Chicago Bankruptcy

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Why Do Illinois Bankruptcy Judges Use Trustees?

Posted on: February 15, 2018 by in Bankruptcy, chapter 13, chapter 7
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Most baseball games have umpires and coaches. The umpire calls balls and strikes regardless of whether the call helps or hurts one team or the other; a coach pushes for the best interests of a team.

Bankruptcy judges are like baseball umpires. In any dispute between the parties, the judge determines who is right and who is wrong from a purely legal standpoint. The trustee is not exactly like a coach, but the trustee does look out for the best interests of the creditors.

Trustees in Indiana Chapter 7 Cases

In liquidation bankruptcies, Chicago trustees have basically two responsibilities.

First, the trustee conducts the 341 meeting of creditors, which takes place about six weeks after the debtor files a voluntary petition. In a Chapter 7 341, the trustee essentially verifies the debtor’s credentials (mostly that all the forms are present and the debtor has completed the required debt education classes) and confirms the debtor’s identity (nearly always with a Social Security card and a driver’s license).

At a Chapter 7 341, the trustee also collects some financial documents, such as recent tax returns and some other papers, such as mortgage notes, house deeds, or insurance policy declarations pages.

Second, the trustee evaluates all nonexempt assets to determine if a seizure and sale would benefit the creditors. Assume Debbie Debtor lives in Illinois and she has a nonexempt used car that’s in below average condition and only worth $500. The trustee may determine that, given the cost of seizing the car, repairing it, storing it, and other costs, the creditors may not benefit from such a transaction and Debbie may get to keep her nonexempt car.

In short, the trustee is not a used car salesman and s/he will not seize nonexempt assets unless the creditors stand to make a considerable profit from such a move.

Trustees in Indiana Chapter 13 Cases

In addition to the aforementioned Chapter 7 duties, Chapter 13 trustees have some additional responsibilities.

Chiefly, these trustees must examine and approve the debtor’s proposed debt consolidation and repayment plan. During the protected repayment period, which is usually five years, the debtor must make regular payments on all past due secured debts, like a home mortgage or a car note. At the end of the period, the debt must have a zero balance, so the debtor must continue to make regular payments during this period as well.

To determine the monthly debt consolidation payment amount, the trustee considers both the amount of the debt and the debtor’s income. Basically, the trustee puts the debtor on an allowance and requires that any money left over after the bills are paid go to debt retirement.

If the debtor and trustee cannot work out an acceptable payment plan, most debtors convert from Chapter 13 to Chapter 7. As a result, they do not need to catch up on secured debts and their bankruptcies close in a few months as opposed to a few years.

Trust Experienced Attorneys

Trustees are important cogs in the bankruptcy machine. 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.

Should I File Chapter 7 Or Chapter 13 Bankruptcy In Illinois?

Posted on: December 18, 2017 by in Bankruptcy, chapter 13, chapter 7
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Over the years, several Supreme Court Justices have declared that the Bankruptcy Code gives an “honest but unfortunate debtor” a fresh start. The vast majority of all debtors are honest, although the occasional fraud cases, like the 2016 Dance Moms bankruptcy saga, always make the headlines. Moreover, the vast majority of bankruptcy debtors are also unfortunate. The tales of people who buy high-priced luxury items with their credit cards and then refuse to pay the bills are largely inventions of the moneylenders’ imaginations.

So, most distressed debtors in Illinois and Indiana qualify for bankruptcy. What path should they follow?

Filing Chapter 7 Bankruptcy in Indiana

The aforementioned credit cards are unsecured debts, because the account holder simply promised to pay the bill. Other examples of unsecured debts include medical bills, which occasion most bankruptcy filings, and Small Business Association loans. Payday loans are unsecured as well, although the moneylenders often try to convince people otherwise.

Most unsecured debts are dischargeable in an Illinois Chapter 7. The largest exceptions are student loans, which are dischargeable if the debtor has a hardship, and back income taxes, which are generally dischargeable if they are at least three years old.

