An Alternative To Bankruptcy In Illinois

As of 2021, Illinois had a total state debt of approximately $241 billion, according to data from the Illinois Comptroller’s office. This debt includes both outstanding bonds and unfunded pension liabilities. Illinois has been grappling with a significant debt burden for years, due in part to a combination of high government spending and a lack of revenue growth. The state has one of the largest unfunded pension liabilities in the country, which has contributed significantly to its overall debt load. In addition to its state debt, Illinois also has a significant amount of local government debt. As of 2020, the total outstanding debt of local governments in Illinois was approximately $40 billion. According to data from the United States Courts, the Northern District of Illinois had a total of 19,937 bankruptcy filings in 2021, with 16,594 being Chapter 7 filings, 3,074 being Chapter 13 filings, and 269 being Chapter 11 filings. In the same year, the Central District of Illinois had a total of 4,530 bankruptcy filings, with 3,939 being Chapter 7 filings, 537 being Chapter 13 filings, and 54 being Chapter 11 filings. The Southern District of Illinois had a total of 4,757 bankruptcy filings in 2021, with 4,083 being Chapter 7 filings, 631 being Chapter 13 filings, and 43 being Chapter 11 filings.

Bankruptcy Laws in Illinois

Bankruptcy laws in Illinois are primarily governed by federal law, specifically the United States Bankruptcy Code. However, there are also some state-specific rules and regulations that apply to bankruptcy cases filed in Illinois. Here are some key aspects of Illinois bankruptcy laws:

• Eligibility: To be eligible for bankruptcy in Illinois, an individual must have lived in the state for at least 91 of the 180 days prior to filing.
• Exemptions: Illinois has a set of exemptions that can be used to protect certain assets in bankruptcy. These exemptions include homestead exemptions, personal property exemptions, and exemptions for retirement accounts and insurance policies.
• Chapter 7 vs. Chapter 13: Individuals in Illinois can file for Chapter 7 bankruptcy, which involves liquidating assets to pay off debts, or Chapter 13 bankruptcy, which involves creating a repayment plan to pay off debts over time.
• Means test: Before filing for Chapter 7 bankruptcy in Illinois, individuals must pass a means test to determine if they have enough disposable income to pay off their debts.
• Credit counseling: Individuals must complete a credit counseling course before filing for bankruptcy in Illinois.
• Automatic stay: Filing for bankruptcy in Illinois triggers an automatic stay, which stops most collection actions against the debtor, including wage garnishment and foreclosure.

What Types of Bankruptcy Are There For You Personally and For Businesses?

There are several types of bankruptcy for both individuals and businesses, which are outlined in the United States Bankruptcy Code. Here are some of the most common types of bankruptcy:

For individuals:

• Chapter 7: This is known as “liquidation” bankruptcy and involves the debtor’s non-exempt assets being sold to pay off creditors. Most unsecured debts are discharged, but some assets may be at risk of being sold. This type of bankruptcy is usually used by those who have little income and no significant assets.
• Chapter 13: This type of bankruptcy involves a repayment plan where the debtor pays off their debts over a period of three to five years. This is a good option for those who have a steady income and wish to keep their assets.
• Chapter 11: This type of bankruptcy is usually used by businesses, but individuals can also file for it if they have a significant amount of debt. It involves reorganizing debt and creating a repayment plan.

For businesses:

• Chapter 7: This type of bankruptcy involves the liquidation of the business assets to pay off creditors.
• Chapter 11: This is the most common type of bankruptcy for businesses and allows them to reorganize their debts and assets while continuing to operate. The goal is to create a repayment plan and emerge from bankruptcy as a profitable business.
• Chapter 13: This type of bankruptcy is also available to small business owners who are sole proprietors, but it is not commonly used for businesses.

