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3 Dischargeable Debts In Bankruptcy

Posted on: December 4, 2017 by in Bankruptcy, debt
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In the words of several Supreme Court Justices, the Bankruptcy Code is designed to give the “honest but unfortunate debtor” a fresh start. This label applies to almost all the voluntary bankruptcy petitioners in Illinois and Indiana. Since it would be impossible to get this fresh start with unpaid accounts still hanging over the debtor’s head, most all unsecured debts are dischargeable. “Unsecured debts” are those that include only a promise to pay and are not secured by property, such as a house or car.

That being said, there are some restrictions and limitations on discharge, or forgiveness of debt.

Medical Bills

The leading cause of consumer bankruptcy filings is also the classic example of unsecured and dischargeable debts. Because they are usually involuntary (no one asks to get seriously ill), many moneylenders are also a little more understanding about medical bill-related bankruptcies, especially if the debtor has a reasonably good credit history otherwise.

Bankruptcy ends the obligation to repay the debt but not the medical debt itself. That’s normally a good thing, because many medical creditors are willing to accept a partial payment post bankruptcy and notate the debt as “paid,” because they know that a partial payment is much more than they are likely to get otherwise. Such a note helps improve the debtor’s credit score and also demonstrates additional financial diligence to other potential creditors.

Credit Cards

Rising interest rates are just one reason that credit card debt now eclipses $16,000 per household. Now that the Great Recession is in the rearview mirror for most people, they have more confidence and are spending more. Unfortunately, many of us spend money that we do not have, and that sometimes leads to bankruptcy filings.

The automatic stay often comes into play with regard to credit card debt, because these moneylenders are normally quick to file suit over delinquent accounts. Under Section 362, all these lawsuits must stop at the moment the debtor files a voluntary petition, at least in most cases. Furthermore, since the discharge order eliminates the obligation to repay the credit card, the lawsuit cannot be revived.


Past due state and federal income taxes are both dischargeable in bankruptcy, provided that the following conditions are met:

  • – The tax must be at least three years old,
  • – The returns must have either been filed on time or at least been on file for a minimum of two years, and
  • – The debt has not been assessed in the last 240 days (in plain English, that usually means the taxpayer has not received a collections notice in the last nine months).

Bankruptcy only discharges past-due tax debt and not any tax debt associated with fraud or willful evasion. Furthermore, if the taxing authority has filed a lien, that lien remains in place, because the bankruptcy judge only has the power to extinguish the legal obligation to repay the debt.

Some unsecured debts are not dischargeable for policy reasons, such as family support obligations (FSOs). However, the automatic stay still applies, so bankruptcy will stop FSO-related lawsuits and wage garnishment.

Reach Out to Experienced Attorneys

Most people emerge from Chapter 7 or Chapter 13 bankruptcy with no unsecured debt. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.


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.


The ITT Bankruptcy And Student Loans

Posted on: May 9, 2017 by in Bankruptcy, debt, student debt
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According to a government estimate, Uncle Sam will eventually spend about $461 million in education debt bailouts for students of the now-defunct college, but as these debts are only dischargeable in bankruptcy in limited circumstances, a taxpayer-funded bailout is probably the only option.

The closed school discharge — a loophole in most federally-guaranteed student loan agreements — forgives these debts if the school shuts down within 120 days of the student’s graduation or withdrawal. Although the government forced the college to earmark $94 million to help offset shutdown costs, it is unclear whether any of that money will be available to pay part of the discharged student loans. The actual price tag may go much higher, if the Department of Education agrees to allow fraud claims. Essentially, the debtor must prove that the school intentionally misled the student regarding job placement, graduation rates, or other important statistics.

Altogether, former ITT students borrowed about $3 billion.

Student Loans

The cost of tuition has skyrocketed in recent years. In Illinois, college tuition has doubled at public universities over the past ten years, largely because of the ongoing pension fund crisis. In fact, only a small portion of the increase went to the schools.