At the same time, most of the debtor’s assets are exempt, at least up to certain amounts, which means that the trustee (person who oversees the bankruptcy for the judge) cannot seize them, sell them, and distribute the proceeds to creditors. Some exempt assets include:

  • – Home equity,
  • – Retirement accounts,
  • – Personal vehicles,
  • – Bank accounts, and
  • – Personal property.

An Illinois attorney can maximize these exemptions by correctly valuing the property. For example, the bankruptcy value of a home is often different from its fair market value, because the Bankruptcy Code requires debtors to declare the asset’s as-is cash value.

Procedurally, most Chapter 7s only last a few months in Indiana, and the debtors quickly receive their fresh starts.

How Does Chapter 13 Bankruptcy Affect Me in Illinois?

If the debtor falls behind on secured debt payments, such as a car loan or home mortgage, the creditor can repossess the asset due to the nonpayment. Chapter 13 bankruptcy puts an immediate stop to any such adverse action, and it cannot resume while the bankruptcy is pending unless the judge grants special permission. Adverse action also includes things like lawsuits and wage garnishment.

Furthermore, Chapter 13 debtors have up to five years to pay any past-due amounts. Significantly, the monthly debt consolidation payment plan is based on what the debtor can afford and not on what the moneylender demands.

After the repayment period, any remaining unsecured debt, which is generally all of it, is discharged.

Pursuing a Chapter 20 Bankruptcy in Indiana

This chapter is not in the Bankruptcy Code, but it is popular with many debtors, especially those with a great deal of past-due secured debt. The debtor initially files a Chapter 13, and if the monthly payment is unmanageable, the debtor voluntarily converts the case to a Chapter 7. The debtor gets a fresh start much faster and is free to rebuild credit.

Connect With Experienced Attorneys

Distressed debtors have several bankruptcy options. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours visits are available.

Resource:

law.cornell.edu/supct/html/05-996.ZO.html

The Different Types Of Bankruptcy

Posted on: November 13, 2017 by in Bankruptcy, chapter 13, chapter 7
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The Bankruptcy Code provides for several different types of consumer bankruptcy, but nearly all these voluntary petitions fall under either Chapter 7 or Chapter 13.

Both these plans have some things in common. In each case, the debtor must undergo pre-filing debt counselling, as well as a post-filing financial management class. Both types trigger the automatic stay, in most cases. So, moneylenders may not take any adverse action against debtors while their cases are pending. That includes demands for payment, harassing phone calls, repossession, eviction, and foreclosure.

There are some significant differences as well, as each chapter is designed for a certain kind of debt problem.

Chapter 7

Sometimes called “liquidation” bankruptcy, although that term is not accurate, Chapter 7 is essentially a declaration that the debtor is completely unable to pay his/her outstanding unsecured debts in the way that the moneylender demands they be paid. Therefore, the debtor gives permission for the bankruptcy judge to seize and sell all nonexempt assets to satisfy that debt.

Most people do not have nonexempt assets, unless they own luxury items, like vacations homes and boats. Even then, the trustee (person who oversees the bankruptcy on behalf of the judge) might not seize the item, if its sale would not significantly benefit the creditors. For example, a vacation home might have a large mortgage that must be satisfied or a boat might need substantial work to get it in a saleable condition.

About six weeks after the petitioner files a petition and schedules, the trustee inspects the paperwork to ensure that it is all in order and also verifies the debtor’s income and identity.

Typically, about six months later, the judge discharges all unsecured debts. This category includes all medical bills, Small Business Administration loans, and credit cards, as well as most income taxes and some student loans. As a result, the debtor has the fresh financial start which the Bankruptcy Code guarantees.

Chapter 13

The so-called “wage earner plan” is often ideal for people who are behind on home mortgage payments, auto loans, and other secured debts. After reviewing the debtor’s paperwork, the trustee basically places the debtor on an allowance for either three or five years, largely depending on the household income level, to give the debtor a chance to catch up on past-due secured debt payments. The moneylenders may not successfully object to the debtor’s proposed repayment plan except in very rare circumstances, and they may not take any adverse action against debtors during the protected repayment period.

At the end of three or five years, any remaining unsecured debts are discharged, and the debtor has a fresh financial start while retaining all of his or her exempt assets.

