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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.


Protecting Cash In An Indiana Or Illinois Bankruptcy

Posted on: June 1, 2017 by in Bankruptcy
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Fear of asset loss is one of the most frequently cited reasons when delaying a necessary bankruptcy filing, and in most cases, this fear is almost completely unfounded.

Even in Chapter 7 liquidation bankruptcies, most consumer assets are legally exempt from creditor seizure. The purpose of the Bankruptcy Code is to give the debtor a fresh start, and if the debtor loses assets, the debtor will essentially be behind the starting line, an outcome that is contrary to the law’s intent. As a result, through some careful planning and thoughtful legal arguments, it’s possible to retain most all assets, including cash, in a Chapter 7 or Chapter 13 bankruptcy.

What the Law Says

Both Indiana and Illinois require debtors to use state bankruptcy exemptions instead of federal ones. Although federal exemptions are generally considered to be more generous towards debtors, that is not always in the case.

Both The Hoosier State and The Land of Lincoln have rather large wildcard exemptions that can be applied to any of the debtor’s property, including cash or a cash equivalent. Indiana bankruptcy debtors have a $10,500 wild card, but much of this exemption must be applied to motor vehicles and personal property, as these exemptions are either limited or nonexistent. Conversely, Illinois debtors can often apply most of their $4,000 wild card exemption to cash.

Pre-Filing Strategies

One of the most obvious ways to deal with cash in a savings account or stock portfolio is to apply it elsewhere before the filing. Some people prepay creditors to accomplish this objective. While this strategy is not in and of itself fraudulent, the debtor must list any such prepayments in the Statement of Financial Affairs.

If all creditors are not prepaid equally, bankruptcy trustees (individuals who oversee bankruptcies) often object to such payments as a creditor preference. It is theoretically possible to avoid such objections by paying all creditors equally, or at least proportionally. However, this is a time-consuming exercise that makes little sense in some areas, because there is no reason to pay down dischargeable debts, like medical bills.

Although it is probably not a good idea to move cash to an exempt account, like a 401(k), it is a good idea to transfer cash to fixed assets, by putting a new roof on the house, buying new tires for the car, and so on. Usually, the trustee either does not scrutinize arms-length, for-value commercial transactions, or at least does not scrutinize them very closely.

Post-Filing Arguments

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.

About three-quarters of Americans essentially live paycheck to paycheck, which means that by the time money hits the bank, it is either already spent or already committed to one moneylender or another. So, many people do not control their cash flow, and control is one of the key components of ownership. As a matter of fact, by the time the trustee files a motion to recover any cash listed in Schedule B, the debtors have probably already spent much or all of it on 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

Most assets, even cash, re exempt in bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments 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.


How To Keep Your Assets In Bankruptcy

Posted on: May 15, 2017 by in Bankruptcy
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There is a persistent myth that debtors lose most or all of their property when they file bankruptcy, but most states have very generous bankruptcy exemptions, which means that the opposite is true, and most debtors get to keep most or all of their property.

Both Illinois and Indiana mostly use value-based exemptions as opposed to asset-based exemptions. For example, both states allow debtors to exempt a certain amount of home equity instead of a certain number of homes. So, accurate valuation is essential.

The Process

The Bankruptcy Code requires debtors to list the as-is cash sale value of all their assets, usually in either Schedule A or Schedule B.

Only the economic value is listed. This process is different from valuing assets in a personal injury case, because in that context, a family car is worth more than a car that sits in the garage most of the time, because emotional value is part of the asset’s overall value.

The trustee (person who manages the bankruptcy) reviews and approves asset valuations in both Chapter 7 and Chapter 13 bankruptcies. The trustee has a legal duty to act in the best interest of the creditors. So, although the trustee is not technically a moneylender’s attorney, the trustee is not exactly a neutral party, and the trustee is certainly not on the debtor’s side.