As costs rise in The Land of Lincoln and nationwide, education debt has escalated as well. Currently, over 44 million people owe more than $1.4 trillion in student loans. Probably because the debt load has increased significantly over the past ten years, the student loan repayment rate has steadily declined over that same period.

All these factors have combined to create a near-critical situation in student debt, but the bankruptcy courts have basically done nothing to help avert this crisis.

Bankruptcy and Student Loans

In January 2016, the Supreme Court refused to reconsider Tetzlaff v. Educational Credit Management Corp., a Seventh Circuit case which upheld the controversial Brunner Rule for discharging education loans through bankruptcy.

58-year-old Mark Tetzlaff claimed that a combination of substance abuse issues, depression, and petty criminal convictions made it impossible for him to hold down a job, and therefore he could not repay his $260,000 education debt. With almost no discussion, the court immediately looked to the three-part Brunner test to determine if Mr. Tetzlaff’s debt was dischargeable under the Bankruptcy Code. That test is:

  • – Adverse Circumstances: The trial court concluded that Mr. Tetzlaff could “earn a living” since “he has an MBA, is a good writer, is intelligent, and family issues are largely over,” and the Seventh Circuit said these findings were not clearly erroneous.
  • – Good Faith Repayment Effort: Although Mr. Tetzlaff had repaid some education debt to another school, the court refused to consider these payments as evidence in his bankruptcy.
  • – Unable to Maintain Minimal Standard of Living: The court seemingly agreed that Mr. Tetzlaff could not subsist above the poverty line if forced to repay the debts, but for a student loan to be dischargeable under the Brunner rule, the debtor must prove all three prongs.

Several federal appeals courts have forgone the harsh Brunner rule in favor of a more lenient totality-of-the-circumstances approach.

Contact Assertive Attorneys

Under current law, it is not easy to discharge student loans in bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.


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.


Should Financially Distressed Illinois Cities File Bankruptcy?

Posted on: February 22, 2017 by in Bankruptcy, debt
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The nonprofit Manhattan Institute says that an “intervention bankruptcy” is a good option for cities experiencing pressing financial problems, as long as politicians are kept out of the loop.

Such a course of action is highly preferable to continuing operations on the brink of insolvency, because eventually they get to a point “where they cannot pay their creditors and [they are] liable to creditor lawsuits,” remarked MI Senior Fellow Dan DiSalvo. However, cities are under intense pressure from voters and interest groups to avoid the bankruptcy route, he added. The so-called Detroit model, which puts a state-appointed manager in charge of the city’s finances, is preferable to the so-called California model, under which elected officials retain control.

Under a 1990 law, financially distressed Illinois cities have access to special emergency funding options, and if they file bankruptcy, the elected leaders must relinquish control to a state-appointed manager.

Bankruptcy Symptoms

In the past, many observers criticized politicians in Washington for their “borrow-and-spend” approach to government finances, as according to some, leaders ran up large budget deficits with little thought as to the funding for their ambitious programs. Many cities are in a similar boat, because they promised large pensions to attract and retain workers to jobs that, relatively speaking, paid much less than private-sector alternatives. Later, when those bills become due, a few cities struggle to stay afloat.

Most personal bankruptcies occur because of job losses,divorces, illnesses, and other events largely beyond the debtors’ control. As a result, it is sometimes hard to know when to seek bankruptcy assistance.

  • – Unsecured Debt Servicing: As a rule of thumb, if a family accumulates more than $10,000 in consumer debt (credit cards and medical bills), it is all but impossible to repay it, especially if the family’s other loan balances are about average.
  • – Secured Debt: Again as a rule of thumb, most moneylenders begin initial adverse action (letters and phone calls) once an account becomes 30 days delinquent; more aggressive adverse action (repossession and foreclosure) follows shortly thereafter.

In most cases, an automatic stay takes effect as soon as debtors file bankruptcy, so for the duration of the case, moneylenders cannot take any adverse action against debtors without special permission from the bankruptcy court.