Chapter 20

This one is not in the bankruptcy code, but it is a very common approach. Some Chapter 13 debtors soon realize that they cannot afford the monthly debt consolidation payment. In these cases, it is sometimes best to voluntarily dismiss the Chapter 13 and refile it as a Chapter 7, since the debtor has a right to convert the case at almost any time. In this way, the debtor needs not make any more payments, the automatic stay remains in place, and the debtor receives a fresh start much earlier than under a Chapter 13.

Connect With Experienced Attorneys

Different debtors have different bankruptcy choices. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resource:

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics

Four Dischargeable Debts In Bankruptcy

Posted on: October 9, 2017 by in Bankruptcy, chapter 13, chapter 7
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The end result of a bankruptcy petition, in almost all cases, is a fresh financial start for the honest yet unfortunate debtor. To get this fresh start, the bankruptcy judge will discharge (legally forgive) many different kinds of debts.

Sometimes, debtors want to pay what they owe, or at least most of it, but they lack the means to do so. Such repayment is an option in both Chapter 7 and Chapter 13 cases, because even if the debt is legally discharged, the moneylender will almost always still accept payments.

Credit Cards

The math is very simple. Since 2003, wages have increased by 28 percent and prices on many items have increased between 35 and 55 percent. Something has to fill in the gap, and in most cases, that something is borrowing money on credit cards. In fact, the average credit card-holding household has account balances over $16,000 in revolving debt alone.

There is no doubt that poor financial planning and overspending account for some of this debt, but unexpected emergencies, such as medical bills and unemployment, account for a lot more.

Since there is no security agreement, credit card debt is dischargeable in both Chapter 7 and Chapter 13 cases. In addition, because of the automatic stay, moneylenders cannot pursue any adverse actions, such as lawsuits, while the case is pending.

Medical Bills

As most people might expect, medical bills have increased more than most other types of expenses over the past fifteen years, and even if the debtor has good medical insurance, the membership fees, copays, and deductibles are often financially debilitating.

Legally, medical bills fall into the same category as credit cards and so they are completely dischargeable.

Signature Loans

Small Business Administration and other bank loans, as well as payday and other nonbank loans, are also unsecured, even if the lender required bank account information or if the debtor agreed to a certain withdrawal on a certain day.

Student loans, whether or not a governmental unit guaranteed them, are only dischargeable if the debtor establishes undue hardship, and admittedly, that is not an easy showing to make in court.

Taxes

Somewhat similarly, income taxes, as opposed to payroll and other kinds of taxes, are dischargeable only under limited circumstance, but the showing is a little easier to make because it is based on time as opposed to other circumstances. The rules for both the IRS and state taxing authorities are:

  • Tax must be at least three years old,
  • Returns have been on file for the past two years, and
  • The authority has not assessed the debt in the last 240 days, which usually means that the taxpayer has not received a notice or bill in that time period.

The IRS, as well as states, are very particular on dates, and it is not unusual to see opposition based on one or two days off the deadlines.

If the taxing authority placed a lien on the taxpayer’s assets, such liens remain, because the bankruptcy judge has limited powers.

Contact Experienced Attorneys

Most debts are dischargeable in bankruptcy. 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:

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

Exempting Houses And Cars In Illinois Bankruptcies

Posted on: October 2, 2017 by in Bankruptcy, chapter 13, chapter 7
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Whether the voluntary petition is filed under Chapter 7 or Chapter 13, most all common consumer assets are exempt in Illinois, meaning that debtors rarely, if ever, must forcibly surrender their property to the bankruptcy trustee (person who oversees the case for the judge).

Bankruptcy protects assets to help fulfill the law’s mission of a fresh financial start for “honest yet unfortunate” debtors. If Illinois filers lost their houses, cars, and other important assets, they would go back behind the starting line, an outcome that’s clearly not contemplated by the Bankruptcy Code.

All that being said, if the asset is secured by a mortgage or other loan, the debtor must keep making payments as originally agreed, at least in most cases.

House

Up to $15,000 in equity for a single filer ($30,000) for joint filers) is exempt under 750 ILCS 65-22.

