Bankruptcy 101: How Bankruptcy Works

Debt Relief & Bankruptcy Attorneys in Illinois

The Bankruptcy Code is a set of federal laws providing a fresh financial start to individuals and businesses who cannot pay their debts. Bankruptcy allows you to eliminate certain debts or repay creditors over time without penalty. Bankruptcy also shields you from creditor actions and preserves your hard-earned assets.

Atlas Consumer Law represents honest debtors who have incurred debts through business enterprise or financial investments, or through personal misfortunes such as health problems, job loss or divorce. We do not judge people for filing bankruptcy. In fact, we encourage clients to embrace bankruptcy as an opportunity to break free from debt.

Why Bankruptcy Is an Option for You

• Bankruptcy is legal. It is not a loophole. The law was designed for honest people and businesses saddled by debts they cannot pay off.
• Bankruptcy is common. More than 1 million bankruptcies are filed in the U.S. every year. Many famous Americans, from Thomas Jefferson to Donald Trump, have filed for bankruptcy, as well as such iconic companies as Ford Motor Co.
• Bankruptcy is smart. Rather than selling off assets or cashing in your retirement, bankruptcy allows you to take back your life while retaining the wealth you have worked hard to acquire.
• Bankruptcy is true relief. Bankruptcy invokes protection from creditors and reduces what you owe. Outside of bankruptcy, lenders and creditors have no legal obligation to forgive your debts or work with you.

The concept of periodic forgiveness of debts dates to biblical times,* and a provision for bankruptcy was reserved in the U.S. Constitution. The first bankruptcy laws were enacted in 1800 and have evolved over the years into what the U.S. Supreme Court famously recognized as a fresh start for "honest but unfortunate debtors."**

Who Qualifies for Bankruptcy?

You do not have to be flat broke, unemployed, or working for the minimum wage to file for bankruptcy. We represent many professionals, business owners, executives and other people with substantial incomes and high net worth. The discharge rules and property exemptions of bankruptcy are intended to help you alleviate debt while retaining your house, your retirement savings and your other property.

Congress changed the bankruptcy laws in 2005 to institute an income threshold (the means test). The cutoff for Chapter 7 discharge of debts is the median income in each state. Some high earners who exceed the Illinois median may still qualify through offsetting criteria. Other high net worth clients find relief through Chapter 13 or Chapter 11.

Chapter 13 bankruptcy involves monthly payments to a trustee, who then makes payments to your creditors. Most Chapter 13 filers pay only a fraction of their total debt. Chapter 13 is for people with mortgage arrears, disqualifying incomes or assets that would be forfeited in a Chapter 7 bankruptcy. Chapter 11 is a repayment plan for businesses and for certain high earners who have too much debt to qualify for Chapter 13.

In Chapter 7, 11 or 13, you are protected by the automatic stay. Under penalty of law, creditors cannot pursue collections or legal actions, or continue to harass you about your debts.

* "At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the Lord's release." - Deuteronomy 15:1-2

** "(Bankruptcy) gives to the honest but unfortunate debtor ... a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt."
Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)

Call our office or request a consultation online to learn more about your legal options with our law firm. We look forward to helping you!