Debt Relief

Illinois Debt Relief: Your Guide to State Laws and Managing Debt

illinois debt

When most people think of Illinois, the first place that pops into their head is likely Chicago. Although Chicago accounts for a big chunk of Illinois’ overall population, the state’s inhabitants primarily reside outside of the city in suburban and rural communities. After all, the Windy City only comprises about 20% of the state’s population.

As a whole, Illinois is plagued with fairly high student loan and credit card debt. Illinois ranks 16th in the nation in terms of student loan debt, with the average per capita balance at $5,800. The state also ranks 21st in the nation in credit card debt, with the average of $3,240 in credit card debt per capita. One upside, however, is that personal loan balances in Illinois are some of the lowest in the nation. The average personal loan balance in Illinois is $13,895, according to Experian, making it the state with the fourth-lowest average personal loan balance.

If you’re struggling to manage your debt in Illinois, you’ve come to the right place. In this article, we’ll cover everything you need to know to tackle your debt in the Prairie State. We’ll take a look at Illinois debt statistics, as well as the state’s debt collection laws, debt relief programs, payday lending laws and bankruptcy guidelines. We’ll also offer step-by-step advice for how to pay off your debt so you can become debt-free once and for all.

Debt in Illinois: At a glance

Student loan debt is by far the most prevalent form of consumer debt in Illinois. Out of all 50 states, Illinois ranks 16th for student loan debt, with the average per capita balance at $5,800.

Auto debt is the least prevalent form of debt in Illinois, with the state ranking 36th out of 50 in terms of most auto debt carried. The average per capita auto loan debt in the state is just $4,220.

Below, you’ll find a breakdown of recent debt statistics for Illinois.

Illinois debt
Type Per capita balance, 2018 Rank out of 50 states (1 is highest) Change from 2017 (%) U.S. per capita balance
Credit card debt $3,240 21 3.5% $3,220
Student loan debt $5,800 16 3.8% $5,390
Auto debt $4,220 36 3.2% $4,700
Mortgage debt* $30,960 22 2.3% $33,680
*First-lien debt only
Source: Federal Reserve Bank of New York, March 2019

Debt collection in Illinois

If you’re in significant debt, you’re likely familiar with debt collectors: third-party agencies that attempt to collect a debt you owe on your creditor’s behalf. They might contact you by mail, phone or email, and their attempts are likely persistent, if not aggressive.

Debt collection laws vary from state to state. Some states offer more protections for consumers, while others don’t. In Illinois, both the Illinois Collection Agency Act (ICAA) and the Illinois Consumer Fraud and Deceptive Practices Act — in conjunction with the federal Fair Debt Collection Practices Act (FDCPA) — offer consumers protections against debt collectors.

The ICAA, for instance, requires that debt collectors be licensed, while also regulating how a collector can pursue debts. The Illinois Consumer Fraud and Deceptive Practices Act protects consumers against fraudulent activity. The FDCPA, on the other hand, prohibits debt collectors from using behavior that would be considered deceptive, abusive or unfair, according to the Consumer Financial Protection Bureau (CFPB).

In addition, there are state laws regarding assets that are protected during a court judgment. Below is what an Illinois resident can expect to have protected:

  • One vehicle worth up to $2,400
  • Retirement plan or pension plan assets
  • Homestead exemption of $15,000 per person ($30,000 per couple) in home, mobile home or condominium equity
  • Eighty-five percent of gross weekly wages

Responding to collection letters

The stress of being pursued by debt collectors can be all-consuming. But the last thing you should do is ignore those debt collectors’ calls and letters. In the world of debt collection, communication is crucial. Starting a dialogue with the collection agency is one of the best things you can do. If you ignore debt collectors’ calls, they could reach out to people you know, sue you or add collection costs to your debt.

Another reason you want to make sure you answer debt collectors’ calls is to validate the debt in question. After all, you want to make sure the debt you owe is legitimate. To validate a debt, you must send the debt collector a letter asking them to verify it. This letter should ask for proof of the debt (including the amount and age of the debt), as well as contact information for the original creditor. Keep in mind that this letter must be sent within 30 days of the debt collector’s initial contact with you.

In Illinois, consumers are protected against certain debt collector behaviors that are considered unlawful. For example, debt collectors must state upfront who they are and disclose the agency they work with. In addition, a debt collector must tell you, in writing, how much you owe (and to whom) within five days of initially calling you on the phone. They must also explain how you can dispute your debt.

