Bankruptcy 101

Bankruptcy Basics

The two most common types of bankruptcy filings, the Chapter 7 and Chapter 13, share many attributes. A case is started by submitting a petition to the Federal bankruptcy court. The petition must include a detailed summary of all of your assets, liabilities and other information as required by law. You cannot pick and choose which creditors (one to whom money is owed) to include on the petition, you must list them all. If you are married, you do not have to file together with your spouse if all debts are substantially in your name. If this is the case, then you may file as an individual.

In rare cases an involuntary proceeding is initiated by your creditors to force you into bankruptcy. These are limited to business cases. The majority of consumer cases filed are known as a voluntary Chapter 7 with a smaller percentage filed as Chapter 13. The most important aspect of filing a voluntary bankruptcy petition is the creation of an automatic “stay”. This action stops creditors in their tracks and they are immediately prevented from doing anything further to compel collection of a debt. This includes harassing phone calls, wage garnishments, all law suits, property foreclosures, vehicle repossessions or shutting off utility services. This action provides you time to get back on your financial feet without anymore contact from creditors.

All your debts will be listed on the petition and are classified as either priority, secured or unsecured. Priority debts are typically government tax liabilities and such things as child support. As the name implies, these creditors possess the rights to payment above the other creditors.

Secured debts, typically mortgages and auto loans, are those backed by collateral. This means a creditor has lien rights to recover the property upon default (non-payment) of the loan. For example, when obtaining a car loan, a lien is attached to the vehicle by virtue of a written security agreement signed when the vehicle is purchased. This allows the lender to repossess the vehicle if payments fall too far behind. A secured debt can also be a piece of furniture or clothing, for example, purchased with a store credit card that contains a written security agreement.

Unsecured debts include everything else such as credit card bills, back utilities, medical bills, and store charges. Unsecured creditors do not have lien rights to the property purchased. The exception is, if you purchased certain items with a store charge or credit card with a written security agreement, the seller can repossess that item on default.

If you need a bankruptcy lawyer, please feel free to contact us. We serve in Naperville, Itasca and other cities in DuPage County along with Kane County, Cook County and others