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Chapter 7 Frequently Asked Questions

1. Will I lose my home if I file Chapter 7?

Most people keep their homes and eliminate all of their unsecured debt in bankruptcy. As long as you don’t have more than $15,000 of equity ($30,000 for a married couple) in your principal residence, you can keep your home.(As long as you keep making your mortgage payments!)

We recommend procuring a CMA (Comparative Market Analysis) from a realtor to be sure that there is no substantial equity in your home before you file for bankruptcy.

2. Will I lose my car if I file Chapter 7?

Again, most people keep their cars in bankruptcy. Your lawyer will need to know the approximate fair market value of your vehicle and if there is a lien against the vehicle. Remember that you have to keep making your car payments in order to keep your car! If your car is paid off, it is important to look up the value online first.  You can get a free online appraisal with your VIN number online at www.kbb.com or www.nadaguides.com.  If your vehicle does have over about $5000.00 of equity, let your attorney know so they can advise you of all your options so you do not lose your vehicle. 

3. How do I know if I qualify for Chapter 7?

An attorney from BLG, P.C. can help you figure out if you qualify for Chapter 7. As long as your income is under the median income in your city/state at the time of filing, you haven’t filed a bankruptcy recently (there are rules and an attorney will advise you of your eligibility to file), you haven’t committed fraud, or transferred property or money to creditors recently, you have no non-exempt assets, you should qualify for Chapter 7. Of course, an attorney from our firm will help figure out your eligibility based on many factors. 

At this time (updated as of April 2025) the “Means Test” income limits are as follows for Illinois:

ILLINOIS

Family size of 1: $69,611
Family size of 2: $88,824
Family size of 3: $108,492
Family size of 4: $132,536

MEANS TEST LINK HERE

These figures are “gross” and do not take into account payroll deductions and other special deductions your family may have. We can figure out if you qualify by looking at your documents including a credit report, income tax return and paystubs.

4. What kind of debt can I eliminate in Chapter 7?

Most “unsecured” debt can be eliminated in a Chapter 7 bankruptcy. This includes:
– credit cards
– personal loans
– medical bills
– payday loans
– utility bills
– vehicle repossessions
– deficiency balances from foreclosures
– car accident debt
and more

5. What kind of debt is NOT dischargeable in Chapter 7?*

Some debts are likely to be found by the court to be non-dischargeable in a Chapter 7 bankruptcy. This can include:
– student loans
– recent taxes owed to the IRS and/or state of IL (less than 3 years old)
– parking tickets and fines (some can be discharged in Chapter 7 with the City of Chicago only in a special program)
– child support and alimony
– property settlements from a divorce
– debts incurred by fraud 
– recent usage on a credit card
– recent luxury purchases
– debts you do not list in your petition

*The list of exceptions to discharge can be found here: 11 U.S.C. Section 523- Exceptions to Discharge

6. How many times can a person file for bankruptcy?

There is no limit as to the times a person can file for bankruptcy, however there are some time limits that you must wait in between filing to be eligible to receive a discharge in a case.

If you file a Chapter 7 bankruptcy you cannot file another Chapter 7 case for another 8 years from the date of filing.
If you file a Chapter 13 bankruptcy (and receive a discharge) you are not eligible to file a Chapter 7 for another 6 years.
If you file a Chapter 7 bankruptcy you cannot file another Chapter 13 for 4 years.
If you file a Chapter 13 bankruptcy you cannot file another Chapter 13 for 2 years. (if you received a discharge in the first case)
You CAN refile a dismissed Chapter 13 right away at least twice in the last year if you show that you had a positive change in your circumstances and that the new case was filed in good faith.

The rules are tricky, so make sure you tell your attorney about any previous filings.

7. Will I get credit again after filing for Chapter 7?

No one can definitively answer this question for you, but many of our clients do go on and re-establish their credit after filing bankruptcy. We advise that you wait 1-2 years after the discharge of your case to review your credit report and start working on re-establishing your credit. Some ways to fix your credit after bankruptcy are:
– open a secured credit card
– finance a vehicle or other secured property (if needed)
– stay current on student loan payments
– monitor your credit report often and dispute incorrect information

FHA guidelines state that they will consider lending to a person who has been discharged from bankruptcy after two years.