The automatic stay applies to dischargeable as well as nondischargeable debts. For example, if a moneylender is garnishing a debtor’s wages to satisfy a student loan obligation, the moneylender cannot continue such garnishment while the bankruptcy is pending, even though the underlying obligation will most likely survive.

Typically, Chapter 7 bankruptcy extinguishes unsecured debts in a matter of months; Chapter 13 gives debtors up to five years to repay past-due amounts on secured debts.

Contact Aggressive Lawyers

Bankruptcy provides both short and long-term debt relief. 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.


Dischargeable Bankruptcy Debts

Posted on: January 26, 2017 by in Bankruptcy, debt
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Mortgage underwriters talk a lot about debt-to-income ratio, and as a rule of thumb, a 43 percent DTI ratio is the ceiling for mortgage qualification purposes. The thinking is that people who owe more money than that cannot afford to pay it back, and therefore they are very poor credit risks.

So, according to current government statistics, if your family pays more than $1,600 in debts each month, and that includes mortgage notes and other secured debts, it will be difficult or impossible to repay these obligations in full without outside assistance. Unfortunately, that category includes most all middle-income families in Illinois and Indiana; fortunately, relief is available.

Debt Elimination

Although they operate a little differently, both Chapter 7 and Chapter 13 eliminate unsecured debts, including:

  • – Credit Cards: Families who have credit card debt owe an average of $16,000 on credit cards alone, which is almost more than most incomes can accommodate.
  • – Medical Bills: One in five families have unpaid medical bills, and as for the percentage of people who are at-risk for default, the number is even higher.
  • – Signature Loans: Although the moneylenders would like people to think differently, payday loans fall into this category. Auto title cash loans are usually secured.

Immediately upon filing, bankruptcy’s automatic stay forbids moneylenders from pursuing foreclosure, lawsuits, wage garnishment, and all other forms of adverse action, at least in most cases. A Chapter 7 discharges (forgives) debts in about four to six months, and a Chapter 13 discharges debts at the end of the three or five-year repayment period.

Bankruptcy judges can extinguish debts but not the collateral consequences of debts, meaning that income tax liens, blacklists, and other items usually survive bankruptcy.

Debt Reduction

Most people sincerely want to repay their debts to the greatest extend possible, either because of a moral obligation or because they want to retain the secured property, and Chapter 13 is tailor-made for these families.

Rather than throwing money at secured debt delinquency, Chapter 13 debtors consolidate all these accounts into one monthly payment based on their incomes, and moneylenders basically cannot object, as long as the judge considers the repayment plan to be reasonable. Moreover, if there is a legitimate dispute as to the amount owed, judges usually refer the matter to mediation, where the moneylender must negotiate in good faith to reach a mutually-satisfactory agreement. Even if there is no dispute, an experienced lawyer can sometimes independently negotiate with the moneylender and obtain more favorable repayment terms.

What Stays Behind

Child support delinquency, past-due alimony, and other DSOs (domestic support obligations) are typically not dischargeable in bankruptcy, even though they are technically unsecured debts. The same thing applies to some criminal fines. Student loans are dischargeable if the debtor establishes an undue hardship, and income taxes (but not income tax liens) are dischargeable if the tax is at least three years overdue, the return has been on file for at least two years, and the taxing authority hasn’t assessed the debt in the last 240 days (nine months).

Go With Experienced Lawyers

Bankruptcy is the best way to help people eliminate and manage det. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in Indiana and Illinois.


The Freshest Start Of All

Posted on: January 19, 2017 by in Bankruptcy, debt
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General Motors intends to take its ignition switch liability argument all the way to the Supreme Court.

