With increasing numbers of Illinois residents worrying about their household finances – whether they are worried about the mortgage company foreclosing on their primary residence or collection agents harassing them over the phone or they simply find that they can no longer afford even the minimum payments required by their credit card companies – more and more Illinois consumers are considering Chapter 7 or Chapter 13 bankruptcy to try and control their debt loads. For a variety of reasons (largely medical bills and problem spending), a troubling percentage of borrowers have amassed unsecured debts of more than five figures. Even ordinary Illinois borrowers can find themselves suddenly holding uncontrollable burdens following a family emergency, and heads of household that long took pride in their ability to repay every debt that they had taken out may have to, for the first time in their lives, think about asking for help in legal remuneration of their creditors. At the moment of realization that the borrowers will require assistance with their debts, the average Illinois consumer seems immediately drawn to one of the bankruptcy programs as their best opportunity for a second chance. Considering the automatic stay which immediately halts repossession of vehicles or bank seizure of real estate properties, this may indeed make a good deal of sense to borrowers that are unfamiliar with the extent of the mutation to the federal bankruptcy code. For Illinois residents and most Americans, Chapter 7 and Chapter 13 bankruptcy programs have long been storied as the final option for borrowers with no other recourse: an elimination or restructuring of debts that, while threatening their assets and ruining their credit ratings, could effectively correct their family’s financial stability.
Unfortunately, the promise of bankruptcy has been severely compromised by recent legislation. In the autumn of 2005, the national congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act. BAPCA, as the act soon became known, forever crippled what Chapter 7 and Chapter 7 protections once represented, and this act signaled the end of traditional bankruptcy in the way that Illinois borrowers formerly understood the program. With the protections of bankruptcy much harder for average borrowers to qualify for and highly treacherous for their families to endure even provided they successfully argue for the admission, a number of Illinois residents have had no choice but to investigate the other forms of debt management, but, since so many borrowers simply presumed that bankruptcy would always be there for them should they be otherwise helpless to repay their lenders, some Illinois debtors waited too long to look at the alternatives to bankruptcy or foolishly choose the first debt relief method that they come across, wrongly believing that each alternative to bankruptcy would be essentially the same. In this article, we will briefly explain the details of Chapter 7 or Chapter 13 bankruptcy declaration, go over some of the changes to the United States bankruptcy code that have occurred following the BAPCA passage, and elaborate the issues surround some of the more popular (as well as some of the more successful, they are rarely both) debt solutions that Illinois consumers have adopted over the past few years. Even though bankruptcy does not guarantee the same debt shielding previous generations of Illinois citizens have enjoyed, there are new solutions to seemingly insurmountable financial obligations that each Illinois borrower should be made fully aware of.
Chapter 7, of course, is the most well known sort of bankruptcy and often the only form of bankruptcy that the consumers in Illinois have fully heard about. With Chapter 7 protection, the filer does the necessary paperwork (there’s a lengthy petition plus a detailed list of the creditors and their addresses along side the balances owed), pays a few hundred dollars of the administrative fees, and enrolls, with their own money, in a credit management course certified by the federal government. This credit course has to be taken before declarations will be accepted by the Illinois county courts – another class will have to be passed before the bankruptcy could be discharged – but both the price and the time involved, especially for more rural Illinois residents, could be grave headaches for harried households. Still, though, there’s no guarantee that the borrowers would even be able to enter the Chapter 7 bankruptcy program. As of 2005, the new legislation forces the trustee to restrict Chapter 7 access to only those borrowers who, in a period ending the six months prior to filing for bankruptcy, earned less than the average income for Illinois households. Currently, though this will soon change (always look up the current information on the Illinois state government website before attempting to decide anything serious regarding bankruptcy declaration or other debt management approaches), the median income for our state for a single head of household is forty five thousand dollars. For a two member family, the income will be fifty six thousand dollars. It will be sixty six thousand dollars for a three member family, seventy seven thousand for a four member family, and seven thousand dollars for each additional member of the family.