Bankruptcy Chapters 7, 13 and 11 – What You Need to Know

Things to Keep in Mind When Considering Business Bankruptcy in Illinois

If you’re considering business bankruptcy in Illinois, there are several things you should keep in mind to ensure that you make the best decision for your business. Here are some key factors to consider:

• Chapter 11 vs. Chapter 7: As mentioned earlier, Chapter 11 and Chapter 7 are the most common types of bankruptcy for businesses. It’s important to understand the differences between them and determine which one is best for your business. Chapter 11 allows for a reorganization of debts and continuation of operations, while Chapter 7 involves the liquidation of assets.
• Cost: Bankruptcy can be expensive, with filing fees, legal fees, and other costs. It’s important to understand the costs associated with bankruptcy and determine if your business can afford them.
• Creditors: You should also consider your relationship with your creditors. If you file for bankruptcy, it may strain these relationships and impact future business opportunities.
• Impact on employees: Bankruptcy can have a significant impact on your employees. It’s important to consider how bankruptcy will affect your employees and their livelihoods.
• Alternatives to bankruptcy: Bankruptcy should not be the first option considered. You should explore other alternatives, such as debt restructuring, before filing for bankruptcy.
• Eligibility: Not all businesses are eligible for bankruptcy. You should consult with a bankruptcy attorney to determine if your business meets the eligibility requirements.
• Future business opportunities: Bankruptcy can impact your ability to obtain credit or start a new business in the future. It’s important to consider how bankruptcy will impact your future business opportunities.

Will Bankruptcy Discharge All Debts?

While bankruptcy can discharge many types of debts, there are some debts that cannot be discharged under bankruptcy law. Here are some of the most common types of debts that cannot be discharged in bankruptcy:

• Certain tax debts: Most tax debts are not dischargeable in bankruptcy, but there are some exceptions. Income taxes may be discharged if they were due more than three years before the bankruptcy filing and certain other criteria are met.
• Student loans: In most cases, student loans are not dischargeable in bankruptcy unless the debtor can demonstrate undue hardship.
• Child support and alimony: Debts owed for child support and alimony cannot be discharged in bankruptcy.
• Debts incurred through fraud or other illegal activity: If a debt was incurred through fraudulent activity or other illegal means, it cannot be discharged in bankruptcy.
• Fines and penalties: Debts owed to government agencies for fines or penalties cannot be discharged in bankruptcy.
• Debts not listed on bankruptcy schedules: If a debtor fails to list a debt on their bankruptcy schedules, that debt may not be discharged in bankruptcy.

How Bankruptcy in Illinois Affects Your Credit Score and Future Ability To Get a Loan

Bankruptcy can have a significant impact on your credit score and future ability to get a loan. In Illinois, bankruptcy can remain on your credit report for up to 10 years. Immediately after filing for bankruptcy, your credit score will likely drop significantly. However, the exact impact on your credit score will depend on your individual credit history and the type of bankruptcy you filed. Chapter 7 bankruptcy, which involves liquidating assets to pay off creditors, is generally seen as more negative than Chapter 13 bankruptcy, which involves a repayment plan. In the years following a bankruptcy filing, it may be difficult to obtain credit or loans, and those that are available may have high interest rates and unfavorable terms.

Will Bankruptcy Discharge Tax Debts?

Bankruptcy can affect tax debts in Illinois, but the impact will depend on the type of tax debt and the type of bankruptcy filed. In general, income tax debts may be eligible for discharge in bankruptcy if they meet certain criteria, such as being at least three years old and having been filed on time. However, there are several exceptions and limitations to discharging tax debts in bankruptcy, and it’s important to consult with a qualified bankruptcy attorney to determine whether your tax debts are eligible for discharge. If tax debts are not eligible for discharge, filing for bankruptcy can still provide some relief. Chapter 13 bankruptcy, for example, can provide a repayment plan that allows the debtor to pay off their tax debts over time. Additionally, bankruptcy can prevent the IRS and other tax authorities from taking certain collection actions, such as garnishing wages or levying bank accounts, while the bankruptcy case is pending.

Will You Lose Your Assets in Bankruptcy in Illinois?

