Before You File: A Pre-Bankruptcy Checklist for Illinois Residents

By the time someone calls our office, they have usually been carrying the decision for months. That is not a bad thing. The weeks between "I think I need to file" and "we are filing next Tuesday" are when the case is actually won or lost. Small choices — which card you use for groceries, whether you cash out a 401(k), whether you pay back a loan from your sister — can quietly shape what your discharge looks like.

1. Stop using credit

Any purchase made on credit in the 90 days before filing can be challenged as presumptively non-dischargeable if it exceeds roughly $800 for luxury goods, or $1,100 for a cash advance. Trustees do read statements. Stop new charges the moment you decide filing is likely.

2. Do not repay friends or family

Paying back a personal loan to a relative in the year before filing is called an insider preference. The trustee can sue your relative to claw the money back. If you owe family, list the debt and let the discharge run its course — you can repay voluntarily after your case closes.

3. Do not transfer assets

Signing the car over to your son, quitclaiming the house to your spouse, or moving money into a friend's account within two years of filing is a fraudulent transfer. These are the fastest way to lose a discharge. Illinois exemptions are generous; almost anything you were trying to protect by transferring is already protected if you leave it where it is.

4. Do not touch retirement accounts

401(k)s, IRAs, pensions, and 403(b)s are fully exempt in Illinois bankruptcy. Cashing one out to pay creditors converts protected money into non-exempt cash — and usually triggers a 10% penalty and income tax on top. Leave retirement alone until you have spoken with an attorney.

5. Gather six months of everything

The means test and Schedule I use a six-month lookback of income. Start pulling:

• Six months of pay stubs for every household earner
• Two years of federal tax returns
• Six months of statements for every bank and credit union account
• Most recent statements for retirement, brokerage, and HSA accounts
• Titles and current payoff quotes for vehicles
• Mortgage statement and most recent property tax bill

6. Take the credit counseling course early

The pre-filing credit counseling course is required within 180 days before the petition is filed. It takes about an hour online and costs $15–$25. Do it as soon as you have decided — the certificate is good for six months and one less thing to chase later.

7. Keep filing tax returns

Chapter 13 cannot be confirmed if you have unfiled returns for the four years before filing. Chapter 7 trustees also expect current returns. Catch up before you file, even if you owe.

The best pre-bankruptcy planning is boring: pay ordinary living expenses, gather documents, and wait for advice before making any large financial move.

What to do next

Bring the six-month document pile and this checklist to a free consultation. In an hour we can tell you whether Chapter 7 or Chapter 13 fits, whether waiting a month would strengthen the case, and whether any red flags need to be cleaned up before the petition is filed.