Per the Bankruptcy Code, the debtor must declare the house’s as-is cash value, which may be substantially lower than the fair market value, because cash-paying home investors usually pay a maximum 60 cents on the dollar.

Although the value difference makes no difference in the amount of equity, as that figure remains the same regardless of the home’s value, the distinction makes a tremendous difference in terms of the loan-to-value ratio. Assume a single filer has a $200,000 home with $20,000 in equity and a $180,000 loan balance. Given those facts, the trustee could theoretically force the debtor to sell the house for the $5,000 in unexempt equity, although the judge would have to approve such a plan.

But the as-is cash value of that house may be as low as $100,000, meaning that the debtor is upside-down on the residence and there will be no sale.

There are some other loan-to-value issues related to exempt homesteads as well, including:

  • – Lien Strip: If the property’s value is too low to secure a second mortgage or other junior lien, the bankruptcy court may declare it to be unsecured, thus freeing the debtor from the obligations to make payments on that debt.
  • – Cram Down: In some cases, the outstanding loan balance can be reduced to match the property’s fair market or as-is value.

These options, and specifically a cram down, may be available for other assets as well, such as motor vehicle loans.

Cars

$2,400 in equity for a single filer ($4,800) for joint filers is exempt under 735 ILCS 5/12-1001(c). Typically, newer cars have almost no equity because the outstanding loan balance is so high, and older vehicles have almost no equity because they have almost no value.Once again, the debtor must declare the as-is cash value, which can be readily obtained from a site like kbb.com.

In addition to the cram down mentioned above, redemption may be an option as well, especially in longer lasting Chapter 13 cases. If the debtor pays the full fair market value of the collateral, the moneylender may be unable to collect the remaining balance on the loan, no matter how high it is.

Count On Experienced Attorneys

Nearly all bankruptcy debtors get to keep their houses, cars, and other key assets. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resource:

ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2102&ChapterID=59

What’s The Difference Between Chapter 7 And Chapter 13?

Posted on: September 25, 2017 by in Bankruptcy, chapter 13, chapter 7
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A number of times over the last hundred years, and perhaps most recently in 1998, the Supreme Court has reaffirmed that the purpose of the Bankruptcy Code is to give the “honest but unfortunate debtor” a fresh start. There is only one kind of honest, but there are several kinds of misfortune, which is why there are basically two types of bankruptcy.

The most successful bankruptcy debtors either are victims of unforeseeable, and usually once in a lifetime, financial storms, or they understand the mistakes they made and are committed to doing better. Many times, there is a little bit of both, as the debtor may have had an unhealthy financial habit or two that created a vulnerability to job loss, divorce, medical bills, or another unexpected event.

Chapter 7

If the debtor has mostly unsecured debts, which are credit cards and other debts that the debtor has promised to repay, an ill-named liquidation bankruptcy may be the best option. This nickname is inaccurate because, in most cases, Chapter 7 debtors do not lose any of their assets. By law, Indiana and Illinois debtors can keep their:

  • – Retirement Accounts: If the IRA, 401k, or other nest egg was earned and not inherited, the debtor can keep the entire amount, regardless of the account balance.
  • – House: Both Illinois and Indiana use value-based exemptions that protect a certain amount of home equity in a primary residence. Bear in mind that if the house is worth $200,000 and the debtor still owes $190,000, the exemption only needs to protect the $10,000 in equity.
  • – Cars: The same rule applies for motor vehicles, and generally, new cars have almost no equity and used cars have almost no value.
  • – Personal Property: Other personal property, including cash in many cases, is also exempt.

To determine value, the debtor must declare the as-is cash value (“garage sale”) value. This amount is usually much lower than the fair market value.

About six weeks after the debtor files a petition and schedules, the trustee (person who oversees the bankruptcy on behalf of the judge) reviews the paperwork to ensure that everything is in order, and about six months later, all unsecured debts are discharged.

Chapter 13

Other debtors have issues with secured debts, such as home mortgages and vehicle loans. In these cases, the debtor probably does not want the debt to disappear, because that would mean losing the secured asset. So, the wage earner plan is probably a better option. Chapter 13 debtors have up to five years to catch up on secured debts, and during the entire period, they are under the protection of the bankruptcy court. So, in most cases, moneylenders cannot take any adverse action during this time, and that includes anything from harassing phone calls to repossession.