Earlier, the Second Circuit Court of Appeals in New York ruled that the automaker is still responsible for damages stemming from defective ignition switches, even though the company declared bankruptcy in 2009 and emerged a short time later. The company’s lawyers have consistently argued that while the “old GM” was clearly responsible for damages in these cases, the “new GM” is an entirely new corporate entity and the Bankruptcy Code guarantees the company a fresh start free from its prior liabilities. Indeed, a district court judge initially agreed with GM and ruled that the new company was not liable for damages.

The automaker recalled over 2.6 million vehicles that were linked to 124 deaths.

Back to the Starting Line

GM’s arguments have some merit, because the Bankruptcy Code guarantees a “fresh start” to the “honest but unfortunate” debtor; the real question in the GM case is just how honest the automaker was in the faulty ignition switch row.

The automatic stay is part of the fresh start, and it essentially allows debtors to legally ignore their debts. Moneylenders cannot take any adverse action against debtors as long as the automatic stay is in effect, and that includes repossession, foreclosure, wage garnishment, harassing phone calls, and any “easy payment plans” the moneylender may have imposed. While the bankruptcy judge has almost unlimited power to forgive debts, the power ends there. So, bankruptcy extinguishes debts but not security agreements, and if the debtor stops making payments on a house or car or whatever, the judge almost always allows the moneylender to enforce their liens. Similarly, bankruptcy cannot extinguish the collateral consequences of debt, like income tax liens.

The discharge order completes the fresh start. It is illegal for any moneylender or debt-buyer to attempt to collect a debt that was discharged in bankruptcy.

Strong to the Finish

A bankruptcy lawyer gets you back to the starting line, and the next move is up to you. That being said, there are many things you can do to help rebuild your credit after bankruptcy.

It may seem counterintuitive to tell people with prior debt problems to obtain a credit card, but the responsible use of credit is the only way to rehabilitate a credit score. Most debtors receive many such offers after they receive their discharge orders, because the moneylenders know that a waiting period applies and it will be several years before the former bankruptcy debtor can file another voluntary petition. It’s usually best to select a card with a relatively low credit limit that can be increased later; some people automatically gravitate to secured cards, but many of these issuers put a “secured card” note on credit reports, and that note diminishes the impact of on-time payments.

Speaking of on-time payments, secured debts must be paid on time, because these creditors report payment history directly to the credit bureaus. Other bills, like utility bills and car insurance payments, are not reported regularly, but unpaid accounts typically go to debt-buyers.

Count On Experienced Lawyers

To get the fresh start you and your family deserve, contact an experienced bankruptcy lawyer in Chicago from the Bentz Holguin Law Firm, LLC for a free consultation. Convenient payment plans are available.


Eliminating Debt Through Bankruptcy

Posted on: January 3, 2017 by in Bankruptcy, debt
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It would be nice if bankruptcy was a magic wand that instantly discharged all consumer debts. After all, bankruptcy is a fresh start, and people cannot obtain this fresh start while still saddled with debts they cannot pay.

Alas, the world does not work that way, largely because moneylenders have financial rights as well, and federal laws protect these rights. Therefore, the type of debt has a great deal to do with the dischargeability, or non-dischargeability, of that obligation.

Private Debts

When times get tough, many people use credit cards for food, gas, utility bills, and other necessary expenses; most landlords and banks do not accept credit cards for rent and mortgage payments. But for the most part, people typically use credit to buy non-essential items.

All that being said, the credit card companies bear some responsibility if the borrowers default on the cards and declare bankruptcy. Some firms are rather notorious for issuing cards to people who can only barely afford to repay the loans. Furthermore, credit card companies earn over $150 billion a year, so despite what they may say, a few thousand dollars is not a major loss, especially since it may be a tax write-off. When taken together, all these factors mean that although the charges are clearly the individual’s responsibility, the company is hardly a “victim.”

Medical bills are in basically the same boat, which is why they are 100 percent dischargeable as well, at least in most cases. Providers usually charge uninsured patients much higher fees than they charge insurance companies, so it is little wonder that almost 43 million Americans have at least one unpaid medical bill.

