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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/

Report: Illinois In Dire Financial Straits

Posted on: May 22, 2017 by in Bankruptcy, chapter 11, chapter 13, chapter 7, debt
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The Prairie State ranked 44th overall in a recent economic survey. Should Illinois lawmakers consider bankruptcy as a way to obtain a fresh start?

Illinois’ rank was even lower (48th) in terms of outmigration, or the number of people leaving the state versus the number of people moving into the state. There are various reasons for the economic decline, with some pointing to the $130 billion pension fund shortfall or the ongoing stalemate between the Republican governor and Democrat-controlled legislature. Others say that since Illinois is now surrounded by right-to-work states, businesses are leaving to environs which they consider to be more business-friendly.

“Both Chicago and the state itself should already be in federal bankruptcy proceedings,” remarked venture capitalist Mark Glennon.

Repaying Consumer Debts

Government units nearly always file Chapter 9 bankruptcy, which is basically like Chapter 11 business reorganization. The major difference is that, because of the Constitution’s Tenth Amendment and certain measures that Congress enacted to assist Puerto Rico overcome its debt problems, creditors cannot force bankrupt municipalities to liquidate their assets.

Technically, individuals can file Chapter 11 as well, but since it is expensive and complicated, Chapter 11 is not very well suited for most families. Chapter 13 is a much better option, especially for those households struggling with past-due secured debt, like home mortgage payments, on property that they want to retain.

When debtors file their voluntary petitions, an automatic stay goes into effect, in most cases. As long as the case is active, no creditor can take adverse action against the debtor, such as repossession or wage garnishment. This is true even if the underlying debt is not dischargeable, a concept that is discussed below.

Furthermore, in conjunction with their attorneys and the bankruptcy trustees, Chapter 13 debtors formulate repayment plans that can last up to five years. DUring this period, they make one monthly debt consolidation payment that is proportionally divided among all secured creditors, to expedite the repayment process. At the end of the protected repayment period, the debtors are caught up on all their secured debts. Best of all, moneylenders can only challenge the debt repayment plans in limited circumstances, so for the most part, they must accept the lender’s repayment terms.

Bankruptcy “Liquidation”

If unsecured debts are an issue, such as medical bills, payday loans, unpaid taxes, and credit cards, Chapter 7 is usually a better idea. Although many people refer to this procedure as “liquidation,” that label is not really accurate, because most people keep most or all of their assets in Chapter 7.

In a Chapter 13, the trustee (person who oversees the bankruptcy for the judge) essentially places debtors on an agreed allowance for the three or five year repayment period. But in a Chapter 7, there is no agreed allowance because there is no repayment. Instead, a Chapter 7 trustee essentially verifies the debtor’s identity and then recommends that the judge discharge all unsecured debts.

Some debts, like credit cards and medical bills, are almost always dischargeable unless there is fraud or some similar red flag. Special rules apply for some other kinds of unsecured debts, such as taxes and student loans. For example, income tax debt is dischargeable if the debt is at least three years old and the returns have been on file for at least two years. If the taxing authority field a lien, that lien remains in place, because the judge has the power to discharge debts but lacks the power to extinguish liens.

Rely On Experienced Attorneys

Bankruptcy offers families a fresh financial start. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments plans are available.

Resource:

ilnews.org/news/economy/myriad-issues-lead-to-illinois-low-ranking-economy/article_220f658a-1e1e-11e7-abe8-2f7ad9229f22.html

Prison Defeats Eligibility For Chapter 13 Bankruptcy

Posted on: May 1, 2017 by in Bankruptcy, chapter 13
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An Illinois judge recently ruled that an incarcerated felon could not file Chapter 13 even though his parents agreed in writing to make the plan payments; the holding has some implications for debtors in the free world as well.

While serving time for an aggravated DUI, Tristan Durov filed Chapter 13 bankruptcy to avoid personal liability in a pending wrongful death lawsuit. With only $14 per month coming in, Mr. Durov’s income was clearly insufficient to make the plan payments, but his parents offered to make up the difference. A bankruptcy judge refused to allow this arrangement, concluding that the promise to pay was “purely gratuitous” and that the Chapter 13 debtor (or joint debtors) must make 100 percent of the plan payments.