Obviously, this new statute can severely damage the potential for debt elimination among Illinois borrowers who happened to have made extra income during the period examined by the trustees or those who simply have debts so large that no amount of earnings would make payback possible (for uninsured households that have suffered the major surgery or lingering hospitalization of a family member this should seem not at all unlikely). To make matter worse, these trustees randomly appointed by the Illinois courts have had their powers extremely lessened by the national congressional actions of 2005, and they no longer have the governmentally sanctioned capacity to bend statutes on behalf of the borrowers because they truly believe the borrowers deserve bankruptcy protection. There is, now, a means test which supposedly helps consumers in Illinois and the rest of America whose incomes are above median levels for their state but maintain unsecured debt loads of the appropriate sort – that is, debts unattached to any collateral but still designated as open for bankruptcy protection unlike tax liens, family support, criminal penalties, and education loans – at overwhelming balances. Theoretically, all borrowers have to do is convince the trustee that the combination of payments on their secured debts like car loans or home mortgages, utility bills, fees assessed by the courts, and household expenses are sufficiently elevated that satisfying the unsecured lenders to the tune of a hundred dollars a month would be functionally impossible. Alas, much as this may seem at first glance as a way for all needy Illinois borrowers to enter the Chapter 7 bankruptcy protection, the 2005 alterations to the United States bankruptcy code also set down guidelines (based on census figures run through Internal Revenue Service protocols) for the cost of living expenses of each state that range from uncomfortably low to unrecognizably mistaken. As a result, especially for those borrowers that live in the more expensive parts of Illinois – much of Chicago, for example – even this back door into Chapter 7 bankruptcy would still be rendered impossible to successfully be utilized.
The borrowers who are lucky enough (or who make sufficiently little money to both enter the program and afford the services of attorneys experienced in both national bankruptcy laws and the local Illinois statutes) to worm their way past the regulations set in place by congress and enjoy the fruits of Chapter 7 debt elimination must still deal with potential asset forfeiture from the Illinois courts. Unlike the bankruptcy laws from prior to 2005 which only asked the borrowers filing for bankruptcy to list their varied possessions by potential resale costs – which, for middle class households, meant that virtually all of their everyday property would be essentially safe guarded from court seizure – the new legislation demands that filers document everything they own according to the exponentially more expensive replacement costs, and, under that seemingly small change to the national bankruptcy code, nearly everything the debtor and the debtor’s family may own could be taken for eventual auction to repay their lenders. Borrowers in Illinois undergoing Chapter 7 protection are rather more fortunate than most in this way. The Illinois state legislature, in response to the draconian measures taken by the federal government, has their own set of exemptions to aid citizens who can demonstrably prove the state of Illinois to be their primary residence. Consumers filing for Chapter 7 bankruptcy debt elimination within Illinois will not have to worry about clothing deemed necessary, personal injury payments up to fifteen thousand dollars, tools of the trade up to fifteen hundred dollars, automobile equity up to twenty four hundred dollars (which, with blue book depreciation, shouldn’t be a concern for truly desperate borrowers), and a so called wild card exemption that shall protect most any household goods – from wedding rings to artwork to savings accounts – up to a total cost of four thousand dollars. As well, under the Illinois homestead exemption, borrowers may keep property with equity under fifteen thousand dollars (again, considering the free fall in Illinois real estate values during the current national economic doldrums) and should not have to worry about their disability payments, alimony payments, veterans’ benefits, or incomes derived from social security.
As you can see, Illinois law offers far greater protection in the midst of Chapter 7 bankruptcy declaration than granted by the federal government, but some borrowers may still be reasonably worried about the seizure of their family’s assets. In this case – and with regards to those borrowers who are unable to enter Chapter 7 debt elimination but want to continue down the road of governmental protection of their debts – the Chapter 13 program of personal debt reorganization of loans would be the only potential source of relief. This form of bankruptcy still offers the automatic stay which helps restore utilities and, except in the direst of circumstances, prevents lenders from foreclosing upon homes, but virtually the entire balances of the credit cards that Illinois borrowers had taken out must be satisfied by the borrower and repaid under extremely heightened payment schedules overseen by the court trustee. Since the trustee shall be forced to (as with the means test) employ the budgetary guidelines implemented by the Internal Revenue Service, the payment schedule the Illinois courts are responsible for maintaining, these exaggerated payments could prove thoroughly unworkable for many borrowers who, nonetheless, would have little recourse once they had started the program. For that matter, since the debtor will be held liable for not only the debts that they had previously taken out (as well as the costs of skilled bankruptcy attorneys which could in themselves cripple the finances of most households) but also the not inconsiderable costs of the IL courts when handling the bankruptcy protection, it’s difficult to see how many borrowers would genuinely find the Chapter 13 program to be more beneficial than one of the other debt management options that have become increasingly available to regular Illinois consumers.
Consumer Credit Counseling has become the most well known alternative to bankruptcy protection as well as the most popular private debt solution for Illinois consumers. It’s important to remember that all aspects of the Consumer Credit Counseling industry have nothing to do with the state or federal government despite their willfully misleading advertisements. A Consumer Credit Counseling company may well be not for profit. Non profit is an essentially pointless designation that simply means that their employees and overhead eat up all of the money collected, and, since the Consumer Credit Counseling firms tend to charge remarkably high fees from both the debtor clients and the lenders that hold the clients’ loans, there’s quite a bit of money to be split among the CCC counselors and loan professionals. To borrowers first considering the Consumer Credit Counseling alternative to bankruptcy, the discovery that the CCC businesses – which initially seem so very sensitive to debtor’s predicaments and even hostile to the mercenary actions of the credit card companies – also bill their supposed enemies can seem shocking, but all Illinois residents thinking about liquidating their debts absent Chapter 7 bankruptcy protection should remember that, above all else, creditors want to impede that process. While the Consumer Credit Counseling companies may spin their sales pitches around lower interest rates and waived past fees, their true attraction for problem borrowers will be the lower payments that debt consolidation allows, but the only way to reduce payments without essentially touching the overall debt balances would be by extending the payment schedule which will necessarily raise the amount of money paid through the course of the loan.
