Chicago Bankruptcy

Archive for the ‘ debt ’ Category

Handling Tax Debt In An Indiana Bankruptcy

Posted on: January 17, 2018 by in Bankruptcy, debt
No Comments

Full or part-time freelancers currently constitute over a third of the U.S. workforce. Keeping up with income taxes is sometimes a problem for these individuals, especially given the changing nature of the law and the uncertain responsibilities of quarterly tax payments. Many times, people fall a little behind for various reasons, the problem snowballs, and a serious delinquency results.

Consumer bankruptcy is an excellent way to deal with such income tax debt because it has both short-term and long-term solutions to tax problems in Illinois.

The Importance of the Automatic Stay in Chicago

Section 362 of the Bankruptcy Code prohibits most moneylenders or debt collectors from taking adverse action against most bankruptcy debtors for as long as their cases are pending. In the case of a Chapter 13, that could be up to five years or even longer. Although the IRS is no ordinary debt collector and it has sweeping powers under federal law, the automatic stay prohibits any taxing authority from taking adverse action against most debtors. Such action includes:

  • Wage garnishment,
  • Bank levy, and
  • Forced property sales.

If a consumer has filed bankruptcy within the last several years, the automatic stay may not fully take effect, or may not take effect at all.

Discharging Past-Due Income Taxes in Illinois Bankruptcies

Income tax debt is like credit cards and medical bills in that all these kinds of debt are unsecured. In each case, the debtor only made a promise to pay the account. Generally, unsecured debt is dischargeable in both a Chapter 7 and a Chapter 13, but special rules apply to some forms of government debt. For example, child support arrearage is nondischargeable in almost any case, and student loans are only dischargeable if the debtor establishes a hardship.

When it comes to tax debt in Chicago, a bankruptcy discharges said debt only if all of the following apply:

  • Income Tax: Property taxes, payroll taxes, and any other kind of taxes are not dischargeable. The taxing authority usually has the final say on what constitutes “income tax” and what constitutes something else.
  • Three Years: The income tax debt must be at least three years old. Tax day is not always April 15, and the IRS has been known to contest discharge in Indiana because the petition was filed just a few days too early.
  • Two Years: The returns must have been on file for at least the last two years. They must be taxpayer-filed returns. Substitute returns, which the IRS or another taxing authority files on the taxpayer’s behalf, don’t count.
  • 240 Days: The taxing authority must not have assessed the account in the 240 days preceding the petition’s filing. In plain English, that usually means that the taxpayer has not received a letter with the balance on it within the past eight months.

Bankruptcy only gets rid of the debt and not the collateral consequences of that debt. So, if the taxing authority has filed a lien, that lien will remain in place even if the debt is discharged.

Reach Out to Experienced Attorneys

Bankruptcy can erase some past-due tax debt. 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.

Six Dischargeable Debts In An Illinois Bankruptcy

Posted on: January 8, 2018 by in Bankruptcy, debt
No Comments

Many people file a Chapter 7 or Chapter 13 debt relief petition to gain immediate relief from foreclosure, lawsuits, repossession, and other adverse action. While the case is pending, moneylenders can do none of these things, at least in most cases.

Many other people file bankruptcy because the debt discharge gives them a fresh start. Here are the most common dischargeable debts.

Medical Bills

Outstanding medical bills are the number one cause of consumer bankruptcy, according to most experts. Even if the family has medical insurance, copays, out-of-pocket maximums, and 80-20 coverage is nearly always enough to cause financial duress. That usually triggers a snowball effect, since money that used to go to other bills goes to medical expenses instead. Since medical bills involve only a forced promise to pay, they are also the leading kind of dischargeable debt.

Credit Cards

In 2005, moneylenders exploited the myth of the credit card bankruptcy to push through a major reform law that hurt consumers. There is no doubt that some people charge luxury items on their credit cards and then adamantly refuse to pay the bills. But it’s also true that there is often a significant gap between wage growth and inflation in Chicago. They must make up the difference somewhere, and the funds often come from credit cards.

Small Business Association Loans

In their first few years, a majority of new businesses either fail outright or fall well short of profitability expectations. In either case, repaying an SBA loan or line of credit can be a major hardship. These loans are normally dischargeable in either a Chapter 7 or Chapter 13 bankruptcy in Indiana. However, these individuals may have a hard time borrowing more money from the government in the future, because bankruptcy only eliminates the legal obligation to repay the debt and not the debt itself.

Income Taxes

Similarly, if a taxing authority has already filed a lien due to delinquent taxes, a bankruptcy will not eliminate such a lien. However, bankruptcy does eliminate past-due income taxes if:

  • – Returns have been on file for at least two years,
  • – Debt is at least three years old, and
  • – Taxing authority has not assessed the debt in the last 240 days.

In plain English, that last element means that the taxing authority has not sent a collections notice in the last nine months, at least in most cases.

Payday Loans

To dissuade their Illinois customers from filing bankruptcy, many payday lenders insist that their loans are secured because they are attached to a checking account. But that’s simply not true. These loans are completely unsecured and therefore 100 percent dischargeable. As a precaution, many attorneys suggest that their clients close the account related to the payday loan once the petition is on file.