The dismissal order specifically gave Mr. Durov the option of converting to Chapter 7.

Chapter 13 Eligibility

Chapter 13 is ideal for people who can pay their bills but feel behind due to prior unfortunate circumstances and need some time to catch up.

Despite what they say, most moneylenders make almost no effort to work with people in this situation, as low-level adverse action, like threatening letter and harassing phone calls, usually begin after only a month or two. Higher-level adverse action, such as repossession and foreclosure, follows shortly thereafter. Fortunately, the automatic stay prohibits any such action throughout the entire repayment period, in most cases.

This period lasts either three or five years, depending on the debtors’ income. So, the debtor has either 36 or 60 months to eliminate any past-due balances on secured debts like home mortgages; all the funds must come from the debtor or joint debtor. If the plan is not feasible, most trustees (people who oversee bankruptcies for the judges) give the debtors at least one or two chances to correct the problem before they dismiss the cases.

There are some nonfinancial qualifications as well. All debtors must complete a debt counseling course. Furthermore, any prior Chapter 7 must be at least four years old and any prior Chapter 13 must be at least two years old.

Chapter 7 Eligibility

Although there is no repayment plan in a liquidation bankruptcy, there is still an income requirement, in the form of the means test.

All Chapter 7 debtors must have an annual income that is below the average for that state. For a family of four in Illinois, that amount is just over $91,000; the amount changes frequently due to inflation and other factors. Special rules apply if the debtor’s income is not the same every month or if the debtor lives in an urban area like Chicago instead of a semi-rural area like Mt. Vernon.

There are some non financial hurdles as well. In addition to the credit counseling class, the most recent bankruptcy discharge, if any, must be at least six (prior Chapter 13) or eight (prior Chapter 7) years old.

Contact Experienced Lawyers

Both Chapter 7 and Chapter 13 have some eligibility requirements. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments are available.

Resource:

bna.com/incarcerated-man-not-n57982085290/

Another Regional Department Store Chain Mulls Bankruptcy

Posted on: April 24, 2017 by in Bankruptcy, chapter 13, chapter 7
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Gordmans has operated in the midwest for over 100 years, and now according to sources, the department store chain may be closing its doors permanently.

The chain began with a single store in Omaha, Nebraska operated by Russian immigrant Sam Richman in 1915. Some time later, Bloomingdale executive Dan Gordman had an unexpected layover in Omaha when his car broke down. While in town, he met Mr. Richman’s daughter and later married her. Today, there are 99 Gordmans in 22 midwestern states, including four in Illinois. The stores first started losing money in 2014, and last year, the stock value dropped below $1 a share. Prices were as low as 34 cents a share after news of the probable bankruptcy became public.

Gordmans had already announced that there would be a round of layoffs due to the “sluggish retail environment.”

Chapter 7 Bankruptcy

Once upon a time, smaller regional department store chains could count on a loyal customer base and turn a fairly nice profit. But today’s retail landscape is dominated by big-box chains with large inventories and online retailers with nearly unlimited inventories, so smaller chains like Gordmans and hhgregg (which filed bankruptcy in March 2017) are simply left out in the cold.

When that happens, business owners can either file bankruptcy or watch the red ink get even deeper. Many families face a similar choice, and they often turn to Chapter 7 bankruptcy in these situations; the “liquidation” filing rate in the Indiana area is one of the highest in the nation.

In Chapter 7, most unsecured debts, including credit cards and medical bills, are discharged (forgiven) in as little as six months, giving the debtor a fresh financial start that would be almost impossible to achieve otherwise. Nearly all debtors get to keep most or all of their property in liquidation bankruptcies.

Chapter 13

Companies that face a temporary financial hardship often turn to Chapter 11 reorganization, because it allows them to pay back some of their debts at a slower pace and renegotiate unfavorable contracts. Chapter 13, which is sometimes called the wage-earner plan, does basically the same thing for families. Chicagoland has one of the highest Chapter 13 filing rates in the country.

