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Prompted By Defective Airbag Imbroglio, Takata Files Bankruptcy

Posted on: August 8, 2017 by in Bankruptcy, chapter 11, chapter 13
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The Japanese manufacturer, which faces up to $24 billion in liability lawsuits, filed Chapter 11 Bankruptcy and said that its assets would be sold to a Chinese-led group. Attorneys for the Japanese manufacturer are probably hoping for a cramdown, a tool that’s also available in many consumer bankruptcies.

Historically, Chapter 11 proceedings that also involve possible negligence lawsuits, such as the 1995 Dow Corning bankruptcy, a company that faced billions of dollars in lawsuits related to defective breast implants, take years to complete. Furthermore, the government usually requires the bankrupt companies to set up large victim compensation trust funds. The Takata bankruptcy is even more complex both because of its size (the largest Japanese manufacturer ever to file bankruptcy) and the fact that, although the company has known about the defective airbag issue since at least 2004, no one knows the full extent of the company’s liability.

Takata confidently predicted that both the bankruptcy and the sale would be concluded by the first quarter 2018.

Chapter 13 Cramdowns

After several consecutive quarters of steady decline, the number of underwater mortgages (homeowners who owe more on their mortgages than their property is worth) inched up to 5.5 million nationwide. This figure only includes those properties that ATTOM Data Solutions, the private company which prepared the report, to be “seriously” underwater.

Since refinancing is normally not an option if the property will not appraise for greater than the requested loan value, bankruptcy is usually the best choice for distressed homeowners, if the bank is threatening to foreclose.

In a cramdown, any outstanding loan balance is reduced to match the collateral current market value. So, if Hank Homeowner owes $200,000 on a house that is only worth $180,000, a bankruptcy attorney can reduce his outstanding loan balance by $20,000, which will most likely be enough to bring Hank current on his payments.

A property’s as-is cash value, which must be listed on Schedule A per the Bankruptcy Code, may be as little as 50 percent of the tax appraisal value, because that’s the amount that a home investor would most likely pay in an as-is cash transaction. While this amount is often only a starting point in cramdown negotiations between a debtor and a lender, the potential savings could nevertheless be quite significant.

The same principle applies to other secured property, such as boats, cars, furniture, and anything else with a security agreement.

Chapter 13 debtors have up to five years to catch up on past-due secured debt payments while under the full protection of the bankruptcy court, and at the end of the protected repayment period, any remaining unsecured debts, like medical bills and credit cards, are completely discharged.

Connect With Experienced Attorneys

Many distressed homeowners can find long-term financial relief through bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resources:

bloomberg.com/gadfly/articles/2017-06-26/takata-s-long-road-through-bankruptcy

washingtonpost.com/blogs/where-we-live/post/selling-a-home-to-a-real-estate-investor/2012/12/11/5907944e-40bb-11e2-a2d9-822f58ac9fd5_blog.html?utm_term=.2236831abf2a

Using Bankruptcy To Protect Cash

Posted on: August 1, 2017 by in Bankruptcy, chapter 13, chapter 7
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Mostly because of the unfortunate “liquidation” nickname, many residents of Illinois and Indiana are afraid that if they file Chapter 7 bankruptcy, they will lose their savings. But in most cases, that is simply not the case.

In both Chapter 7 and Chapter 13 actions, most assets are off limits to moneylenders, unless they are seriously delinquent secured assets or the debtors agree to let them go back. Both these scenarios require the approval of a federal judge. That’s because the Bankruptcy Code’s purpose is to give debtors a fresh start, and if debtors lose too many of their assets, they will essentially be behind the starting line, and this outcome is quite clearly contrary to the law’s intent.

Effective Pre-Filing Approaches

One of the best ways to deal with liquid assets (cash) under the mattress or in a savings account is to apply it elsewhere before the filing. Some people prepay creditor, such as paying the June, July, and August car payments in one fell swoop. This strategy is not per se illegal, but debtors must declare all such prepayments in the Statement of Financial Affairs, and trouble might not be far behind.

If all moneylenders are not equally prepaid, bankruptcy trustees (individuals who oversee bankruptcies) often object to such payments, claiming that they are creditor preferences. It is theoretically possible to avoid such objections by paying all creditors equally, or at least proportionally. But that would include prepayments to unsecured creditors, and there is no reason to pay down medical bills and other dischargeable debts.

