax consequences and can negatively impact your credit score.
Credit Counseling
Non-profit credit counseling agencies can help you create a debt management plan and negotiate with creditors for reduced payments or interest rates. This option typically takes longer than bankruptcy but may be less damaging to your credit.
Loan Modification
If your primary concern is keeping your home, loan modification might be an alternative to bankruptcy. This involves negotiating with your mortgage lender to change the terms of your loan to make payments more affordable.
Working with a Bankruptcy Attorney in Chicago
While it is possible to file bankruptcy without an attorney, the complexity of bankruptcy law makes professional representation valuable for most people.
Benefits of Legal Representation
An experienced bankruptcy attorney can:
- Help you choose the right chapter
- Ensure all forms are completed accurately
- Protect your rights throughout the process
- Handle communications with creditors and the court
- Identify potential problems before they become serious
What to Look for in a Bankruptcy Attorney
When selecting a bankruptcy attorney, consider:
- Experience with bankruptcy law
- Familiarity with local court procedures
- Clear communication about fees and expectations
- Positive client reviews and references
- Membership in professional organizations
The Attorney-Client Relationship
Your bankruptcy attorney should explain the process clearly, answer your questions promptly, and keep you informed about developments in your case. You should feel comfortable discussing your financial situation openly and honestly.
Frequently Asked Questions
How long does it take to file bankruptcy in Chicago?
The duration of the bankruptcy process can vary, but typically, a Chapter 7 case takes around 4-6 months, while a Chapter 13 case can last 3-5 years. The actual filing process can be completed relatively quickly once you have gathered all necessary documents and completed the required credit counseling. However, the time from filing to discharge varies significantly between chapters.
Chapter 7 cases move more quickly because they involve liquidating assets rather than creating a repayment plan. Most Chapter 7 debtors receive their discharge within four to six months of filing. Chapter 13 cases take longer because you must complete your repayment plan before receiving a discharge, which typically takes three to five years depending on your income and the terms of your plan.
Can I keep my house and car if I file bankruptcy in Chicago?
Whether you can keep your house and car depends on several factors, including how much equity you have in these assets, whether you are current on payments, and which bankruptcy chapter you file. Keeping your home requires being current on the mortgage when filing for Chapter 7. Otherwise, you could lose it to the lender through foreclosure, possibly even during the Chapter 7 case.
For your home, the Illinois homestead exemption protects up to $15,000 in equity ($30,000 for married couples filing jointly). If your home equity exceeds these amounts, you might lose the house in Chapter 7, but Chapter 13 allows you to keep it by paying the non-exempt equity through your repayment plan.
For vehicles, Illinois allows you to protect $2,400 in equity. If your car is worth more than this amount after subtracting any loan balance, you might need to pay the trustee the non-exempt amount or surrender the vehicle in Chapter 7. You can also use the $4,000 wildcard exemption to protect additional vehicle equity.
Will bankruptcy stop foreclosure or wage garnishment immediately?
Yes, filing bankruptcy triggers an automatic stay that immediately stops most collection activities, including foreclosure proceedings and wage garnishments. The automatic stay in bankruptcy is a legal provision that halts all creditor collection efforts, including foreclosures and legal proceedings.
The automatic stay goes into effect the moment you file your bankruptcy petition, providing immediate relief from creditor harassment, collection calls, and legal actions. However, the automatic stay is temporary in some situations. For example, if you are behind on mortgage payments, the lender can eventually request permission from the court to proceed with foreclosure.
In Chapter 7, the automatic stay provides temporary relief, but you must be current on secured debt payments to keep the property long-term. In Chapter 13, the automatic stay remains in effect throughout your repayment plan as long as you make your plan payments and stay current on ongoing mortgage or car payments.
Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Consult an attorney for legal guidance specific to your situation.