Dischargeable Public Debts

Although they are government-guaranteed, Small Business Administration loans are generally dischargeable in bankruptcy. However, if the SBA loan included a security interest or a property lien, bankruptcy does not extinguish the lien or security interest, because bankruptcy judges do not have that power.

Income taxes are also dischargeable in bankruptcy, and since the Bankruptcy Code does not define “income taxes,” the IRS or other taxing authority usually has the final say on what debts qualify for discharge and which ones do not. Regardless, the following rules apply:

  • – The debt must be at least three years old,
  • – The returns must have been on file for at least two years, and
  • – The debt has not been “assessed” in the last 240 days (basically, that means that the taxing authority has not sent the taxpayer a collection notice in the last nine months).

Similar to SBA loans, bankruptcy discharges the debt but does not extinguish any existing lien.

As discussed in a previous post, student loans are technically dischargeable in bankruptcy actions, though it is not easy to do so, under the draconian Brunner Rule. That is why some federal appeals courts have abandoned this rule and replaced it with a more lenient totality-of-the-circumstances test. Given the split in the circuits, and the ongoing student loan “crisis,” the Supreme Court may eventually weigh in and settle the matter.

Non-Dischargeable Public Debts

Domestic Support Obligations are almost never dischargeable in bankruptcy, because most DSO recipients are not wealthy governments, hospitals, or credit card companies, and they have substantial financial rights that all courts recognize, including bankruptcy courts. Bankruptcy probably will suspend legal proceedings in this area, such as motions to enforce or other collections proceedings, as well as wage garnishment. If the government has placed a lien on a financial account, bankruptcy may be able to release the lien, at least temporarily.

Count on Experienced Lawyers

Most types of debt are dischargeable in bankruptcy. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. Our law office has a small town atmosphere and access to nationwide resources.

Trump Adds ‘King Of Bankruptcy’ To His Cabinet

Posted on: December 21, 2016 by in Bankruptcy, chapter 13, debt
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President-elect Donald Trump tapped multi-millionaire investor Wilbur Ross to be his Commerce Secretary.

Some people in and around industrial Northwest Indiana call Mr. Ross the “king of bankruptcy,” because in the past, he has purchased companies in distressed industries at a discount, often while they are in bankruptcy, and either liquidated their assets or helped make them profitable again. In the early 2000s, when over two dozen steel manufacturers went bankrupt because of overcapacity and a financial crisis in Asia, Mr. Ross purchased four domestic companies to form the International Steel Group. Over the next few years, some workers kept their jobs, albeit with lower wages and benefits, while many steelworkers in Pennsylvania and Ohio lost their jobs. Mr. Ross later sold ISG at a $300 million profit.

National Association of Manufacturers President and CEO Jay Timmons supported President-elect Trump’s move, calling Mr. Ross “one of the savviest investors in the world” and someone who has “a firsthand understanding of the challenges manufacturers face to remain globally competitive in today’s economy.”

Bankruptcy: The Great Do-Over

Scott Paul, president of the Alliance for American Manufacturing, said that corporate bankruptcy was like life-saving surgery, because sometimes a skilled surgeon must sacrifice a limb in order to save the patient. Moreover, by most accounts, Mr. Ross honestly listened to union workers before he formulated an exit strategy.

Procedurally and substantively, personal bankruptcies have almost nothing in common with corporate bankruptcies, but philosophically, they are very much alike. Supreme Court Justice James Clark McReynolds was one of the first jurists to refer to bankruptcy as a “fresh start” for the “honest yet unfortunate debtor.” In Chapter 7s, debtors get their fresh starts in as little as a few months, because all their unsecured debts are discharged with the stroke of the judge’s pen. In Chapter 13s, debtors have up to five years to bring outstanding account balances to zero, and moneylenders typically have no other legal choice except to accept the debtors’ repayment terms.