Many times, a better plan is to transfer liquid assets to fixed assets, by putting a new roof on the house, buying new tires for the car, and so on. Usually, the trustees do not dissect arms-length, for-value commercial transactions, or at least they do not look at them very closely.

Post-Filing Strategies

Per the Bankruptcy Code, all nonexempt assets that the debtor owns are subject to seizure, and there is a compelling case to be made that people do not “own” cash in the everyday sense of that word. Since this term is not really defined in the relevant section of the Bankruptcy Code, the term’s ordinary meaning probably applies, which in this context probably means that people are free to do what they please with the property with little fear of negative consequences.

Many people are more like trustees over the money in their accounts, as opposed to the owners of that money. About three-quarters of Americans essentially live from hand to mouth. Almost as soon as money hits the bank, it is either already spent or already committed to one moneylender or another. So, many people have only limited control over the money in their accounts, and control is another one of the key components of ownership. As a matter of fact, by the time the trustees file motions to turnover any cash listed in Schedule B, the debtors have probably already spent much or all of these funds on regular living expenses.

The mootness doctrine says that a court cannot rule on issues like these, because since the cash is gone, there is no longer a dispute for the judge to resolve.

Reach Out to Experienced Attorneys

In most cases, your property is yours to keep, regardless of a bankruptcy filing. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in both Illinois and Indiana.

Resource:

money.cnn.com/2013/06/24/pf/emergency-savings/

When Do I Need To File Bankruptcy?

Posted on: July 24, 2017 by in Bankruptcy
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Timing is very important in bankruptcy cases. If distressed debtors file too early, they may not have fully exhausted all available non-bankruptcy remedies. However, if they wait too long, the case will probably be much more complicated, time-consuming, and expensive than it otherwise may have been.

Similarly, there is some groundwork to lay before filing bankruptcy, because such an act cannot be undertaken on a whim. Essentially, the procedure under the Bankruptcy Code is designed to limit relief to those that need it most, so limited judicial resources go to deserving families.

The Right Time to File

Bankruptcy timing largely depends on the type of debts that the consumer has and the type of relief needed.

Sometimes, debt becomes simply overwhelming, a condition that has almost nothing to do with personal spending habits. For example, although the exact figure is hotly disputed, there is no doubt that medical debt is a leading cause of bankruptcy filings. Other uncontrollable factors, such as job loss and business downturn, are not too far behind.

Some financial planners look to the ten-percent rule in these situations. If medical or other unsecured debt, like credit cards, exceeds more than ten percent of household income, most families will have to make significant sacrifices to have any hope of paying off the debt, and even then there is no guarantee. That’s because one unexpected financial storm can overturn even the most carefully-developed debt retirement plan.

Chapter 7 Bankruptcy eliminates medical and unsecured debt in as little as six months or so, giving you a fresh financial start.

Other consumers have issues with secured debts, such as mortgage payments. Although the proportion is often somewhat lower in many parts of the Midwest, it is not unusual for a monthly mortgage payment to be more than 40 percent of a family’s monthly income. So, after just one missed payment, many families are behind the proverbial eight-ball.

Because nearly all mortgage companies stop accepting partial payments after about 90 days, if you are more than two months behind on a mortgage, it is probably time to seriously consider bankruptcy. The same thing applies to car payments and other forms of secured debt, as many lenders are anxious to begin repossession, foreclosure, or other adverse procedures given any opportunity to do so.

Chapter 13 Bankruptcy guarantees families up to five years to catch up on secured debts, and as a bonus, any remaining unsecured debts are discharged at the end of the repayment period.

Preliminary Considerations

Chapter 7 debtors must have incomes less than the statewide average to successfully complete the mean test and qualify for filing. The figure varies by state and changes frequently, but currently, a family of four in Indiana must earn less than about $92,000 a year.

Although there is no exact formula, Chapter 13 debtors must have sufficient disposable income to make the monthly debt consolidation payment, and an experienced bankruptcy attorney can estimate this payment after you submit appropriate financial paperwork.

All debtors must also complete a credit counselling course and meet some other requirements.