Almost all contract terms are negotiable, and moneylenders know that Chapter 13 is often one step away from Chapter 7 and a near-unlimited debt discharge. One of the fundamental rules of life is that something is almost always better than nothing, and the prospect of getting nothing is often enough to motivate moneylenders to negotiate one-sided contract terms. If such negotiations reach a standstill, most judges order the parties to mediation.

In terms of repayment, Chapter 13 gives families up to five years to catch up on secured debts. During this time, moneylenders can take no adverse action, such as foreclosure, without special permission from the bankruptcy judge.

Chapter 20

There is no such section in the Bankruptcy Code, but it is a very common strategy in many cases. The debtor files a voluntary Chapter 13 petition fully intending to repay debts. However, if it turns out that the debt consolidation payment is unmanageable, debtors have the right to convert their cases to Chapter 7 at almost any time.

Reach Out to Experienced Lawyers

Consumers have a number of options in bankruptcy. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in both Indiana and Illinois.

Resources:

bloomberg.com/news/articles/2017-03-06/gordmans-department-store-chain-said-to-prepare-for-bankruptcy

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics

Honk Honk: Parking Tickets And Bankruptcy

Posted on: April 17, 2017 by in Bankruptcy, chapter 13, debt
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While the number of filings has declined overall, Chicago has the the highest number of non-business Chapter 13 bankruptcy filings in the country, and almost half of them list the Chicago Parking Bureau as one of the creditors.

The Windy City is notorious for its high parking ticket fines and aggressive collection procedures. In 2015, the city was owed $1.5 billion in unpaid fines from 4 million parking tickets; in contrast, New York City had $756 million from 10 million tickets. Chapter 13 trustee (person who oversees the bankruptcy for the judge) Glenn Stearns says that a single unpaid ticket can balloon to more than $4,000 in penalties that eventually result in drivers’ license suspension and vehicle impoundment.

In 2014, a bankruptcy fraudster circulated Chapter 13 petitions on the street for drivers to show the CPB. Consumers filed about 1,000 of these petitions which listed only two creditors: the CPB and the Department of Revenue. Most of these cases were quickly dismissed, and the FBI eventually arrested the fraudster.

Dischargeable Debts and Collateral Consequences

One of the reasons the parking ticket/Chapter 13 fraud was so widespread is that the CPB was one of the few entities that forgave both the underlying debt (in this case, the unpaid parking ticket) and the collateral consequences of that unpaid debt (the vehicle impound). Once the trustee closed that loophole, the scheme started to unravel.

Many unsecured debts fall into this category. Assume the debtor owes money to a college or university that is withholding the debtor’s transcript. Bankruptcy eliminates the debt, but the school still has the right to withhold the transcript pending payment or other resolution. Income tax debt is a better example. If the return was filed at least three years ago, the debt is at least two years old, and the taxing authority has not assessed the debt in the last 240 days, the bankruptcy judge will discharge the debt. However, the judge has no authority to cancel a lien.

Sometimes, the opposite is true. Under current law, student loans are difficult to discharge in Indiana and Illinois. However, if the bank is garnishing the debtor’s wages, bankruptcy ends this garnishment. The same thing applies to lawsuits and other collection attempts. That’s because the automatic stay applies to all debts, whether or not they are ultimately discharged.

Criminal Penalties

Generally, fines that punish the defendant are nondischargeable and fines that reimburse the government are dischargeable.

  • Punitive: Nearly all criminal fines, such as bad check fees and victim restitution, are punitive in nature and therefore nondischargeable in either a Chapter 7 or Chapter 13; some parking and traffic ticket fines may be dischargeable in a Chapter 13.
  • Reimbursement: Court costs and other such expenses are usually dischargeable.

Unpaid tolls are in a gray area, but the better argument is they are dischargeable because these fees reimburse the government for road maintenance expenses.

Partner With  Experienced Lawyers

Bankruptcy eliminates debts, but may not eliminate the secondary consequences of these debts. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments are available.

Resources:

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

medill.northwestern.edu/chicago/expensive-chicago-parking-tickets-contribute-to-huge-bankruptcy-filings/

Indiana Rejects Peabody Bankruptcy Plan

Posted on: February 22, 2017 by in Bankruptcy, chapter 11, chapter 13, chapter 7
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Concerns over future mine cleanup costs have put the energy giant’s Chapter 11 bankruptcy on hold, at least for now.

