When Not To File Chapter 7 Bankruptcy

There are times when filing chapter 7 bankruptcy would be a mistake. The most common type of mistake made in filing a chapter 7 bankruptcy is the fact that assets are going to be taken by the chapter 7 trustee. In the state of Illinois, you are allowed to protect a certain amount of property free and clear from the long arm of the trustee. These amounts, known as exemptions apply to real estate, vehicles, retirement benefits, and many other types of property. In Illinois, you can protect up to $15,000 worth of equity in your real estate. If you are filing jointly, then you can protect up to $30,000 worth of equity. In reality, the amount of equity that you will be able to protect will technically exceed the exemption. This is because the chapter 7 trustee has to factor in what it is going to take to sell that property and what would be available to creditors once the debtor’s exemption was given. So for most of my clients, if they are anywhere hovering around the exemption amount or slightly above it, they are going to be able to get the property free and clear. However there are cases where someone files for bankruptcy under Chapter 7 not realizing exactly what they have or what their property is worth. One example would be a homeowner who feels that there is very little equity in the property when in fact there is quite a bit of equity. The chapter 7 trustee in that particular case is going to administer that asset. He can list it for sale through a licensed realtor or the debtor can buy out the trustee’s interest and avoid losing the property. Another situation were chapter 7 should not be filed is if someone is going to lose financial assets. I have had cases before were someone had a life insurance policy with a cash value which we were not able to protect. Whole life insurance can be protected as long as the beneficiary of that cash value is a spouse or a dependent child. In a recent filing, the debtor was not able to protect the cash surrender value. The beneficiary of the policy was a brother or a sister not a spouse and not a dependent child. Thankfully in that case, the debtor was eliminating a huge amount of unsecured debt. The debtor decided that going forward it was better to eliminate the debt and give up the interest in the insurance policy. Another situation where does filing does not make good sense is when you are eliminating very little in terms of debt. I have had clients seek bankruptcy protection for less than $3000 worth of debt. It simply doesn’t make sense to go through the bankruptcy process if you’re not getting much of benefit. If you are working, or have other sources of income, then I would think twice about filing bankruptcy if your debt is very small. You may very well be able to work out a payment arrangement with your creditors or wait until they pursue collection activity in the court system before you avail yourself of the bankruptcy protection unless the debt is significant. Please keep in mind that you can only file for chapter 7 bankruptcy protection and receive a discharge once every eight years. You want to make sure that when you avail yourself of the federal bankruptcy law that you’re not going to be back in a financial struggle in the very near future. You basically want to make bankruptcy a one-time event to get yourself back on your feet with the financial fresh start. There are some people who look to the calendar and every eight years file for bankruptcy regardless of their financial situation. However, these individuals are few and far between and the majority of people out there in the United States are utilizing the bankruptcy laws for their benefit when they desperately need a fresh start. If you are thinking about filing for chapter 7 bankruptcy, make sure you do your homework. Investigate the different attorneys that you’re considering hiring, and make sure that you weigh all of your non-bankruptcy options prior to filing. A good bankruptcy attorney will be able to point you in the right direction as to whether or not filing is a good idea. You can learn so much on the Internet by doing a little bit of research regarding chapter 7 bankruptcy. I recommend you do that before you decide to pull the trigger on filing.

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