Reach Out to Experienced Attorneys

Although there is no guarantee, effective planning usually makes for a smoother bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resources:

beckershospitalreview.com/finance/10-statistics-and-findings-on-medical-debt.html

scpr.org/news/2017/06/09/72712/in-la-homes-eat-up-nearly-half-of-your-income-stud/

Bankruptcy: Help For Student Loan Borrowers

Posted on: July 18, 2017 by in Bankruptcy, student debt
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Forty-four million Americans owe a collective $1.4 trillion in education debt, a staggering total that works out to just under $40,000 per graduate. Because of the large monthly payment, many borrowers must put off large purchases, like houses and cars. Furthermore, a significant percentage of these loans are in delinquency, which indicates that the borrowers cannot make the minimum payments at all.

Bankruptcy provides relief in two different student loan scenarios.

Repayment Options

A Chapter 13 filing triggers the automatic stay under Section 362 of the Bankruptcy Code. Most moneylenders, including most lending institutions and debt buyers, cannot take any adverse action against bankruptcy debtors as long as the cases are pending. That includes the lawsuits and wage garnishments often associated with delinquent student loan accounts. Chapter 13 bankruptcies can last for as long as five years.

Moreover, a bankruptcy attorney can negotiate with a student loan lender or debt buyer for a lower interest rate, principal reduction, and other forms of relief. Additionally, in many jurisdictions, federal judges refer these matters to bankruptcy mediation, where the creditor must negotiate in good faith.

Discharge Possibilities

Since lawmakers could not agree about student loans when they revised the Bankruptcy Code in the 1970s, courts followed the Brunner Rule, which came from a 1987 New York court of appeals case. Judges adopted this rule in response to an entirely different set of circumstances than the ones that borrowers face today.

Marie Brunner owed about $9,000 in student loans, a large but not overwhelming sum in the 1970s and 1980s. Furthermore, she filed bankruptcy just one year after graduation and never made any payments toward her debt. In other words, according to the judges, the issue was more unwillingness to repay the debt, as opposed to inability to make payments.

So, the Second Circuit concluded that student loans were dischargeable in bankruptcy if the debtor could prove “undue hardship,” which required a showing that the debtor:

  • Could not maintain a minimal standard of living while repaying the loans,
  • Had made a good faith effort to repay the loans, and
  • Had a permanent or long-lasting hardship.

Essentially, under the Brunner Rule, debtors who have a physical or other disability are eligible for discharge, but other debtors probably do not qualify.

In light of the changed student loan landscape, many courts have either questioned the Brunner Rule or stopped following it altogether But the Seventh Circuit, which covers Illinois and Indiana, has made no such move. In fact, this court recently affirmed the Brunner Rule in 2015’s Tetzlaff v. Educational Credit Management Corporation.

Although Mr. Tetzlaff owed over a quarter million dollars in student loan debt and was basically unemployable due to a variety of issues, the court ruled that he did not meet the “undue hardship” test according to Brunner and therefore he must repay his student loans. There were no dissents, which indicates that the Seventh Circuit will probably not reconsider the Brunner Rule unless the Supreme Court invalidates it.

Rely On Experienced Attorneys

Many distressed student loan borrowers can find relief through bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours appointments are available.

Resources:

studentloanhero.com/student-loan-debt-statistics/

media.ca7.uscourts.gov/cgi-bin/rssExec.pl?Submit=Display&Path=Y2015/D07-22/C:14-3702:J:Flaum:aut:T:fnOp:N:1591723:S:0

law.cornell.edu/uscode/text/11/362

Marsh Files Chapter 11; Seeks Buyer

Posted on: July 11, 2017 by in Bankruptcy, chapter 11
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Since 1931, thousands of Hoosiers have done most or all of their grocery shopping at a local Marsh Supermarket. But now, the company says it will close its 44 remaining locations if no one buys the chain within the next two months.

As recently as 2006, Marsh operated 120 stores in three states. But like many other small regional chains, the food retailer has struggled since then. Although it just closed twenty-one stores and sold its pharmacy business to CVS earlier this year, these moves were not enough to return the chain to profitability. In a Delaware Chapter 11 filing, the company estimated its assets at between $50 and $100 million, a level that is simply insufficient to service its $100 to $500 million in liabilities. Several landlords had sued Marsh’s alleging unpaid rents,  development that probably prompted the filing.

Kroger and Pennsylvania-based Giant Eagle are rumored to be among the potential buyers.

What is Chapter 11?

