Filing for Chapter 7 bankruptcy is complex

By The Madison County Record | Dec 27, 2009

The 2005 Federal Bankruptcy Law changed the way in which a person is eligible to file for Chapter 7 bankruptcy. Chapter 7, which is the most common form of bankruptcy, refers to the ability of the filer to "liquidate" or be relieved of most of their debts. The procedure is designed to help debtors essentially get a "fresh start."

Under the law, if the debtor's income does not exceed the state's median income, then he or she may be eligible to file for Chapter 7. Before filing for bankruptcy, the debtor must complete a credit counseling session from a provider approved by the court. To be discharged from bankruptcy, the debtor must also complete a financial management class.

Classes are operated by independent agencies and require additional costs. Listings of accredited credit counselors can be found at the U.S. Trustee's website,

The first thing that happens in a Chapter 7 case is that the Bankruptcy Court issues an "automatic stay" to creditors, prohibiting them from proceeding with a collection outside of the bankruptcy case, unless the bankruptcy judge approves it. The automatic stay does not affect criminal proceedings.

When the case is filed, the Bankruptcy Court appoints a bankruptcy trustee to review a person's assets and financial affairs. The trustee has the power to liquidate assets which exceed the amount of the exemptions which the law allows.

In most cases, the trustee does not liquidate the assets but instead issues the debtor a bankruptcy discharge, relieving the debtor from liability for most of the unsecured debt.

Liens on a debtor's property itself are called "secured debts" and can be items such as a mortgage on your home or a lien on your car. A discharge in bankruptcy, by itself, does not set aside liens on your property. In some cases, however, the bankruptcy court can set aside or reduce a lien on property.

Additionally, individuals who want to keep the property secured by a lien commonly enter into reaffirmation agreements with the secured creditor. A reaffirmation agreement is a voluntary written agreement to continue to pay a specific secured creditor despite the bankruptcy so that the individual can keep the property involved.

For further information about this and other law-related issues, contact an Illinois State Bar Association member-lawyer in your area or visit

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