Home Equity Line Of Credit

These debts may be unsecured, if the home no longer has sufficient value to secure both the senior debt (mortgage loan) and the junior debt (HELOC). So, if Harry Homeowner has a $200,000 mortgage and a $10,000 HELOC but his Chicago house is only worth $200,000, an attorney can legitimately argue that the HELOC is unsecured.

Reach Out to Experienced Attorneys

Almost all unsecured debts are dischargeable in bankruptcy. 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:

cnbc.com/id/100840148

Keeping Your House, Cars, And Cash In An Illinois Consumer Debt Relief Action

Posted on: January 2, 2018 by in Bankruptcy, debt
No Comments

No one can turn back the hands on the clock to that point in time where people had no debt. But bankruptcy does the next best thing. These voluntary petitions discharge most unsecured debts, such as credit cards and medical bills, and create a protected repayment period of up to five years which allows debtors to make catch-up payments on secured debts, like home mortgage and auto loans.

Furthermore, while the bankruptcy is in effect, the Bankruptcy Code’s automatic stay prevents moneylenders from taking any adverse action against debtors, such as collections efforts, wage garnishment, repossession, or foreclosure.

The Bankruptcy Code’s purpose is to give debtors fresh starts. That cannot happen if they lose their core assets, which is why there are some effective strategies available to retain them.

Exempting Home Equity in Chicago

Both Illinois and Indiana have very large home equity exemptions, so if the debtor has less than a threshold amount ($30,000 for an Illinois married couple), the trustee, who is the person who oversees the bankruptcy for the judge, cannot seize the house and sell it to pay creditors.

If the debtors have lived in the house for a long time, they may have more than $30,000 in home equity. In these cases, accurate valuation is key.

Assume the homeowners have a $200,000 home with $50,000 in equity. If Schedule A lists the home at that value, the trustee may file a motion for turnover, demanding that the homeowners pay $20,000 or lose their house. But the Bankruptcy Code requires debtors to list the as-is cash value of an asset. For houses, a good place to start is the Quick Sale Value per the Internal Revenue Service, which is 80 percent of the fair market value. So, in this scenario, the home’s QSV is $160,000. After deducting the $150,000 unpaid principal balance on the loan, the owners only have $10,000 in equity, which is well below the exemption maximum.

Keeping Vehicles in an Indiana Bankruptcy

Roughly the same thing applies to personal vehicles. Typically, new cars have a very high value and almost no equity, while old cars have a considerable amount of equity but almost no value. But cars often have a very high turnaround cost.

Assume that the subject vehicle is a used car with a $1,500 value and $1,500 in equity. The trustee would probably not seize and sell the vehicle in this situation, because by the time the trustee pays towing fees, storage fees, hires a mechanic to make any necessary repairs, and so on, the creditors would only see a few dollars. In other words, the bankruptcy trustee is not a used car salesman, and therefore the trustee does not bother with assets that have little value.

Keeping the Cash in Your Indianapolis Bank Account

Cash is hard to protect, because there is no turnaround cost. The trustee can simply take it. In these situations, a legal doctrine called mootness sometimes come into play.

Assume that two people each claim to own a house, but before the case goes to court, the house burns down. Since the house is gone, there is nothing for the judge to decide and the case is moot. Arguably, the same thing applies to cash. If the trustee files a motion for turnover that demands $5,000 in cash and that cash is gone by the time the judge hears the case, the matter may be moot.

Go With Experienced Attorneys

There are a number of ways for debtors to keep nearly all their assets 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.

Resource:

irs.gov/irm/part5/irm_05-008-005r

3 Dischargeable Debts In Bankruptcy

Posted on: December 4, 2017 by in Bankruptcy, debt
No Comments

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.

Taxes

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.

Resources:

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

time.com/money/4607838/household-credit-card-debt/

Report: Illinois In Dire Financial Straits

Posted on: May 22, 2017 by in Bankruptcy, chapter 11, chapter 13, chapter 7, debt
No Comments

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

The ITT Bankruptcy And Student Loans

Posted on: May 9, 2017 by in Bankruptcy, debt, student debt
No Comments

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.

Resources:

marketwatch.com/story/taxpayers-could-end-up-paying-460-million-because-of-itt-techs-collapse-2017-03-20

huffingtonpost.com/hilary-gowins/college-out-of-reach-tuit_b_9384972.html

scholar.google.com/scholar_case?case=9758977087967133310&hl=en&as_sdt=6&as_vis=1&oi=scholarr

Honk Honk: Parking Tickets And Bankruptcy

Posted on: April 17, 2017 by in Bankruptcy, chapter 13, debt
No Comments

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/

Should Financially Distressed Illinois Cities File Bankruptcy?

Posted on: February 22, 2017 by in Bankruptcy, debt
No Comments

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.

Resource:

ilnews.org/11794/report-illinois-allow-cities-declare-bankruptcy/

Dischargeable Bankruptcy Debts

Posted on: January 26, 2017 by in Bankruptcy, debt
No Comments

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.

Resources:

consumerfinance.gov/askcfpb/1791/what-debt-income-ratio-why-43-debt-income-ratio-important.html

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

The Freshest Start Of All

Posted on: January 19, 2017 by in Bankruptcy, debt
No Comments

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.

Resources:

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

reuters.com/article/us-usa-court-gm-idUSKBN1422VN