Read more here: FHA guidelines

Chapter 13 Frequently Asked Questions

1. Why would I choose to repay my debt instead of discharging it in a Chapter 7?

A Chapter 13 is a repayment plan for 3-5 years. Some people benefit from a repayment plan depending on their financial situation. For example if you have an asset you don’t want to risk losing in a Chapter 7 you can file a Chapter 13 and keep your asset. If your income is higher than the median income limits set forth in Chapter 7, you can repay some of your debt in a Chapter 13.

Chapter 13 can also help you save your home if it is in foreclosure by allowing you to repay your mortgage arrears over time instead of all at once.

Most importantly, many times, even if you repay your debt in a Chapter 13, you do not have to pay all of the debt, just a small percentage of what you owe based on how much you can afford, and most people pay zero interest on their debts in a Chapter 13 case!

2. Can I repay the IRS in a Chapter 13?

Yes you can pay back some or all of your IRS debt in a Chapter 13 case and can stop all penalties and interest from accruing. You can also protect yourself from wage garnishments, seizure of your tax refunds and the IRS putting a lien on your property.

3. Can I leave out some of my debts such as a credit card I want to keep?

No. You must include ALL of your debt in either a Chapter 7 or Chapter 13 bankruptcy case.  It is very important that you include all creditors in the case including mortgage, car finance company, payday loans, credit cards, student loans, debts owed to family and friends, attorney fees, and more.  If you don’t list of all your debt you can get in trouble with the court and risk not being able to eliminate this debt in the future. 

4. Should I try to pay off some of my debts by settling them with creditors before I file my bankruptcy case? 

NO! Always ask an attorney for advice before you decide to make an important financial decision before you file the case.  A good attorney will correctly advise you that you cannot pay back some debts before you file.  Many people decide to pay back debts to family members right before filing for bankruptcy but they do not pay back other debts equally.  This is called a preference payment and a trustee in either a Chapter 7 or Chapter 13 can recover the money you recently paid, back from that creditor, including a family member! Do not run and pay off debts before filing your case.  

5. What if my driver’s license is suspended due to parking tickets?

Chapter 13 is a great solution for people who owe a lot of money to the City of Chicago (or other municipalities) for past due parking tickets or other traffic violations. As you know, the City can suspend your license if you do not pay your tickets. Chapter 13 can offer you a low repayment plan over time and you can have your driver’s license reinstated within 5 days!

6. Do I have to have a job to file Chapter 13?

You do have to have some form of reliable income to be a “Debtor” under Chapter 13. This can come from many sources including:
– income from a full time job
– income from a part time job
– rental income
– Social Security

7. How much will my payment be in a Chapter 13?

Each case is based on an individual’s financial situation, but Chapter 13 payments can be as low as $150.00 per month depending on your circumstances and the amount of debt you have. The higher your income, the higher your payments will be (generally). If you have legitimate household expenses that offset your income, we can argue for your payment to be low and affordable for you.

Here are some examples of Chapter 13 payments in actual cases filed by our firm:

1. Debtor #1- Truck Driver with monthly gross income of $40,000 per month and high operating expenses, resulting in a net household income of $5,000 per month. His debt was reduced from $100,000 to $20,000 and monthly payments of $4,000+ per month down to an affordable Chapter 13 bankruptcy trustee payment of $1,500.00 per month over 5 years. Included in his payment is a car payment and multiple truck trailer payments.

2. Debtor #2- A single mother of 4 minor children with monthly income of less than $3,000 per month. She owed over $7,000 to the City of Chicago in parking tickets $20,000 of other unsecured debt. Her license was suspended. Chapter 13 reinstated her license and BLG, P.C. put her on a low Chapter 13 payment of $150.00 per month for 36 months to pay back on a small percentage of all of her debt.

3. Debtor #3- A couple whose principal residence was under water and who were struggling to pay their second mortgage. Chapter 13 stripped down their second mortgage lien and consolidated all of their debt to a monthly trustee payment of $300.00 per month on over $60,000 of debt. Before bankruptcy their second mortgage payment alone was $500.00 per month!

Still have questions? Give us a call! All initial consultations are free.