The state of Indiana, along with some environmental groups, were among the only parties that objected to an $8 billion reorganization plan. Peabody said it would use a controversial though federally-approved plan to clean up contaminated coal mines, but the state and environmentalists, including the Sierra Club, demanded more specifics. Although the process, called self-bonding, has fallen out of favor with many firms, Peabody still uses it in four states, including Indiana. In a statement, Peabody defended its cleanup protocol. “We look forward to continuing to restore the land and provide assurances for future obligations, through a potential blend of both third-party surety bonds and self-bonding,” a company spokesperson insisted.

Other roadblocks included creditors’ objections to the proposed payment schedule and former employees’ concerns about their pensions.

Adversarial Procedures in a Chapter 7

Even though both Indiana and Illinois have rather large wildcard property exemptions that, in some cases, can exempt cash in a checking or savings account from seizure, unprotected cash is the most likely target for a turnover motion. The instant that debtors file their voluntary petitions, their nonexempt property, including nonexempt cash, becomes part of the bankruptcy estate that’s managed by the trustee (person who oversees the case on the judge’s behalf). Although the era of instant payments has mitigated this problem, the floating check controversy is a lingering issue.

Assume the debtor makes her mortgage payment on the first day of the month and files bankruptcy on the second. The debtor’s bank balance will still show those funds in the account, since the check has not cleared yet. If the trustee files a motion for turnover to claim the cash, there is a legitimate question as to who “owned” that “property” on that particular day. Although the funds were in the debtor’s account, she was not at liberty to spend them on anything else.

Adversarial Actions in a Chapter 13

Just like sound prebankruptcy planning can avoid the floating check controversy, sound prepetition planning can obviate objections to the repayment plan. Such objections normally come from either the creditors (who claim they are not being repaid in accordance with the Bankruptcy Code) or the trustees (who claim that the plan is not feasible). Creditors normally file formal objections; trustees usually state their concerns at the 341 and give the debtors an opportunity to either amend their plans or convert to Chapter 7.

Creditors are under a very strict time deadline to file their objections, and courts normally show little grace or understanding over missed deadlines. If the court does allow the objection, many times, the creditor is upset over a technical deficiency that is easily corrected. Plan objections work in much the same way, as most debtors can find additional room in their income/expense balance sheet by trimming expenses even more or by using the more labor-intensive specific allowances as opposed to the generic ones based on the debtor’s residence.

Rely on Experienced Lawyers

There is no reason to panic over postpetition objections. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in both Illinois and Indiana.

Resources:

aw.cornell.edu/rules/frbp/rule_3015

epubs.utah.edu/index.php/ulr/article/viewArticle/1090

insurancejournal.com/news/midwest/2017/01/24/439837.htm

Prominent Real Estate Investor Files Bankruptcy

Posted on: February 9, 2017 by in Bankruptcy, chapter 13, chapter 7
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A huge shareholder lawsuit in Northern Illinois may have pushed the onetime “King of Downtown Orlando” over the financial precipice.

Ten years ago, Cameron Kuhn employed seventy people, owned twenty choice properties in downtown Orlando, and was expanding into new markets in northern Florida, Georgia, and Louisiana. But then the real estate market crashed and the Great Recession came directly thereafter. A year later, in 2008, Mr. Kuhn told a local newspaper that he had almost no cash. In addition to the aforementioned lawsuit, Mr. Kuhn’s Chapter 7 bankruptcy paperwork listed $22.8 million in debts, including back taxes and past-due Domestic Support Obligations.

First Loft Corporation, one of Mr. Kuhn’s companies, declared bankruptcy the same day.

