How to File for Bankruptcy in Illinois

When an individual or a business in Illinois has overwhelming debts they cannot repay, they may consider filing for bankruptcy. The bankruptcy process allows the debtor to not only pay off their debts, but also gives them a fresh start.

Determining which type of bankruptcy is right for a specific debtor depends on a variety of factors, including income, debts, assets and financial goals. Debtors facing imminent threat of foreclosure, repossession, or wage garnishment may obtain debt relief through bankruptcy.

In Illinois, the two most common types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 bankruptcy, also known as "liquidation" bankruptcy, is available to businesses and individuals.

Under Chapter 7, a bankruptcy trustee sells the debtor's nonexempt assets to pay off creditors. For those who have few assets and cannot pay off their debts, this type of bankruptcy is popular because it is quick and straightforward.

Chapter 13 bankruptcy, also known as "reorganization" bankruptcy, is available only to individuals. In a Chapter 13 bankruptcy case, the debtor creates a repayment plan that allows them to pay off some or all of their debts over a three- to five-year period. This type of bankruptcy is typically used by those with a regular income source who need more time to pay off their debts.

Bankruptcy exemptions are certain assets that cannot be seized by creditors or a bankruptcy trustee in order to pay off debts. A debtor can choose to use either the Illinois bankruptcy exemptions or the federal bankruptcy exemptions when filing. They cannot use both.

Some examples of bankruptcy exemptions that are available under Illinois law are:

• Homestead exemption: Protects the equity in a debtor’s primary residence up to a specific amount.
• Motor vehicle exemption: Protects the equity in one motor vehicle up to a specific amount.
• Personal property exemption: Protects certain types of personal property, such as furnishings and appliances, up to a specific amount.
• Pension and retirement exemptions: Protect benefits like 401(k)s and IRAs.
• Wildcard exemption: Protects any property not covered by other exemptions.

These are Illinois bankruptcy exemption amounts in 2023. They are due to increase in 2025, according to the rate of inflation.

To qualify for bankruptcy in Illinois, debtors must meet certain eligibility requirements set out in the U.S. Bankruptcy Code.

When filing Chapter 7 bankruptcy, the debtor must pass a means test, comparing their income to the median income for the average Illinois household. If the debtor's income is below the median, they will be eligible for Chapter 7 bankruptcy.

If it is above the median, the debtor may still be eligible for Chapter 7 bankruptcy, but must further demonstrate that they have insufficient income to pay off their debt. If they can't, they can file for Chapter 13 bankruptcy instead.

To qualify for Chapter 13 bankruptcy, the debtor must have a regular source of income, and their debt must fall within certain limits.

As of 2022, the maximum amount of unsecured debt, such as credit card debt, needed to qualify for Chapter 13 bankruptcy is $465,275, and the maximum amount of secured debt, such as a mortgage or a car loan, is $1,395,875.

Debtors considering filing for bankruptcy in Illinois should work with an experienced bankruptcy attorney to ensure compliance the necessary steps. To find a bankruptcy lawyer in Illinois, a debtor can:

• Get referrals from trusted family members, friends and coworkers.
• Search online directories like the American Bar Association's attorney referral service.
• Contact the Illinois State Bar Association via its online search function for bankruptcy attorneys in the area. Local county bar offices also have their own legal referral services.

Once the debtor has compiled a list of potential bankruptcy attorneys, they should schedule consultations with each to ascertain their experience and expertise. Attorney fees can vary, so it is important for the debtor to consider their budget when hiring a bankruptcy attorney.

To file bankruptcy in Illinois, the debtor must follow specific steps, which vary depending on the type of bankruptcy they file and the circumstance of their case:

• First determine which type of bankruptcy is right for their specific situation by consulting with a bankruptcy attorney.
• Gather the necessary supporting documents for filing bankruptcy, including but not limited to, income tax returns, pay stubs and a list of debts and assets.
• Complete the required credit counseling course.
• Prepare and file the bankruptcy petition, including filling out bankruptcy forms and filing them with the Illinois bankruptcy court.
• After filing, attend a meeting of creditors where the bankruptcy trustee and creditors will question them about their debts and assets.
• Depending on the type of bankruptcy the debtor files, they may be required to take additional steps, such as creating a repayment plan.

The U.S. bankruptcy courts are divided among three Illinois districts. Their locations are:

For most types of bankruptcy, there’s no specific debt threshold that you have to meet. However, Chapter 13 bankruptcy debtors must have unsecured debts less than $465,275, and secured debts less than $1,395,875.

The time it takes to file for bankruptcy in Illinois depends upon the specific circumstances of the case and the type of bankruptcy.

A bankruptcy filing typically involves several steps, including completion of the necessary paperwork, attending a credit counseling course, and appearing at a meeting of creditors. All of this can take several months to complete.

In Illinois, bankruptcy cases are filed at the state’s bankruptcy courts. There are three bankruptcy court locations in Illinois: the Northern District of Illinois, the Central District of Illinois, and the Southern District of Illinois.

The length of time that bankruptcy proceedings last in Illinois depends on the specific type of bankruptcy. Chapter 7 bankruptcy, known as "liquidation" bankruptcy, is generally the quickest form. Most Chapter 7 cases are completed within a few months.

Chapter 13 bankruptcy, known as "reorganization" bankruptcy, involves the creation of a repayment plan that allows the debtor to pay off some or all of their debts over three to five years.

The cost of filing for bankruptcy in Illinois depends on several factors, including the type of bankruptcy, the complexity of the case, and the fees charged by attorneys and the bankruptcy court.

Several court fees are associated with the bankruptcy process, including a filing fee and a fee for the mandatory credit counseling course. In 2023, the filing fee for a Chapter 7 bankruptcy case is $338, and the fee for a Chapter 13 case is $313.

There may also be additional fees for certain services, such as obtaining copies of documents or requesting that the court issue a certificate of discharge.

There are several benefits to filing for bankruptcy in Illinois, including relief from creditor harassment, debt discharge, protection of assets and an automatic stay prohibiting creditors from taking any collection actions while the bankruptcy is in progress.