Debt collectors in Illinois cannot:

  • Use inappropriate language
  • Harass you
  • Threaten to arrest you or to add additional charges
  • Tell or threaten to tell other people about your debt
  • Make false statements, use fake legal documents or pretend to be government officials
  • Contact you before 8 a.m. or after 9 p.m. local time
  • Contact you at work

If debt collection pursuits are overwhelming your life, consider taking some of the following actions:

    • Ask the debt collector to stop contacting you. It is within your rights to ask a debt collector to stop contacting you, especially if you feel their actions are aggressive. Write a letter to the collection agency asking them to cease contact. Based on Illinois state law, a collection agency cannot contact you (unless it’s about action that will be taken) after receiving a letter asking it to stop.
    • Communicate. If you let their letters pile up and phone calls routinely go to voicemail, you might be digging yourself into a deeper hole. Don’t be afraid to communicate with the collection agency. Explain your financial situation and attempt to negotiate your debt down, if possible.
    • Be on the lookout for scams. A legitimate debt collection agency will never do things like ask for your bank account information or threaten to have you arrested and taken to jail. If your gut tells you a debt collector is behaving unlawfully, you can report it. To file a complaint, visit the CFPB or the Illinois Attorney General’s office websites.
  • Dispute the debt in question (if applicable). If you don’t think you owe the debt in question or the debt amount is incorrect, send a letter to the collection agency explaining the error. Don’t simply ignore the mistake and think it will go away, because it likely won’t.

Understanding Illinois’ statute of limitations

The statute of limitations on debt refers to the amount of time a debt collector can legally pursue a debt in court. For example, if you have medical debt that is over 10 years old in Illinois, the collector cannot attempt to sue you to collect that debt anymore. They can, however, continue trying to pursue it by calling you, sending you letters or emailing you.

Keep in mind that there is no statute of limitations on federal student loans, unless you can prove undue hardship, which is extremely difficult to do. However, there is a statute of limitations on private student loans — exact lengths of time vary by state.

Below, you’ll find the statute of limitations on various forms of debt in the state of Illinois.

Illinois Statute of Limitations on Debt
Mortgage debt 10 years
Medical debt 10 years
Credit card 5 years
Auto loan debt 4 years
State tax debt 20 years

 

It’s important to know your state’s statute of limitations on different forms of debt in the event that you have what is referred to as a time-barred debt. A time-barred debt is a debt that is beyond the statute of limitations, meaning a creditor cannot take legal action to collect the debt. It’s important to be aware of the statute of limitations on debt because making a payment on a time-barred debt could make it a zombie debt, which means you’ve effectively restarted the clock on the debt and opened yourself back up to potential legal action — you’re essentially bringing it back from the dead.

Illinois debt relief programs

Not everyone is adept at managing his or her own debt. In fact, most consumers who are in significant debt likely got there because they never learned about how to incorporate healthy financial habits into their lives.

Luckily, there are countless nonprofits, both at the national and state levels, that can help Illinoisans get out of debt. On the federal level, consumers can consider contacting American Consumer Credit Counseling (ACCC), a nonprofit that helps people manage their debt. On the state level, both Hananwill Credit Counseling in Robinson, Ill., and MoneySharp Credit Counseling in Chicago have been approved by the government to provide credit counseling services to consumers.

In the world of consumer debt, debt settlement companies, which are for-profit organizations that attempt to negotiate your debts on your behalf, will falsely advertise themselves as debt consolidation or debt relief companies with taglines about debt consolidation in Illinois. Be on the lookout for this when you’re searching for assistance with your debt. Aim to find a company with nonprofit status and good reviews on the Better Business Bureau (BBB).

Payday lending laws in Illinois

Payday loans are typically small loans of a few hundred dollars designed to help consumers get by until their next paycheck. Payday loans are typically not worth pursuing due to unfavorable terms and exceedingly high interest rates. Add in the potential for scams, and payday lending is an industry that everyone should treat with caution.

In Illinois, there is another alternative: something called a “small consumer loan.” Illinois state law mandates that the annual percentage rate (APR) on this type of loan cannot exceed 99%, which, although high, is lower than the interest rate on most payday loans, for which you could wind up with a 400% APR, according to the CFPB. Strive to find a small consumer loan instead of a payday loan.

Illinois has restrictions in place regarding payday lending. Below, you’ll find some of the rules and regulations surrounding payday lending in the state:

  • Maximum loan amount: the lesser of $1,000 or 25% of a consumer’s gross monthly income
  • Payday loan terms: cannot be less than 13 days or more than 120 days
  • Finance charges: cannot be more than $15.50 per $100 on the principal or at any point during the term of the loan
  • Maximum installment payday loan monthly payments: cannot exceed 22.5% of one’s gross monthly income

A payday lender cannot extend a loan to a consumer if that loan would mean the consumer is indebted to them or another payday lender for more than 45 days. (There is an exception to this rule for installment payday loans.) Additionally, a payday lender in Illinois cannot roll over a loan if it will make the borrower indebted to them for more than six months.