As-Is Value

Anyone who has ever held a garage sale knows that items are valued at pennies on the dollar. Items are priced to sell quickly and not priced according to their intrinsic value. The same thing is true in bankruptcy, and a house is a good example.

In many cases, the starting value for a valuation is the tax appraised value, but this value is nearly always greatly inflated. A better starting point is the amount of money that a home investor would pay for an as-is cash sale with no inspection, because that is the essence of “garage sale value.”

As a rule of thumb, home investors will pay up to 60 percent of the fair market value. But even this figure may be a little high for bankruptcy purposes, because no good negotiators present their best offer right off the bat. Instead, the initial offer may be closer to 40 or 50 percent of the fair market value.

The trustee will almost certainly object to a declared value this low. So, the best idea is probably to obtain at least one written offer from a home investor, and this offer arguably sets the garage-sale value for that particular home.

Collateral Considerations

Earlier, we mentioned that all trustees have a duty to act in the best interests of the creditors. Sometimes, that means not seizing and selling a nonexempt asset.

Assume Daniel Debtor has a partially-running car in his garage; this item is not exempt. In order to sell the car, the trustee would first have to tow it from Daniel’s house, make enough repairs to make it attractive to buyers, and store it before the sale. All these things cost money, and these expenses may well consume most, or all, of the money that the creditors would get from the car’s sale. In this case, it is clearly not in the best interests of the creditors for the car to be sold, and Daniel will probably get to keep it even though it is not exempt.

Count On Experienced Attorneys

A comprehensive bankruptcy strategy must include accurate asset valuation. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We handle cases in both Indiana and Illinois.


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.


Prison Defeats Eligibility For Chapter 13 Bankruptcy

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

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

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

Chapter 13 Eligibility

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

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

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

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

Chapter 7 Eligibility

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

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

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

Contact Experienced Lawyers

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


Another Regional Department Store Chain Mulls Bankruptcy

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

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

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

Chapter 7 Bankruptcy

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

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

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

Chapter 13

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

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

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

Chapter 20

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

Reach Out to Experienced Lawyers

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


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.


Pre-Bankruptcy Activity In Indiana

Posted on: April 10, 2017 by in Bankruptcy, chapter 11
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When regular people contemplate bankruptcy, does it look anything like the looming HHGregg bankruptcy?

After two straight years of revenue losses, including a 24 percent decline in the fourth quarter of 2016, the Indianapolis-based company may now see Chapter 11 bankruptcy as the best way to pull out of its financial tailspin. Two other large appliance retailers — Wet Seal and Limited Stores — have already filed bankruptcy this year. As e-commerce platforms seem to continually expand, traditional brick-and-mortar sales outlets are having a harder and harder time competing with online retailers. Chief Executive Officer Robert Riesbeck declined to comment directly on the bankruptcy rumors, other than to say that HHGregg’s leadership is “focused on continuing to execute our business strategy, as planned, and returning this company to profitability.”

In February 2017, the New York Stock Exchange warned HHGregg that its stock could be delisted because it has lost three-fourths of its value in the last several months.

Financial Precursors to Bankruptcy

Many large companies have substantial cash reserves to help them get through a few bad months, but most families have no such luxury. In fact, according to the Federal Reserve, almost half of Americans do not have the cash to make a $400 emergency payment. So, they are highly vulnerable to unexpected situations like:

  • – Divorce,
  • – Medical bills, and
  • – Job loss.

Any of these scenarios can hit almost any family at almost any time, and they are mostly beyond the family’s control. Many people even experience a one-two punch, like a divorce followed by a serious illness.

A good financial rule of thumb is that if you have more than $10,000 in unsecured debt, like credit cards and medical bills, it is often difficult or impossible to pay off this indebtedness in a reasonable amount of time. Similarly, if you are more than one month behind on secured debts, such as house and car payments, it is not easy to catch up.