Whether you will lose your home or car in bankruptcy in Illinois will depend on several factors, including the type of bankruptcy you file, the equity you have in your home or car, and the exemptions available to you. Chapter 7 bankruptcy, which involves liquidating assets to pay off creditors, may result in the loss of your home or car if you do not have enough equity in the property to claim an exemption. However, Illinois provides generous exemptions for both homesteads and motor vehicles, which may allow you to keep your home and car even in Chapter 7 bankruptcy. For example, as of 2021, the Illinois homestead exemption allows you to exempt up to $15,000 of equity in your primary residence. Chapter 13 bankruptcy, on the other hand, does not require you to liquidate assets to pay off creditors. Instead, you will be required to repay your debts through a repayment plan that lasts three to five years. If you are behind on mortgage or car payments, a Chapter 13 repayment plan can allow you to catch up on those payments while keeping your home and car.

Statute of Limitations for Collections in Illinois

In Illinois, the statute of limitations for collections depends on the type of debt. For written contracts, including credit card debt, the statute of limitations is 10 years from the date of the last payment or the date of default, whichever is later. For oral contracts and open-ended accounts, such as utility bills or medical bills, the statute of limitations is 5 years from the date of default. It’s important to note that the statute of limitations is the maximum amount of time that a creditor has to file a lawsuit against a debtor to collect a debt. Once the statute of limitations has expired, the creditor can no longer file a lawsuit to collect the debt. However, the debt still exists and the creditor can still attempt to collect the debt through other means, such as phone calls and letters.

Cons of Bankruptcy in Illinois

While bankruptcy can provide relief from overwhelming debt, there are also several cons to consider in Illinois. Here are some potential drawbacks:

• Credit damage: Filing for bankruptcy will negatively impact your credit score and remain on your credit report for up to 10 years. This can make it harder to obtain credit in the future and can result in higher interest rates on loans.
• Loss of assets: Depending on the type of bankruptcy you file for, you may be required to liquidate some of your assets to pay off creditors. This can include your home, car, or other valuable possessions.
• Cost: Filing for bankruptcy can be expensive, with filing fees and attorney fees adding up quickly. Chapter 13 bankruptcy, in particular, requires a repayment plan and ongoing payments to a trustee.
• Public record: Bankruptcy is a public record, meaning that anyone can access the information about your financial situation. This can be embarrassing and may harm your reputation.
• Limited eligibility: Not everyone is eligible for bankruptcy, and even if you are, there may be limitations on what debts can be discharged.

Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy

Will You Regret Filing Bankruptcy?

People may regret filing for bankruptcy for a number of reasons, including:

• Credit damage: As I mentioned earlier, filing for bankruptcy can significantly damage your credit score and remain on your credit report for up to 10 years. This can make it difficult to obtain credit or loans in the future and can result in higher interest rates.
• Loss of assets: Depending on the type of bankruptcy you file for, you may be required to sell or liquidate some of your assets to pay off creditors. This can include your home, car, or other valuable possessions, which can be emotionally difficult to deal with.
• Stigma and embarrassment: Some people may feel ashamed or embarrassed about filing for bankruptcy, particularly if they believe it is a personal failure or a sign of irresponsibility.
• Limited financial options: Bankruptcy may limit your financial options in the future, making it harder to obtain credit, rent an apartment, or get a job.
• Possible future financial problems: Filing for bankruptcy does not guarantee that you will not have future financial problems, and you may find yourself in a similar situation down the road.

What Are Your Options If You Don’t Qualify For Bankruptcy?

If you do not qualify for bankruptcy in Illinois, you will need to consider alternative debt relief options, such as debt settlement. With debt settlement, a debt settlement firm negotiates with your creditors to reduce your debt and make it more manageable.

Learn more: What Are Your Options When You Don’t Qualify for Bankruptcy

Why Choose Debt Settlement?

Debt settlement involves negotiating with creditors to reduce the amount of debt that is owed, typically through a lump sum payment. One advantage of debt settlement is that it allows individuals to avoid the negative consequences of bankruptcy, such as a bankruptcy affected credit score, difficulty obtaining credit in the future, and the potential loss of assets. Debt settlement can also be less expensive and less time-consuming than bankruptcy.

It is important to note that bankruptcy can have serious and long-lasting consequences on your credit score and financial future. 

Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help

CuraDebt Is At Your Service

CuraDebt, a professional debt settlement firm, is a great alternative to bankruptcy. We have a team of debt professionals who are ready to help you better understand and potentially eliminate your debts. Contact us today for your free consultation. 1-877-850-3328

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