Bankruptcy is a legal process that can help you erase debt, stop collections, and get a fresh start. It happens in federal court and can stay on your credit report for up to 10 years.
Most people file for bankruptcy under either Chapter 7 or Chapter 13.
Chapter 7: Fresh start
Chapter 7 bankruptcy discharges your debts to give you a fresh start.
- You must have low income and few assets to qualify,
- Most debts are erased in about 4 months, and
- You may lose some property, but you can keep things like furniture or a car (up to certain limits).
Chapter 13: Repayment plan
Chapter 13 bankruptcy allows you to reorganize your debts and create a plan to repay them.
- You must have regular income to qualify,
- You pay some or all of your debts over 3 to 5 years,
- You keep your home and car, and
- Any remaining eligible debts may be erased at the end.
👉 Learn more about bankruptcy at Illinois Legal Aid Online.
Reasons to consider filing for bankruptcy
Bankruptcy can help if you:
- Want to stop collections, wage garnishments, or utility shutoffs,
- Need to erase credit card or medical debt,
- Are trying to save your house or car, or
- Lost your license because of unpaid fines or fees.
Reasons not to file for bankruptcy
Bankruptcy may not be right if you:
- Want to avoid damage to your credit (it stays on your report for 7 to 10 years),
- Have debts that cannot be erased (like child support or student loans), or
- Have other legal options or are collection proof.
Bankruptcy cannot help with some debt
Bankruptcy can help with most kinds of consumer debts, like medical and credit card debt. But bankruptcy cannot help with other kinds of debt, such as:
- Child support or alimony,
- Most taxes,
- Most student loans,
- Criminal fines or restitution,
- DUI-related debts, and
- Divorce property settlements.
Timing matters
When you file for bankruptcy, the court issues an automatic stay, which stops calls, lawsuits, and wage garnishments while your case is being reviewed.
Act quickly if:
In other cases, it may help to wait. But do not wait out of fear. Make a plan.
📌 Learn your options, but do not miss deadlines.
Filing while married
You can file alone, even if you are married. But:
- Your spouse’s income may still be included in the paperwork, and
- If your spouse co-signed a debt, they still owe it.
You may not need bankruptcy if you are collection proof
Even if you owe debts, you may not need to file for bankruptcy if you are collection proof.
Collection proof means all of your money and property is protected from collections. This means that even if a debt collector sues you and wins, they cannot take your protected income or property. But you may still need to go to court and claim your exemptions to keep your property safe.
You may be collection proof if:
- You make less than $675 a week,
- You have less than $4,000 in your bank account, and
- You don't own a home.