No matter how much the interest rates are lowered through the Consumer Credit Counseling system, as long as the debt remains and compound interest continues to escalate, balances will go up alongside. Illinois borrowers should immediately be wary of any theoretical debt solution promising to decrease the payments without offering much in the way of a clear end date for their financial burdens. Of course, the other reason that so many Illinois residents first fall for the Consumer Credit Counseling ad campaigns and enter the offices to listen the well practiced sales techniques has been the way that CCC companies employ the growing realization that there’s something different about bankruptcy protection following the 2005 legislative changes (as well as the lingering societal notion that there has always been an un-American tinge to debt elimination absent struggle). While, as we have written, the recent alternation of the bankruptcy code has greatly diminished prior protections, no Illinois consumer should necessarily presume that Consumer Credit Counseling would be better. Indeed, all the Consumer Credit Counseling companies really do for their clients is organize their debts for them and charge an extravagant price for the privilege. As a matter of fact, over three quarters of the time, the borrowers in Illinois that attempt the Consumer Credit Counseling program end up dropping out but only after ruining their credit (CCC systems disrupt credit ratings and FICO scores at least as badly as bankruptcy does), spending a great deal of money pointlessly, and potentially ruining the Illinois consumers chances for a truly effective means of debt relief.
Debt settlement, while the program may superficially seem similar to the Consumer Credit Counseling approach to Illinois borrowers unfamiliar with the program, contains a far more aggressive approach to the same problem: unsecured debt balances that consumers in Illinois and around the nation cannot pay back on their own. In fact, debt settlement (though the restrictions of the method intrinsically demand that the potential consumers who’ll be admitted demonstrate some ability to remunerate a portion of the loan) utilizes the overwhelming debt loads against the credit card companies. Since lenders have to at least acknowledge the opportunity for Chapter 7 debt elimination bankruptcy among their customers, the debt settlement professionals begin a process of negotiation that aims to drive down the funds that are owed. Though the idea that Illinois residents would be able to suddenly cut their overall unsecured bills by as much as sixty percent for good may strike borrowers new to the program (without the sky high subsidies of the credit card companies popularizing Consumer Credit Counseling among the public knowledge of Illinois citizens) as too good to be true, debt settlement negotiation has an extremely favorable success ratio, and, while there are admittedly costs to the program, credit ratings come through relatively unscathed when compared to the damages wrought by Chapter 7 bankruptcy protection or Consumer Credit Counseling.
As we have said, not every Illinois borrower shall be allowed to proceed through the debt settlement approach. Along with threatening the creditors with the potential, however slim, of debt elimination through Chapter 7 bankruptcy, the debt settlement specialists also promise that all of the remaining debts shall be fully satisfied in sixty months or less. That sort of payment schedule won’t be in the cards for each resident of Illinois – and, also, not every credit card corporation or unsecured lender will be so easily persuaded to cancel the majority of the debts owed to them – but, as opposed to experienced Illinois bankruptcy attorneys, debt settlement firms (many of whom may be found on line these days) will provide initial consultation for free or extremely limited costs. There are other aspects to be considered by Illinois borrowers drowning in debts. Unlike Chapter 7 bankruptcies, there will still be a good deal of money to be paid by the Illinois consumer in a limited amount time with debt settlement, and those five years of heightened payments will be a very difficult stretch of time for the Illinois household undergoing budgetary discipline. Unlike Chapter 13 bankruptcies, there’s virtually nothing that the settlement negotiator can do to turn utilities back on or keep cars from being repossessed or homes from being foreclosed upon. Nevertheless, debt settlement negotiation has helped thousands of Illinois borrowers, and, even if a minority of curious consumers shall be turned away, finding out a successful replacement for bankruptcy protection should be a priority for all Illinois residents that need help with liquidating their collected unsecured debts.
The decision to reach out for help with your debt is not one that's easy to make. You were raised to "do the right thing", but now it’s nearly unbearable. You struggle along while your creditors are turning up the heat. And now you’re at the point where the late fees, penalties and interest expense make it impossible to keep your head above water.
Ask yourself this. If you could eliminate your debt without permanently damaging your credit, why wouldn't you?