Typically, only large companies file complex reorganization bankruptcies, but they serve the same purpose as consumer petitions.

The automatic stay, a feature of nearly all bankruptcies, prevents any entities from pursuing lawsuits, wage garnishments, foreclosures, repossessions, or any other adverse actions against debtors in bankruptcy, and this guarantee is one of the main reasons that people file. Chapter 11 has longer-term benefits as well, as debtors can sometimes cancel unfavorable contracts or vendor agreements and strike new deals under the protection of the bankruptcy court.

Available Consumer Bankruptcies

Both consumer bankruptcies include an automatic stay that gives consumers immediate relief from almost all adverse actions, even if the underlying debt is not dischargeable (forgivable in court).

Many people file bankruptcy because of high medical bills and other kinds of unsecured debt, and Chapter 7 usually discharges these debts in only a few months. This kind of bankruptcy also allows most consumers to keep most all their assets, because they are exempt from liquidation under state law. Some exempt assets include:

  • Home equity,
  • Retirement nest eggs, and
  • Personal property.

Some dollar amount and other limitations apply to some of these exemptions.

On the other side of the ledger, Chapter 7 wipes out most unsecured debts, even things like back taxes and student loans, in some cases. If consumers choose to repay them, they can negotiate for more favorable repayment terms. As a result, they get a fresh financial start. To qualify for Chapter 7, debtors must earn less than the average for their household size in their particular geographic area.

Conversely, to qualify for Chapter 13, debtors must have sufficient income to repay their debts if they receive payment extensions, and the bankruptcy court gives such debtors up to five years to catch up on home mortgages, car notes, and other secured debts. At the end of the protected repayment period, any remaining unsecured debts are discharged.

Once the debtor emerges from bankruptcy, moneylenders may not discriminate against them simply because of their filing status.

Reach Out to Experienced Attorneys

Financially-distressed consumers have a number of legal options. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We handle cases in both Illinois and Indiana.

Resource:

indianapublicmedia.org/news/marsh-supermarkets-files-bankruptcy-seeking-buyer-119753/

High Court Rules Against Consumers In Bankruptcy Proceedings

Posted on: July 6, 2017 by in Bankruptcy
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Debt buyers may file proofs of claim on “zombie debts,” effectively denying bankruptcy debtors a fresh start, according to a new decision from the United States Supreme Court.

In Midland Funding v. Johnson, the moneylender filed a proof of claim for a credit card debt that was well outside Alabama’s six year statute of limitations. Fortunately, Ms. Johnson’s attorney saw that the claim was too old and the bankruptcy court disallowed it following a timely objection. Subsequently, Ms. Johnson sued in civil court, claiming violation of the Fair Debt Collection Practices Act. A lower court allowed the suit, ruling that Midland’s action in filing the proof of claim was “false,” “deceptive,” “misleading,” “unconscionable,” and “unfair” as defined by the FDCPA.

Writing for the Court, Justice Stephen Breyer ruled that the word “claim” in the statute meant any claim, and not just one that is legally enforceable. Furthermore, the claim was not unfair since the debtor initiated the bankruptcy action, he added.

In dissent, Justice Sonia Sotomayor wrote that it was “common sense” that “one should not be able to profit on the inadvertent inattention of others” and that “the law should not be a trap for the unwary.”

Why It Matters

Perhaps moreso than some other areas of law, bankruptcy is very technical. For example, the homestead exemption is either above or below the maximum amount, and although an attorney can assign a value to the house in a way that’s favorable to the debtor, only the legislature can change the cutoff dollar amount.

The proof of claim is another example. Unless the moneylender files this document in the correct form and at the correct time, the underlying debt may be uncollectible and the moneylender may not be able to add it to the Chapter 13 repayment plan. Typically, the moneylender must file both the form itself and supporting documents, usually the promissory note and assignment, which prove that the moneylender is legally entitled to collect the claimed debt.

This showing does not include anything about the statute of limitations in debt collection matters, which is usually five years in Illinois; the SOL is ten years if the entire contract, including terms and conditions, is written in a single document. A court of appeals recently ruled that the statute of limitations is five years for credit card debts, even though the contracts are partially written.

Midland Funding will almost certainly embolden debt buyers to file proofs of claim for zombie debt (accounts that are so old that they are not legally collectible due to the statute of limitations) and hope that the petitioner does not pay attention to the debt.

