Jane is a 64 year-old retired grandmother. Jane worked for 30 years and has a small pension and collects social security totaling $1,500 per month. Jane rents her home, and is financing her car. Jane is having difficulties making her car payments because she has a lot of credit card debt — almost $18,000 total. Jane wouldn’t mind giving her car back to the creditor as long as she could eliminate the debt she owes on it. Jane doesn’t have any money in the bank or any significant assets. She realizes she’ll never be able to afford to repay all her debt and wants to put a stop to all the collection letters and harassing phone calls before it progresses to lawsuits and other aggressive collection activities.
In this hypothetical, Jane would qualify for Chapter 7 bankruptcy. Her income is under the average median income of any state, and she has no assets that could be sold to pay off her debts. Jane would be able to eliminate her credit card debt and give the car back without owing the finance company any money. Jane may also decide to keep the car if she thinks that she can now afford it after eliminating all of her credit card debts.
Joe and Mary Filer are a married couple with three dependent children. Dennis makes $45,000 annually and Pamela makes $30,000 annually. They are homeowners and have a first mortgage and a home equity loan that was used to pay off some prior credit card debts. Their house is located in Chicago, IL and has a fair market value of $150,000, with mortgages totaling $140,000. They are also financing 2 cars, which have payments that are up-to-date. They are finding it difficult to pay their mortgage, home equity loan, car payments, credit card bills, medical bills, and all their living expenses. Joe and Mary would like an opportunity to eliminate some of their debt, but they want to keep their house and cars. With all their monthly debt obligations, they don’t have the ability to put money aside for their children’s college fund or other long-term goals.
Joe and Mary can file a Chapter 7 bankruptcy. The Illinois bankruptcy exemptions protect the equity that is left in their house, and that their total annual income is under the median income for a family of 5 in Illinois. Joe and Mary would be able to keep their house and 2 cars if they continue to make their mortgage, home equity, and auto payments. They could eliminate their credit card debts, medical bills, and any other unsecured loans.