During the trustee meeting, the debtor and trustee come up with an income-based repayment plan, which is nearly always a better alternative to the debt-based “repayment plans” that moneylenders offer.

Debtors can voluntarily convert their plans from Chapter 13 to Chapter 7, and vice versa, at almost any time. So, many debtors file a Chapter 13, and if they find they cannot afford the debt consolidation payments, they convert to Chapter 7, wrap things up quickly, and take full advantage of their fresh starts.

Go With Experienced Attorneys

Different distressed debtors have different legal options in bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Our attorneys are licensed in both Illinois and Indiana.

Resource:

scholar.google.com/scholar_case?case=583609839906134327&hl=en&as_sdt=6&as_vis=1&oi=scholarr

Bankruptcy Filings Dip Slightly

Posted on: September 6, 2017 by in Bankruptcy, chapter 13, chapter 7
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According to the latest government statistics, distressed debtors have less money, owe less money, and are filing fewer voluntary bankruptcy petitions than they were a year ago.

Nationally, consumer filings dropped 6 percent in the latest filing tally. The average debtor had a $2,668 monthly income to pay $2,590 in monthly expenses. In 2015, both these figures were about 7 percent higher.

In Indiana, bankruptcy filings fell by 9 percent.

Types of Consumer Bankruptcy

Chapter 7 bankruptcy is normally a good option for families who owe more than $10,000 in unsecured debt, because that is realistically more money than most people can afford to repay. The list of dischargeable obligations includes:

  • Medical Bills: Even with health insurance, medical bills often overwhelm a family, which is why these expenses are one of the leading causes of bankruptcy.
  • Credit Cards: Like payday loans, credit cards are secured only by a future promise to pay, which is why credit card debt is one of the most frequently-discharged obligations.
  • Back Taxes: Income taxes are dischargeable if the taxpayer did not commit fraud or tax evasion, the tax is at least three years old, the returns have been on file at least two years, and the debt has not been assessed in the last 240 days.
  • Small Business Administration Loans: Most businesses fail within their first few years, and if your business is no longer in operation but the SBA loan is still outstanding, bankruptcy should be a consideration.

Bankruptcy eliminates the debt but not the collateral consequences of debt. So for example, if a taxing authority has filed liens on outstanding taxes, those liens remain even if the underlying debt is discharged.

Procedurally, after the debtor takes a debt counselling class, an attorney files a petition and schedules. About six weeks later, the debtor meets with the trustee (person who oversees the bankruptcy on behalf of the judge) to review the paperwork, and about six months after that, the judge typically signs the discharge order.

Chapter 7 debtors must pass the means test, which means their income must be lower than the average income for that geographic area.

In Chapter 13 cases, the debtor’s income usually needs to be slightly above average, since the debtor must make monthly debt consolidation payments. The debtor has up to five years to pay any arrearage on home mortgages, auto loans, and other secured debts.

The trustee also has a different role in Chapter 13 cases, because instead of simply reviewing paperwork, the trustee evaluates the debtor’s monthly income and expenses. The debtor ten remits any excess income as the debt consolidation payment.

Chapter 13 is a good option for people who are more than a month or two behind on secured debts.

Benefits of Bankruptcy

The automatic stay is one of the most significant benefits of bankruptcy. In most cases, moneylenders cannot take any adverse action against debtors as long as the case is pending. That includes lawsuits, repossessions, foreclosures, and collection phone calls.

Chapter 7 debtors receive a fresh financial start in only a few months, and Chapter 13 debtors have up to five years to pay off any arrearage. Furthermore, Chapter 13 debtors may also be eligible for cramdowns, which means that their secured loans are reduced to the current fair market value of the secured property.

Rely On Experienced Attorneys

Chapter 7 and Chapter 13 are the two main types of consumer bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in both Illinois and Indiana.

Resource:

ibj.com/articles/64552-indiana-bankruptcy-filings-take-downward-turn

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/

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

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/