There are other issues with zombie debt as well. For example, debt buyers must provide a written assignment or other evidence that the original debtor gave the company permission to collect the debt. Many times, especially if the account is extremely old, such evidence is simply not available. If the proof of claim is defective in any way, whether in form or timeliness, the debt is invalid for bankruptcy purposes.

Contact Aggressive Attorneys

Diligence and experience often make the difference between a good bankruptcy lawyer and a bad one. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We handle cases in both Illinois and Indiana.

Resources:

supremecourt.gov/opinions/16pdf/16-348_h315.pdf

scholar.google.com/scholar_case?case=1762741768706468737&hl=en&as_sdt=6&as_vis=1&oi=scholarr

Court Decision Highlights What Bankruptcy Can And Cannot Do

Posted on: June 27, 2017 by in Bankruptcy, chapter 7
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In a March 2017 opinion, the Indiana Supreme Court distinguished between an in rem proceeding against property and an in personam proceeding against individuals to deny mortgage relief in a Chapter 7 case.

McCullough v. CitiMortgage involved a long-running dispute between the homeowners and a mortgage company. According to court documents, in the early 2000s, the McCulloughs fell behind on mortgage payments from a 1994 loan. They filed bankruptcy three times (two Chapter 13s and a Chapter 7). As they were apparently unable to make the debt consolidation payments in a timely manner, both the Chapter 13s were dismissed without discharge; the Chapter 7 discharged the outstanding balance on the mortgage loan.

CitiMortgage began foreclosure proceedings after the automatic stay expired, and in this action, the McCulloughs claimed that the Chapter 7 discharge paid their mortgage in full and therefore the bank could not foreclose on the lien. But the court disagreed and ruled that while the bankruptcy forgave the debt, it did not affect the promissory note, and that contract between the McCulloughs and the bank remained in force.

The borrowers went to court without a lawyer.

What Bankruptcy Does

A lawyer is essential to get the full benefits of bankruptcy. In the above case, an attorney could have advised the McCulloughs that their claims had almost no chance of success because the law on this point is so well-established, thus saving them thousands of dollars, thousands of hours, and a countless amount of stress.

The automatic stay is arguably the most significant benefit of bankruptcy. In most cases, Section 362 takes effect the moment that the debtors file their voluntary petitions. The automatic stay applies to all adverse actions, including:

  • – Foreclosure,
  • – Repossession,
  • – Harassing phone calls,
  • – Lawsuits, and
  • – Wage garnishment.

In most cases, Section 362 remains in full effect until the moment that the bankruptcy ends.

Furthermore, in Chapter 13 cases, there is a protected debt repayment period that lasts as long as five years. During these 60 months, so long as the debtor makes the debt consolidation payments as agreed, moneylenders can take no adverse action.

Finally, bankruptcy gives debtors a fresh start. Most of their outstanding debts are discharged, a legal term that has a very precise meaning, so that debtors can start rebuilding their credit free from oppressive debts.

What Bankruptcy Does Not Do

Bankruptcy judges have limited powers, so while lawyers commonly say that “discharge” is synonymous with “forgiven,” that’s not exactly true. Legally, debt discharge means that:

  • – The debtor no longer has any personal liability to repay the debt, at least in most cases, so moneylenders cannot pursue any in personam actions against the debtors themselves.
  • – The debt cannot be used against them for many purposes; for example, a discharged debt cannot be listed as unpaid on a credit report and the bankruptcy filing cannot serve as the only basis for a denial of credit.

If the debtor signed a contract for repayment outside of bankruptcy, such as a security agreement, that contract survives bankruptcy, and although the debtor does not need to repay the mortgage and that failure cannot be used against him in many situations, the moneylender still has the right to enforce the security agreement.

Reach Out to Experienced Attorneys

Bankruptcy is a powerful shield, but it is not a magic wand that makes all problems disappear. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We handle cases in both Illinois and Indiana.

Resource:

scholar.google.com/scholar_case?q=McCullough+v.+CitiMortgage,+Inc.&hl=en&as_sdt=4,15&case=3883739840886269818&scilh=0

Bankruptcy And Security Clearances

Posted on: June 20, 2017 by in Bankruptcy
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Fear is one of the most prominent effects of debt problems. Most all of these fears are real, especially since the Supreme Court recently approved aggressive debt collection tactics that are borderline illegal. But some of these fears are largely exaggerated, and the interplay between consumer bankruptcy and a security clearance is one example of the latter.