Just like companies, families need a good bankruptcy exit strategy, if they want to avoid future financial issues. Part of a good post-bankruptcy strategy includes:

  • – Credit Card: Few things cause credit scores to rise faster than on-time payments on a revolving debt account. After six or eight months, most borrowers can ask for higher credit limits, and these larger limits make them look even more creditworthy.
  • – Honesty: As a rule of thumb, no one likes unpleasant surprises, and moneylenders do not like to learn about prior bankruptcies when they check credit reports. So, be upfront with future mortgage lenders and other moneylenders about prior credit issues. Typically, most lenders only care about the last six or eight months anyway.
  • – On-Time Secured Debt Payments: This is a must, because student loan payments, mortgage payments, vehicle payments, and other such accounts show up near the top on almost all credit reports.

It is illegal for any moneylender to discriminate based on a prior bankruptcy filing, but it is perfectly legal to make such decisions based on credit history and other relevant factors.

Contact Experienced Lawyers

In short, bankruptcy means a fresh start. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments are available.


The Financial Comeback Trail

Posted on: December 20, 2016 by in Bankruptcy, chapter 13, chapter 7, debt
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Abraham Lincoln, one of Illinois’ favorite sons, declared bankruptcy in 1833.

In his early 20s, Lincoln worked various jobs in Springfield, and that work included employment at a local general store. When the establishment closed, the young and enterprising Lincoln decided to open his own store in New Salem with a business partner. The two men purchased other stores’ inventories on credit to fill their shelves, a risky strategy that backfired when sales dipped at the New Salem establishment. Lincoln later recalled that the store “winked out,” and after his partner died, Lincoln was liable for about $1,000 in debts, an astronomical sum at the time.

Since he filed before the modern Bankruptcy Code, Lincoln took seventeen years to repay the debt in full; he also lost his horse and surveying gear, which were his only assets.

What If It Were Today?

Today, debtors can choose between Chapter 7 and Chapter 13, and either one would have most likely protected Lincoln’s assets and shortened the debt repayment period. Furthermore, during repayment, the hypothetical Lincoln would probably not receive any threatening letters or phone calls, because of the automatic stay.

In both liquidation and repayment bankruptcies, most assets are exempt up to certain levels, including:

  • – Houses,
  • – Vehicles,
  • – Retirement accounts,
  • – Personal property, and
  • – Cash on hand.

Qualified Chapter 7 debtors normally receive debt discharge (debt forgiveness) orders in only a few months.

Depending on their income, Chapter 13 debtors have either three or five years to repay their debts, and after that debt repayment period, any remaining unsecured debts, like credit card and medical bills, are discharged. Before the repayment period begins, debtors propose a monthly debt consolidation payment that goes to satisfy all secured debts, like home mortgage arrears or past-due car payments; during the repayment period, moneylenders can only take adverse action with special permission from the bankruptcy judge.

Recovery from Bankruptcy

Although it is not much worse than foreclosure or repossession, bankruptcy is normally the worst possible blow to a credit report; Chapter 13s usually fall off after seven years and Chapter 7s normally take ten years. In other words, bankruptcy gives consumers fresh starts and places them back at the starting line, and there are a few ways to move forward thereafter.

First, take a hard look at why the filing was necessary. Typically, there was a serious financial storm, such as a sudden illness or layoff, and saving a little bit each month goes a long way towards weathering these storms. If poor spending habits contributed, and they sometimes do, these issues must be dealt with. Second, get a credit card after bankruptcy. Charge something every month, and pay off most of the balance before the due date. This habit creates a good payment history that raises your credit score. Third, pay secured debts on time. These payments are normally reported to the credit bureau, so this is another way to build up a solid payment history.

If they take full advantage of their fresh starts, most bankruptcy debtors may not even remember that they filed after their petitions fall off their credit reports.

Go with Zealous Lawyers

At the Bentz Holguin Law Firm LLC in Chicago, we are committed to consumers in Illinois and Indiana. Contact us today for a free consultation.