Why People File Bankruptcy

This is not a schadenfreude piece, because no one’s money problems should ever be taken lightly. Rather, this bankruptcy is an object lesson as to how quickly things can change, and these changes are often almost entirely beyond the debtor’s control. Most consumers do not see their investments sour because of a nearly-unprecedented economic downturn, but similarly, many Chapter 7 and Chapter 13 bankruptcies are caused by:

  • – Divorce: Because of the loss of income and dramatic increase in expenses, marriage dissolution often transforms one household that was just barely getting by into two households that have even more trouble staying afloat.
  • – Job Loss: Moneylenders usually start demanding payment on delinquent accounts after a month or two, so even a brief unemployment period can cause a major financial crisis.
  • – Income Loss: Instead of laying off employees,some employers freeze wages, trim hours, eliminate overtime, and take other cost-cutting measures that inevitably affect the employees’ pocketbooks.
  • – Medical Bills: The majority of Americans either have medical bills they cannot pay or can manage only with great difficulty, and like the other factors mentioned above, people have almost no control over sudden illnesses and other situations.

All these factors have at least one thing in common: most families have almost no savings and therefore almost no way to make it though trying financial periods, especially when more than one crisis strikes at once.

Which Bankruptcy is Best?

The amount and type of debt largely dictates what kind of bankruptcy is best.

Chapter 7 eliminates unsecured debts, like medical bills and credit cards, after just a few months. In some cases, Chapter 7 aso takes care of other kinds of debts, like student loans and past-due income taxes. Debtors get to keep almost all their assets, including houses, cars, retirement accounts, and even cash.

For those who can pay their debts but just need a little more time to catch up, Chapter 13 offers a protected three or five year repayment plan. During that time period, moneylenders cannot take any adverse action without that bankruptcy judge’s permission. If they complete the plan, debtors emerge from Chapter 13 completely caught up on their home mortgage and other secured debts; their unsecured debts are generally discharged.

Contact Aggressive Lawyers

The cause of debt problems may be out of your control, but the solution is within your grasp. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resources:

orlandosentinel.com/business/brinkmann-on-business/os-developer-kuhn-bankruptcy-20170111-story.html

forbes.com/sites/maggiemcgrath/2016/01/06/63-of-americans-dont-have-enough-savings-to-cover-a-500-emergency/#3cf5d23d6dde

New Republic Airways To Emerge From Bankruptcy

Posted on: February 9, 2017 by in Bankruptcy, chapter 11, chapter 13, chapter 7
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The Indianapolis-based regional airline submitted a Chapter 11 reorganization plan to a bankruptcy judge, and if it is approved, Republic should emerge from bankruptcy sometime in the first quarter of 2017.

A protracted contract dispute with its pilots meant that the carrier could not fulfill its obligations to United, American, and Delta, forcing the company into bankruptcy. In the last few months, while under the bankruptcy court’s protection, Republic has renegotiated its contracts with all three airlines and phased out its older 50-seat jets in favor of sleek new 76-seaters. Additionally, Republic has partnered with twenty college aviation programs to deepen its pilot hiring pool.

Company officials say that the plan, which details what Republic has done during reorganization and what it plans to do going forward, has the “full support” of the creditors’ committee.

Chapter 13 Endgame

In large Chapter 11 corporate bankruptcies, most of the creditors must approve the reorganization plan. Chapter 13s work basically the same way, because the trustee (person who manages the bankruptcy on the judge’s behalf) must approve the debt consolidation plan. Also, just like companies can renegotiate unfavorable contracts while they’re in bankruptcy, Chapter 13 debtors can renegotiate loans with moneylenders to obtain more favorable terms.

The debtor has leverage in these situations, because truth be told, the moneylenders want money and not banged-up collateral. For example, if a debtor is behind on a car payment and files Chapter 13, the bank does not want a used car that it must repossess, store, clean up, and sell at auction for a price that will probably be less than the outstanding loan balance. These factors are even more pronounced if the dealer has sold the note to a finance company, and that is often the case. Because the creditor knows that the debtor can very easily surrender the collateral and force the moneylender down that path, the creditor will often agree to extend the number of payments or take some similar action to make repayment terms a little more manageable.

If the parties legitimately dispute the amount owed, judges often refer these disagreements to mediation. In this forcum, moneylenders must negotiate in good faith to resolve the dispute. This issue comes up a lot in mortgage modifications, because banks often refuse aid based on technicalities. For the most part, judges will not tolerate such intransigence in mediation.