Chapter 7 bankruptcy eliminates most unsecured debts, so debtors have no legal obligation to repay them. Chapter 13 bankruptcy gives debtors up to five years to catch up on secured debts, and during this time, moneylenders cannot take any action against debtors without specific permission from the bankruptcy judge.

Legal Pre-Filing Checklist

Both Chapter 13 and Chapter 7 debtors must complete a debt counselling course. Typically, this course is available online,only takes a few minutes to complete, and only costs a few dollars. Furthermore, all debtors have a duty to cooperate with the trustee (person who oversees the bankruptcy on behalf of the judge). Trustees normally request many financial documents, such as tax returns, insurance declaration pages, and mortgage notes. So, it is a good idea to locate these documents before filing to avoid last-minute paper chases.

Chapter 7 debtors must also complete the means test. To be eligible for Chapter 7, the debtor’s income must be lower that the average income for that size household in that geographic area. For example, an Indiana family of four must earn less than $76,600 a year. The actual amount changes frequently.

Rely On Experienced Lawyers

It’s always a good idea to heed the warning signs of bankruptcy. 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.


Bankruptcy And Security Clearances

Posted on: April 5, 2017 by in Bankruptcy
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In a way, a security clearance is an asset without any current economic value, like stock options or a right to deferred compensation. Unlike these assets, however, the trustees (people who oversee bankruptcies for the judges) have no authority to seize security clearances, so contrary to popular myth, filing bankruptcy does not automatically mean the loss of a vital security clearance. In fact, voluntary petitions may be the best way to keep these items.

There is some cause for concern, because financial problems could be a basis for adverse action, alongside loyalty questions, undesirable personal habits, a criminal past, and several other considerations. However, no one can take action against a security clearance without notice and hearing. And, DoD Directive 5200.6 creates a blueprint for defeating such action in the unlikely event that it occurs.

The Concerns

In a nutshell, the DoD is not terribly worried about unpaid bills, because we all have them from time to time. Instead, the DoD is concerned about massive amounts of debt that the holders are unwilling to address. Part of that description applies to consumer bankruptcy situations, but not all of it. The listed “disqualifying conditions” in Guideline F are:

  • History of Unmet Obligations: This condition usually applies to bankruptcy, because most debtors have more than one past-due bill. But their delinquency nearly always comes from a single source, like a divorce or job loss, so upon closer inspection, this condition is also inapplicable to most bankruptcies.
  • Security-Related Financial Problems: Guideline F lists “gambling, drug abuse, [and] alcoholism.” Consumer debts related to illegal or immoral activity are extremely rare.
  • Unwillingness to Satisfy Debts: Filing bankruptcy is a proactive way to deal with debts by either paying them back or legally eliminating them, so bankruptcy is the complete opposite of doing nothing.

The fourth condition, unexplained affluence, normally does not apply to consumer bankruptcies.

Mitigating Factors

At a hearing to determine if adverse action is appropriate, the clearance holder can present any relevant defense. The preferred defenses listed in Guideline F all involve consumer bankruptcy in some way.

  • Not Recent: Most people do not even consider filing bankruptcy until they spend some time trying to resolve debt on their own.
  • Isolated Incident: As mentioned earlier, most bankruptcies occur because of one-time financial emergencies. They may occur again, but then again, they probably will not.
  • Lack of Control: The examples in Guideline F — “loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation” — almost perfectly mirror many of those “top five reasons that people file bankruptcy” lists.
  • Back in Control: According to the guideline, “clear indications that the problem is being resolved or is under control” weigh in favor of the clearance holder. Bankruptcy is usually the only way to take control of unmanageable finances.
  • Make an Effort: The Guideline states that individuals should try to control their debt problems and take decisive action in this regard. Bankruptcy fits both these bills.

If unexpected affluence is the issue, the holder must prove the windfall came from a legal source.

Contact Aggressive Lawyers

A voluntary petition may be the best way to preserve a security clearance. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.