Chapter 7 Bankruptcy Laws

There are HUGE volumes of statutes, rules, and case decisions that make up the law of bankruptcy. 

You can not know all of the law of bankruptcy, and what will happen in every situation, without reading all of these volumes. 

So in order to know the details of what bankruptcy will do for your particular situation, you should contact someone who does bankruptcies. 

But beware, a person who makes his living doing only bankruptcies will not get paid unless he gets people to file for bankruptcy. She/He will not get paid if you find a solution to your situation which is better for you than bankruptcy. 

With that said I will try to give a basic description of bankruptcy concepts that are relevant for people having trouble making mortgage payments.

Chapter 7 starts with the concept of "liquidation."

That means that everything you own can be sold, and the money that you get for selling your things gets used to pay to the people who you owe money to. 

After that, you don't owe any money to anybody, even if everybody only got a small part of what you owed to them. 

But don't panic."Liquidation" is just the basic concept. You don't actually sell all of your things. You can keep some things, and you still don't owe any money to anybody after your bankruptcy.

What can you keep when you file bankruptcy? 

There is a long list of things that you can keep. 

And the list is different for every state. But don't think that you can move to a better state for filing your bankruptcy. 

People used to do that, so they changed the laws so that essentially the state you were living in two years before you filed the bankruptcy case is the state that determines what you can keep. 

There are both state and federal laws about what you can keep, and you need to consult with a bankruptcy lawyer to be sure what you can keep, if you have moved from one state to another within the previous three years.

In Illinois, you can keep a couple thousand dollars to start with, and it can be cash, gold, equity in a car or house, whatever you decide. 

You can also keep some of the equity in your home, in addition to the couple thousand dollars. You can also keep some of the value of your car, in addition to the home equity and the couple of thousand dollars. 

You can also keep money in your retirement account, and your property that has little or no resale value, like your typical clothes and furniture.

Each person can keep the same amount, so a husband and wife who file a joint chapter 7 bankruptcy can keep twice as much as a single person who files a chapter 7 bankruptcy. 

If you own things beyond what is on the list of things that you can keep, then those are the things that you sell in order to get the money that is paid to the people you we money to.

Often, people don't own anything beyond what is on the list of things that can be kept. 

In that case, when they file chapter 7 bankruptcy, they don't need to sell anything, and they don't need to pay anything to their creditors.  

This is called a "no-asset" bankruptcy, and is very common. 

Be careful:  If you have a home with a mortgage, you don't get to keep the home without paying the mortgage.

You don't have to pay the mortgage, and you don't owe any money to the bank, but the bank can foreclose on the home and sell it, to get back the money that the bank loaned when you bought the home. 

This involves filing a foreclosure case, and having you kicked out of the house by the sheriff, and having the sheriff sell the house at auction in order to raise the money to pay back to the bank. 

Similar with a car loan. if you owe money on a car, it can be repossessed, even if you filed a bankruptcy, and then sold to get money to pay back to the person or bank who loaned you the money on the car.

But what about lawyers who say that bankruptcy can stop foreclosure and repossession? 

Yes, when you file your bankruptcy case, everybody who wants to call you and bother you about money that you owe, has to stop bothering you right away. 

This called "the automatic stay."

Think about when you are training you dog, and what he is supposed to do when you say "Stay!" 

That is what people who you owe money to are supposed to do when you file bankruptcy and get an automatic stay. 

If people want to bother you some more, by foreclosing on your home or by repossessing your car, then they need to go to the bankruptcy judge and get permission first. 

This is called "relief from the automatic stay," or just "relief from stay." Banks are very efficient at this now, because of the volume of foreclosure cases and bankruptcies that have been filed in recent years.

After the filing of a chapter 7 bankruptcy case, you get what is called a "discharge"which is a document signed by the bankruptcy judge, and which says essentially that you don't owe any money to anybody. 

Not exactly true. Some debts you still owe. For a complete list, or to get an opinion for your exact debt, you need to ask a bankruptcy lawyer. 

One highlights however is school loans. You don't get out of these by filing bankruptcy. 

One painful debt that is not discharged is payroll deduction taxes. 

If you had workers, and withheld taxes from their paychecks, and then spent the money instead of sending it to the IRS, then you will not only still owe this money after filing bankruptcy, but you will probably be pursued by the authorities for this money. 

If you never had the money that you claim was withheld, and instead only had enough to cover the paychecks, then same result - you owe the money and they will be after you. 

Income taxes that you owe can follow you. Any debt that you get after the instant that you file your case, will also follow you.

Can you plan for bankruptcy, by signing your SUV over to your relative so that you won't lose it in bankruptcy, for example? 

It is illegal to plan for bankruptcy this way. 

The way this is prevented is by making you report all of your significant financial activity when you file your bankruptcy case. 

In other words, the government asks you questions about what you did with your finances for the couple of years before the case was filed, and you provide answers on your bankruptcy petition.

If you lie, then you might get busted. 

This reporting requirement is significant for people who are in foreclosure.

For people who are in foreclosure, and trying to resolve the foreclosure favorably, you can expect to have to report your finances to your mortgage lender. 

If you are in foreclosure in Illinois, and you file a bankruptcy petition, you get an "automatic stay" as we said. Then, in less than two months usually, your mortgage lender is in front of the bankruptcy judge getting permission to go ahead with your foreclosure case. 

Before you know it, you get a notice of a sheriff sale

You call your bankruptcy lawyer, and he says "have a nice day." 

You call your bank to ask for a modification, or your realtor, to try to delay the sheriff's sale, and are informed that the bank will not do anything for you until after your bankruptcy discharge is obtained. 

The lender will not stop the sheriff's sale. Because you filed bankruptcy. This is how you lose your home more quickly by filing bankruptcy.

We do bankruptcies, but we do many other things also for people in foreclosure, and we don't hurry you into bankruptcy, or anything else.

One more note about bankruptcy.

Before you file, you need to take a class. 

It costs about $50 for a husband and wife together to take this course online. 

Then after you file your case, you need to take another course. It also costs about $50 for both to take this course online. 

If you delay your second course after your bankruptcy case is filed, then you can cause your discharge to be delayed, which in turn can cause you to lose your home more quickly. Because you took your time finishing your course after filing your bankruptcy case. 

This is something to plan for and not delay.