Chapter 7 Endgame

Successful Chapter 13 debtors emerge from bankruptcy with clean current payment histories and a better debt-to-income ratio than before, so they are well on their way towards complete rehabilitation. Chapter 7 rehabilitation requires a little more work, but it is not very daunting.

Most bankruptcy lawyers can refer clients to lenders who work with people that have damaged credit. Taking on an auto loan or other secured debt, and maintaining a good payment history, goes a long way towards rebuilding a FICO score.

By the same token, a credit card is also a good rebuilding tool. Because of the post-filing waiting period, most former debtors receive many credit card offers, since moneylenders know they cannot declare bankruptcy again for several years. As a rule of thumb, about 120 days or so is all it takes to convince creditors that the debtors really have turned over new leaves and are now much better credit risks than they were before.

Reach Out to Assertive Lawyers

Bankruptcy is the best way to rebuild a financial life. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments are available.

Resources:

ibj.com/articles/61786-top-stories-retooled-republic-preps-to-exit-bankruptcy

bna.com/mediation-plays-increasing-n57982070088/

Chicago Schools Mull Bankruptcy

Posted on: February 2, 2017 by in Bankruptcy, chapter 13
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Faced with a $1 billion deficit and almost no way to make up the difference, the Chicago Public Schools are once again contemplating bankruptcy. But what would happen if a petition is filed?

Both Governor Bruce Rauner and Mayor Rahm Emanuel have floated Chapter 9 bankruptcy as the best available option, as the state cannot afford a bailout. Such a move would be nearly unprecedented. Since 1954, only four school districts have sought Chapter 9 bankruptcy protection, and only two have successfully completed the entire process. Before CPS could even file a petition, the Illinois Assembly must give its blessing. Question marks abound, as CPS has mortgaged many assets in recent years to raise cash, and it cannot legally alter pension payments, which some claim is the main cause for the financial distress. Furthermore, the Chicago Board of Education, which some lawmakers blame for the crisis, would administer CPS during bankruptcy.

However, in the long run, bankruptcy would give CPS a fresh start, much like GM and Chrysler obtained after they filed Chapter 9.

What Happens During Chapter 13 Bankruptcy?

In general, debtors will qualify for a Chapter 13 bankruptcy as long as they meet certain prerequisites laid out under the law. In addition, filers must complete a debt counselling course, which can be completed online in only a few minutes.

About six weeks after the petition is filed and the automatic stay takes effect, at least in most cases, the bankruptcy trustee (person who oversees the case on the judge’s behalf) goes over the proposed repayment plan with the debtor. The monthly debt consolidation payment must take care of all arrearages on secured debts, like home mortgages, within the three or five year protected repayment period. It’s best if there are sufficient funds left over to at least partially address unsecured debts, like credit cards and medical bills.

At the end of the protected repayment period, and after the debtor completes a brief debt management course, any remaining unsecured debt is discharged.

What About Chapter 7 Bankruptcy?

The only prefiling qualification in a Chapter 7, other than the debt counselling class, is the means test. Chapter 7 debtors must earn less than the average for that household size in that part of the country. As of November 2016, that amount is just over $90,000 a year for a family of four in Illinois and $76,000 for a similar-sized Indiana household. The means test levels change every few months.

Chapter 13 trustees are basically financial overseers who put debtors on allowances to make sure they can satisfy their obligations during the protected repayment period, but Chapter 7 trustees are more like paperwork examiners. During the 341 meeting, they will verify identity with a Social Security Card and driver’s license, as well as verify income with a recent 1040 and perhaps some other financial documents as well. Chapter 13 debtors must produce these same documents, at a minimum.

Typically, the discharge order comes about three to five months after the trustee’s meeting. Chapter 7 eliminates debts, but it does not eliminate the collateral consequences of those debts, like income tax liens or security agreements.

Rely on Experienced Lawyers

Consumer bankruptcy gives fresh starts to financially distressed families. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments are available.

Resources:

chicagocitywire.com/stories/511065017-chicago-public-schools-face-several-challenges-in-filing-bankruptcy

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/discharge-bankruptcy-bankruptcy-basics

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics