Bankruptcy is a court-supervised legal process that helps people who can no longer pay their debts get a fresh start by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect financially troubled businesses.
In Illinois, as in all states, bankruptcy is governed primarily by federal law, specifically the U.S. Bankruptcy Code. Individuals and businesses in Illinois may file for bankruptcy under Chapter 7 (liquidation), Chapter 13 (reorganization for individuals), or Chapter 11 (reorganization for businesses), among others. Chapter 7 bankruptcy allows for the liquidation of non-exempt assets to pay creditors, while Chapter 13 and Chapter 11 involve creating a repayment plan to pay off debts over time. The process is overseen by a federal bankruptcy court; in Illinois, there are three bankruptcy districts: Northern, Central, and Southern. Each district has its own set of local rules that complement the federal rules. Bankruptcy can offer a discharge of debts, providing a 'fresh start' for the debtor, but it also has significant financial consequences, including a lasting impact on the debtor's credit score. It's important for those considering bankruptcy to consult with an attorney to understand the specific implications for their situation.