If someone has been in payday-loan debt for more than 35 days, he or she is legally entitled to an interest-free repayment plan.

Tips to tackle debt in Illinois

You’ve decided it’s finally time to buckle down and pay off your debt. But how do you get started? It all depends on your personal finance habits, the total amount of debt you hold and your credit score. Below, we’ve broken down some of the most common ways to pay off your debt.

Consolidate your debt

Perhaps you feel in over your head, not only because of the sheer amount of money you owe, but also because of the countless payments you need to keep track of. You may find yourself missing payments left and right and forgetting exactly how much you owe on each account.

You might want to consider consolidating your debt. It works like this: You combine some or all of your loans, take out a debt consolidation loan (a type of personal loan) and then make one monthly payment that goes toward paying off that loan. It’s simple, streamlined and effective. Just know that it’s hard to qualify for a decent interest rate on a debt consolidation loan if you have a poor credit score, so this option is best-suited for people with good credit.

Refinance

If you’re swimming in student loan, mortgage or auto loan debt, you could consider refinancing — especially if you have improved your credit score and debt-to-income (DTI) ratio since obtaining your loan. You might be able to land a significantly better interest rate, which will save you a decent amount of money over the long term.

Keep in mind that there are fees and costs associated with a refinance. If your new interest rate isn’t significantly lower than your current one, it might not be worth pursuing, as the costs associated with refinancing could cancel out the potential benefits of the lower interest rate.

Use a balance transfer card

Is most of your debt on high-interest credit cards? If so, and you have a very good credit score, you could consider opening a balance transfer credit card.

Balance transfer credit cards work like this: You transfer your existing credit card balances to the new card, which will likely have a lower interest rate or, in some cases, a 0% introductory interest rate period typically lasting anywhere from 12 to 21 months. This means you can pay off your credit card debt interest-free for a set period of time. However, you often need an excellent credit score to qualify for a 0% intro APR. You may have to pay a one-time balance transfer fee.

A balance transfer credit card is only worthwhile if the amount of debt you hold can realistically be paid back within the introductory rate time frame. If you have $10,000 or $20,000 in credit card debt, this path might not be right for you because if you fail to pay off your balance before the introductory period ends, you could end up paying even more than you originally would have.

Create a debt management plan

You’re in debt and the grip it holds on you is unwavering. You’re constantly worrying about money. You are consumed with anxiety each time you check your bank account or credit card statement.

In this situation, you might want to pursue debt management. This method involves working with a nonprofit credit counseling agency to come up with a plan for repaying your debt while also learning about how to incorporate better financial habits into your life. The process is fairly simple: You make a payment to the agency each month, and they distribute it to your various creditors for you.

You can use this tool to find a nonprofit credit counseling agency in Illinois that is certified with the National Foundation for Credit Counseling (NFCC).

Filing for bankruptcy in Illinois

If you’re swimming in debt you don’t expect to escape, consider bankruptcy. Just make sure you’re educated on your options, and are well aware of the lasting impact it likely will have on your credit.

Unfortunately, bankruptcy has a strong stigma attached to it. People who file for bankruptcy often feel embarrassment and guilt. But in reality, bankruptcy is fairly common, and it’s a viable last-resort option for many Illinoisans.

Illinois had the fifth-highest number of bankruptcy filings per capita of all 50 states in 2018, with over 47,000 cumulative filings, according to the American Bankruptcy Institute (ABI). The majority of these — 58% — were Chapter 7, while the remainder were Chapter 13. Chapter 7 bankruptcy means all of your debts are forgiven but you lose everything, while Chapter 13 bankruptcy involves maintaining some of your assets while sticking to a repayment plan.

In Illinois, it costs $335 to file for Chapter 7 bankruptcy and $310 to file for Chapter 13. The forms to file for bankruptcy in Illinois can be found here.

Bankruptcy will have a serious impact on your finances, especially in the immediate years following the filing. Getting advice from a lawyer or nonprofit credit counselor before filing can help you figure out whether it’s the right path for you.

To search for a consumer bankruptcy attorney in Illinois, you can consult Justia’s database of lawyers. To search for a nonprofit credit counselor in Illinois, you can consult this database from the NFCC.

The bottom line

By reading this article, you’ve taken the first step toward getting your financial life back on track. You’ve educated yourself on the rules, regulations and laws surrounding Illinois debt relief. The next step is figuring out what the right plan is for you to finally become debt-free.

The information in this article is accurate as of the date of publishing.

 

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