Bankruptcy May Provide Financial and Emotional Relief

By Diane Brazen Gordon, JD

While bankruptcy is often considered a last resort and is not the appropriate solution for everyone with financial problems, the system can provide a fresh start for a new financial and emotional life. A client once told me that she was glad to finally cry tears of relief instead of tears of fear.

Most individuals who file a bankruptcy case, file a Chapter 7 or a Chapter 13.  A Chapter 7 is a liquidation. In a Chapter 7, a debtor can eliminate most unsecured debt and keep property that is valued within the amount of the exemptions allowed in Illinois.  Illinois law contains exemptions for different types of property, which a debtor has a right to keep.  A Chapter 13 is a repayment plan, pursuant to which a debt pays a percentage of the unsecured debt over three to five years. The amount of the percentage varies, and usually depends on the amount of a person’s disposable income.  There are certain advantages and disadvantages to both types of bankruptcy chapters.  Some people will not be able to file a Chapter 7 if their income is too high.

In Chapter 7 and Chapter 13, a trustee is appointed and that trustee has certain rights and responsibilities for overseeing the case.  At the time a case is filed, the clerk’s office schedules a First Meeting of Creditors.  Usually those meetings take place approximately one to two months after the case is filed.  All creditors receive written notice of the meeting, though creditors rarely appear.

Once a bankruptcy case is filed, the automatic stay goes into effect and most lawsuits, repossessions, and other actions to collect a debt must stop and cannot proceed without permission from the Bankruptcy Court.  There are some exceptions to this rule.  This relief may only be temporary, because creditors may obtain court permission to proceed to foreclose or collect certain debts.

Bankruptcy cases are overseen by federal judges, trustees, and the United States Trustee.  People who file bankruptcy must make substantial disclosures, including all of their assets, liabilities, and transfer of assets within a certain time.  All disclosures in the bankruptcy petition and schedules are under penalty of perjury.  In addition, under certain circumstances the Trustee can pursue third parties, including former spouses, for return of a debtor’s property for payment to creditors.

There are special bankruptcy provisions dealing with debts that are in the nature of support.  The 2005 amendments to the bankruptcy law created a term called a “Domestic Support Obligation,” referred to as a “DSO.”  A creditor who is owed a DSO now has more rights and remedies.  A person who owes a DSO now has much less ability to escape that obligation by filing bankruptcy.  Debts that are DSO’s are not eliminated  in a Chapter 7 or a Chapter 13 bankruptcy.  Debts that are not for support but are for property settlement cannot be eliminated in a Chapter 7, but may be dischargeable in a Chapter 13.

DSO’s have first priority status in a Chapter 13 bankruptcy.  A court may not grant a discharge in a Chapter 13 bankruptcy unless the debtor certifies that the debtor is current on all post-petition DSO payments.  Bankruptcy trustees must inform DSO claimants about the resources available to them to collect their claims and of their rights under the Bankruptcy Code.

Bankruptcy is a federal law and there are many rules found in the United States Bankruptcy Code.  Bankruptcy cases are filed electronically on the internet by attorneys who are authorized to use the Court’s electronic filing system.  In addition, all persons filing bankruptcy are required to complete a special credit counseling class, in addition to a mandatory post filing debtor education course.  These courses may be completed on the internet or in person through authorized providers.

The information contained herein is for educational and informational purposes and is not legal advice.  The Law Office of Diane Brazen Gordon is a Debt Relief Agency and helps people file for bankruptcy relief under the Bankruptcy Code.

Diane Brazen Gordon has an office in Lincolnshire, Illinois and provides compassionate guidance and over twenty years of legal experience to people contemplating bankruptcy.