For individuals facing financial hardship, the federal bankruptcy system offers two main paths: Chapter 7 and Chapter 13. This document explains your options under Illinois and federal law.
Liquidation under Chapter 7
Think of Chapter 7 as hitting the reset button on most debts. The court takes charge of your property, sells what isn’t protected by law, and uses the money to pay off creditors. Many people keep their homes and basic possessions through Illinois’ protection laws. The whole process takes about 4-6 months.
But not everyone can use Chapter 7. You’ll need to prove you can’t reasonably pay your debts through a simple income test. If you make too much money, you’ll likely need to look at Chapter 13 instead.
The upside? Most credit card debt, medical bills, and personal loans vanish. The downside? You can’t escape things like child support or recent tax bills. Student loans stick around too, except in rare cases.
Reorganization under Chapter 13
Chapter 13 is more like negotiating a fresh start. You keep your property but commit to a strict payment plan lasting 3-5 years. Think of it as a court-supervised debt management program.
You’ll need a steady income to make this work. As of 2023, your total debts can’t exceed $2,750,000. Each month, you’ll pay what you can afford to a trustee who handles paying your creditors.
Many people choose Chapter 13 when they’re behind on house payments but want to avoid foreclosure. It also works well for those who make too much money for Chapter 7 or own property they can’t protect in a Chapter 7 filing.
Warning: This information provides a general overview of bankruptcy options in Illinois. Individual circumstances vary significantly. The court strongly recommends consulting with a qualified bankruptcy attorney before proceeding with either option.
