Bankruptcy & Debt Consulting FAQs


Q: Are there different types of bankruptcy?

A: There are several “Chapters” of the bankruptcy code.  Most individual debtors will chose between a Chapter 7 and a Chapter 13 bankruptcy.

Q: What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?

A: A Chapter 7 bankruptcy is known as a liquidating bankruptcy.  A Chapter 13 bankruptcy is a reorganization, or payment plan bankruptcy.  Most individuals would prefer to file a Chapter 7 bankruptcy.  There are three general factors that could cause a debtor to choose a Chapter 13 instead of a Chapter 7.  The first factor is having too much equity in the debtor’s assets.  In this situation the debtor would file a Chapter 13 bankruptcy and pay the Trustee an amount of money at least equal to the “excess” equity in their assets.  The second factor for filing a Chapter 13 is to stop a foreclosure or repossession of the debtor’s assets.  A common example would be a debtor who, due to illness or unemployment, has fallen behind in their house or car payments but now is working and can afford to make the regular payments and perhaps a little more to catch-up on the arrearage.  The lender, however, wants all the back payments immediately or they threaten to foreclose on, or repossess, the asset.  If the debtor files a Chapter 13 bankruptcy the court, upon confirmation, will force the lender to allow the debtor additional time to pay back the arrearage.  The third major factor causing the debtor to file a Chapter 13 bankruptcy would be if a debtor makes too much money as determined by a surplus in their budget (before deducting credit card payments) or if their income exceeds the median income for a family of the same size in the county where the debtor resides.

Q: What is a “means test”?

A: The means test is an objective calculation created by the Bankruptcy Reform Act that became effective in October 2005.  The means test starts with comparing the debtor’s gross income to the median income for a family of the same size in the state and county where the debtor resides.  If the debtor’s income is lower than the median income, it is said that the “presumption of abuse” does not arise and the debtor can file a Chapter 7.  If the debtor’s income is higher than the applicable median income, the means test has additional calculations to determine whether the debtor’s personal expenses on its secured debt or medical expenses exceeds the average and thus might still allow the debtor to file a Chapter 7 bankruptcy.  The means test is quite complex and in some situations a debtor may qualify for a Chapter 7 bankruptcy, notwithstanding personal income that exceeds the median income by thousands of dollars.

Q: Will I lose my IRA or 401k savings plans?

A: No.  Tax deferred, tax qualified, retirement assets are considered exempt assets in Illinois.

Q: Will my pending personal injury case or workman’s compensation claim be effected?

A: Personal injury claims are only exempt up to the first $15,000.00.  Any award in excess of $15,000.00 would likely be claimed by the Trustee to distribute to your unsecured creditors.  Workman’s compensation claims are completely exempt under Illinois law so long as the debtor keeps the proceeds from that type of claim segregated from their other assets.

Q: Can I pay back friends or family members before I file a bankruptcy?

A: No.  You can payoff any debt of your choice after your bankruptcy, but the Trustee can retrieve payments made up to a year in advance of your bankruptcy filing if paid to a friend, family member, or business associate.

Q: How long until my credit scores recover?

A: There are several specific dates that apply to someone who has filed a personal bankruptcy.  The bankruptcy will be reported on your credit report for up to 10 years, the same length as most other information, good or bad, is reported.  Another date that is often confused is the time limit before a debtor is eligible to file another bankruptcy.  In the case of a Chapter 7 debtor they cannot file another Chapter 7 bankruptcy until eight years after the date of discharge from the prior bankruptcy.  The time period for your credit score to recover is not governed by any law; but, instead, your credit score and availability of credit is governed by the practices of lenders.  In some cases, credit scores can increase by up to 100 points in the first 18 months after your bankruptcy.  Some lenders will make offers to debtors immediately after filing their bankruptcy, although these offers tend to be high cost, high interest, low limit offers.  12 to 24 months after your bankruptcy most debtors who work to rebuild their credit scores will find themselves getting credit card offers from more traditional credit card issuers.  Finally, most individuals find that they would be eligible for any loan as early as 36 months after their discharge, provided they make all their post bankruptcy payments timely and work to rebuild their credit scores.

Q: Does Webster & Schelli charge a fee for the initial consultation?

A: Yes.  Because your initial consultation will be with Mr. Schelli (as opposed to an intake clerk or paralegal) we charge $200.00 for the initial consultation.  Consultations typically last between one and one and one-half hours and the fee represents approximately one-half of Mr. Schelli’s normal billing rate.  The $200.00 consultation fee is, however, applied against the bankruptcy fee ultimately charged.  Therefore, if you were to hire Mr. Schelli to represent you in your bankruptcy, the initial consultation really does not cost any extra. 

Mr. Schelli’s bankruptcy practice is different than many other practitioner’s in that he conducts the initial consultation, he will work with you directly in completing and reviewing your petition, and he will be with you at your Section 341 Creditor’s Meeting.  When comparing the services of other firms it may be wise to ask whom you will be dealing with, as well as whom will be returning your telephone calls if you should call with a question.

Q: Will I have go to debtor’s school?

A: The 2005 Bankruptcy Reform Act did create the requirement that debtors take both a pre-filing credit counseling course as well as a post-filing financial management training course.  Fortunately, both courses can be taken online or on the telephone from the privacy of your own home.  Webster & Schelli has arranged an agreement with a service provider that will be billed to the firm and will be included in the cost of your bankruptcy.

Q: How much willmy bankruptcy cost?

A: While each case is unique, generally the legal fees for a Chapter 7 bankruptcy range from $3,000.00 - $5,000.00.  Some very straightforward cases may be slightly less.  Additionally, Mr. Schelli has the ability to discount further if the facts and the debtor’s ability to pay warrant a hardship exception.  Mr. Schelli will determine a fixed fee and payment arrangements at the initial consultation.



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