R|S|P ROBBINS, SALOMON & PATT, LTD.

Attorneys at Law

BANKRUPTCY

From the Desk of:

Nat Pomrenze BANKRUPTCY BASICS
(312) 456-0385
npomrenze@rsplaw.com Under the United States Bankruptcy Code, you can be discharged from all or part of your debts if
you can’t meet your financial obligations. Two types of personal bankruptcy apply to consumer
debtors. Chapter 7 bankruptcy allows debtors to discharge all or part of their debts. Chapter 13
bankruptcy requires debtors to repay some of their debts through a court-approved payment plan.

Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy, you can have all of your debts discharged after your “non-exempt”
assets are used to repay some of that debt.

Definition of Assets

Most people have at least some liquid assets. These are assets that can easily be converted into
cash, such as a bank account. Some liquid assets may be turned over to a court to be distributed to
a creditor as a partial repayment of the debt you owe. Such assets are referred to as non-exempt
assets. Exempt assets are assets that the law protects against being used to repay creditors. The
exemption laws of each state dictate which liquid assets are exempt from the reach of creditors.

After any non-exempt liquid assets have been paid out to creditors, any remaining debt is dis-
charged. The debtor is no longer liable for those debts. As a result, neither creditors nor third-
party collection agencies may try to collect those debts from you.

Qualifying for a Chapter 7 Bankruptcy

To qualify for a Chapter 7 bankruptcy, a debtor needs to pass a “means test” showing that his or
her income is less than the median income for a comparable family in the area. If the debtor fails
the means test, he or she cannot file a Chapter 7 bankruptcy. Instead, the debtor will have to file
RSP CHICAGO
25 East Washington Street
under Chapter 13. In addition to passing a means test, the debtor has to receive credit counseling
Suite 1000 from an approved credit counseling agency.
Chicago, IL 60602
Tele. (312) 782-9000 Chapter 13 Bankruptcy
Fax (312) 782-6690
In a Chapter 13 bankruptcy, a debtor repays all or part of his or her debts as part of a 3- to 5-year
repayment plan. After the bankruptcy petition is filed, the debtor submits a repayment plan to the
court for approval. Once the plan is submitted the debtor will begin making payments to the trus-
tee assigned to administer the case. The creditors are then paid through the trustee.

RSP GLENVIEW A court hearing is required for approval of the plan. Once the plan is approved, the debtor contin-
2222 Chestnut Avenue ues to make payments to the trustee. When the Chapter 13 payment plan is completed, any re-
Suite 101
Glenview IL 60026
maining debts are discharged and the debtor will no longer be liable.
Tele. (847) 729-7300
Fax (847) 729-7390

© 2010, Nat. Pomrenze

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R|S|P ROBBINS, SALOMON & PATT, LTD.
Attorneys at Law

BANKRUPTCY

BANKRUPTCY BASICS—Continued

A person may want to file under Chapter 13 instead of Chapter 7 if he or she has property with se-
cured debt that he desires to keep, such as a home or an automobile. Because a Chapter 7 bankruptcy
could require you to give up those kinds of assets, a Chapter 13 might be a better way to go. Another
reason to file a Chapter 13 bankruptcy is if your gross income is higher than the median for a similar
family in your local area; under those circumstances you might not be allowed to proceed with a
Chapter 7 bankruptcy. Finally, among other requirements, a debtor wishing to file a Chapter 13 bank-
ruptcy may not have more than $1,010,650 in secured debt and $336,900 in unsecured debt.

Just as in a Chapter 7 bankruptcy, the debtor has to first receive credit counseling from an approved
credit counseling agency.

Conclusion

Since personal bankruptcy laws are complicated and confusing, it is wise for a person to consult with
an attorney before filing. He or she will then know that their paperwork has been prepared and filed
correctly and in accordance with the law.

Nathaniel Pomrenze is an attorney whose practice concentrates in personal and business bankruptcy
law. He can be reached at (312) 456-0385 and at npomrenze@rsplaw.com.