Overwhelming debt can accrue seemingly without warning. For people of all ages in Illinois, the past 15 months have proven that medical expenses, lost income, outright job loss and the inability to pay bills on time have impacted countless people. Despite governmental assistance, many are fearful that as society slowly returns to normal, they might be confronted with a parade of debt collectors trying to get what they claim to be owed. Bankruptcy is a viable option for many to get out of debt, but other alternatives could be preferable depending on the circumstances. Speaking with a bankruptcy lawyer and knowing the best and worst-case scenarios is imperative before deciding.
Chapter 7 and Chapter 13 are the main options for individual debtors
Chapter 7 bankruptcy is known as a liquidation because in exchange for wiping out most unsecured debt, the person will surrender property of value to a trustee for it to be converted into cash and distributed to creditors. Most people who choose this option do not have significant assets. The assets they do have are either covered with bankruptcy exemptions, or are not valuable enough to be sold and are shielded from the Court and creditors. An example is an older automobile.
With Chapter 13, the debtor will craft a re-payment plan that will last for three or five years. During that time, there will be a set amount he or she pays each month based on their income and it will be sent to a trustee to be distributed to creditors. Chapter 13 is better for people who who are high income earners, and who own unexempt property they want to keep like a home. Through this process, the debtor may become current on a mortgage (if they are in foreclosure) and retain the property.
With all personal bankruptcy chapters, debtors must take the income means test, and credit counseling sessions. People who are at an age when they are approaching retirement or have already retired should remember that bankruptcy protects pensions, Social Security, VA disability benefits, and up to $1.36 million in individual retirement accounts (IRAs).