Under DoD Directive 5220.6, financial problems are one of the thirteen problem areas that may lead to adverse action. It’s important to note that the document never mentions the word “bankruptcy,” and just like it is in many other areas, this procedure may actually be your way out.

Furthermore, when looking at the specifics of Guideline F, the financial problems that often lead to bankruptcy are not really on the DoD’s radar, at least when it comes to revoking a security clearance.

Concerns

Similar to substance abuse and several other personal conduct areas, the DoD is concerned that persons with financial problems may be pressured to take illegal actions, such as selling secrets, to raise funds. The specific concerns include:

  • – History of Unmet Obligations: This factor is not present in many consumer bankruptcies, and even if there is a history of unmet obligations, the reason is usually one unfortunate event, like a job loss, which triggered a snowball effect.
  • – Illegal Practices: In almost all Chapter 7 and Chapter 13 cases, the debtor files due to debts that cannot be paid as opposed to “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements” or “gambling, drug abuse, [and] alcoholism, so this concern is probably inapplicable as well.
  • – Inability to Pay Debts: Yes, this one probably applies, but so do many of the mitigating factors discussed below.

Essentially, the DoD is concerned about debt that is symptomatic of a more serious problem as opposed to simply debt itself.

Mitigating Factors

That theme of debt with a sinister undercurrent continues in the mitigating factors section, as the DoD strongly implies that the “honest but unfortunate” debtor whom the Bankruptcy Code protects is also immune from action under this directive.

  • – Timing: If the debt was “not recent” or was an “isolated incident,” the DoD almost never takes adverse action against a security clearance.
  • – Unexpected: Most people file bankruptcy because of an unexpected job loss or sudden illness. Likewise, debt problems brought on by “loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation” are not actionable.
  • – Turn of Events: If there are “clear indications” that the “problem is being resolved,” and a voluntary petition certainly counts as such, adverse action is not in order.
  • – Effort to Resolve Indebtedness: The guideline does not require the debtor to pay the outstanding debts but simply “resolve” them in some legal way so they they do not cause any undue pressure.

It is a federal crime to discriminate against anyone simply due to a bankruptcy filing.

Contact Aggressive Attorneys

At the Bentz Holguin Law Firm, LLC, we protect your security clearance. Contact us today for a free consultation with an experienced bankruptcy attorney in Chicago.

Resource:

dtic.mil/whs/directives/corres/pdf/522006p.pdf

Could Illinois Be The Next Puerto Rico?

Posted on: June 14, 2017 by in Bankruptcy
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Congress just allowed the island commonwealth, which faces about $123 in pension and bond obligations, to file a form of municipal bankruptcy. Could the Prairie State, which faces over $130 billion in pension debt alone, be next? The economic problems that brought Puerto Rico to this point, including a crippling recession, rampant government borrowing, and emigration, are eerily similar to the situation in Illinois.

What are some signs of bankruptcy, and what can a Chapter 7 or Chapter 13 petition do for a family?

When to File Bankruptcy

Fortunately, none of us face tens of billions of dollars in pension and other liabilities. However, largely due to circumstances beyond our control, many of us have more debts than we can afford to repay.

Timing is essential in a bankruptcy case. If the voluntary petition is filed too soon, the debtor may not have explored all available non-bankruptcy remedies; if the filing is too late, there may already be some debt-related damages, like tax liens, that even bankruptcy cannot undo.

If a family is more than two months behind on secured debts or has more than about $5,000 in unsecured consumer debts, the family should probably think about bankruptcy.

Banks consistently deny that they target some homeowners for expedited foreclosure proceedings, but there are indications that such a practice is real. Unfortunately for debtors, there is no way to know if their property is on the targeted list until the foreclosure notice comes in the mail. So, while most banks consider one missed car or house payment an unfortunate aberration, serious adverse action usually begins after the second missed payment.

Similarly, most families can afford to pay an extra few thousand dollars of credit card or medical debt if given sufficient time to do so. But since so many people live hand to mouth, a bigger debt bite is often too much to swallow.

Bankruptcy Benefits

They say that no one can turn back the clock, and in most instances, that’s true. But bankruptcy does turn back the financial clock, because it gives debtors fresh starts. Most individuals and families who successfully emerge from either Chapter 7 or Chapter 13 have no outstanding unsecured debts and are completely caught up on their secured debts, so instead of worrying about paying the bills, they can focus on rebuilding their credit ratings.

There are some specific benefits as well.

  • – Automatic Stay: Moneylenders have a wide range of debt collection tactics that range from annoying and embarrassing (like letters and phone calls) to overwhelming and cripplings(like wage garnishment and foreclosure). Section 362 of the Bankruptcy Code stops all these things, at least in most cases.
  • – Debt Discharge: Most all unsecured debts, like credit cards and medical bills, are wiped away from a repayment standpoint; some other types of debts, such as student loans, back taxes, and Small Business Administration loans, are dischargeable as well in many cases.
  • – Repayment: Chapter 13 has a built-in protected repayment period of up to five years. Repayment is optional in Chapter 7 cases, because although they have no legal obligation to do so, debtors can still repay some or all of their discharged debts to improve their credit scores and satisfy their moral obligations.

Chapter 7 eliminates debts in as little as a few months; Chapter 13 both eliminates debts and allows for an extended repayment period that protected by the automatic stay.

Partner With Experienced Attorneys

Many people reading these words right now know, at least deep down, that they need to file bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments are available.

Resources:

chicagotribune.com/news/opinion/editorials/ct-puerto-rico-bankruptcy-illinois-edit-0505-20170504-story.html

theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/

Why Do People File Bankruptcy?

Posted on: June 8, 2017 by in Bankruptcy, chapter 7
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It should come as no surprise that medical bills are once again the top reason that people seek bankruptcy protection.

Medical bills are often very onerous in and of themselves. One in five working Americans with health insurance who are under 65 have had problems paying their medical bills in the past year; to deal with the expense, two-thirds of these people burned through most or all of their savings and the other third took on a second job. Overall, about a quarter of Americans have medical bills that they essentially cannot afford to pay.

In other cases, medical bills trigger a snowball effect. To many people, items like physical therapy, medical treatments, and prescription medication take priority over credit cards and other kinds of unsecured debt. As a result, the non-medical debt quickly becomes unmanageable, forcing these families into making some difficult financial decisions.

Dealing with Medical Bills in Bankruptcy

The average American household with credit card debt has over $16,700 in such debt. That means about $1,300 a year in interest payments alone. While some of this debt is surely related to overspending and splurging, a good deal of it is due to the fact that wage growth has been at or below 5 percent for most of the last five years. So, in many cases, the cost of living is going up quickly, especially with regard to medical bills, school tuition, and a few other items, while paychecks are about the same as they were a few years ago.

The numbers simply don’t add up, and it’s not the debtor’s fault.

As a result, many people live on the financial precipice. They can weather one storm, such as an unexpected illness. But when lightning strikes twice in the same place, perhaps an illness coupled with a layoff, the stress is simply too much. Fortunately, consumers have legal options in these situations.

Many times, that option is Chapter 7 bankruptcy. Debtors whose monthly income is below the average level for their particular geographic area and household size are eligible for “liquidation” bankruptcy.

The process begins with a petition and schedules; in an emergency situation, such as impending foreclosure, expedited filing is usually available. Debtors must take care to list all their assets and liabilities in their bankruptcy paperwork, or else they risk possible civil or criminal fallout.

About six weeks thereafter, the bankruptcy trustee (person who manages the bankruptcy for the judge) reviews all the paperwork. At this meeting, debtors must provide proof of identity, usually their Social Security cards, and also provide other financial documents as requested by the trustee, such as prior tax returns.

About six months later, the judge enters a discharge order which forgives most unsecured debts, including:

  • – Medical bills,
  • – Credit cards,
  • – Payday loans,
  • – SBA loans, and
  • – Some back taxes.

Debtors keep all their exempt assets, including things like houses, cars, personal property, and retirement accounts.

Go With Experienced Attorneys

Chapter 7 bankruptcy eliminates medical bills and other unsecured debts. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resources:

usatoday.com/story/money/personalfinance/2017/05/05/this-is-the-no-1-reason-americans-file-for-bankruptcy/101148136/

nerdwallet.com/blog/average-credit-card-debt-household/