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Getting The Most Out Of An Indiana Bankruptcy

Posted on: December 26, 2017 by in Bankruptcy
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Bankruptcy is a golden opportunity for many distressed debtors in Illinois and Indiana. Although it’s impossible to turn back the clock to a time before debt became a problem, both Chapter 7 and Chapter 13 do the next best thing. They stop foreclosure and other kinds of adverse action, end the obligation to repay many kinds of debt, and protect the consumer’s assets all along the way.

Part of a bankruptcy’s success depends on the debtor’s commitment. For example, if a Chapter 13 debtor does not adhere to the repayment plan, the trustee (person who manages the bankruptcy case for the judge) will most likely have the case thrown out of court. But the attorney’s skill level is usually an even bigger factor in success or failure.

Discharging Student Loans in an Illinois Bankruptcy

Student loans are a significant source of financial stress for many area families. Most students leave school with tens of thousands of dollars in loans, and for various reasons, these loans are often difficult to repay. Even though many factors that affect repayment are beyond the debtor’s control, in both Illinois and Indiana, debtors must establish relief under the undue hardship test. These obligations are dischargeable if the following elements are present:

  • – Inability to maintain a minimal standard of living (e. live above the poverty line) if loan repayment is part of the monthly budget,
  • – Long-term problem, such as physical disability, which affects the ability to repay the loans, and
  • – Prior good-faith efforts to repay said loans.

Many judges have questioned this standard because of its harshness and internal inconsistencies, and as a result, some other circuits have adopted a more lenient totality-of-the-circumstances analysis in these cases. Eventually, the Supreme Court will probably permanently resolve this question.

Maximizing the Homestead Exemption in Chicago

Married couples in Illinois may deduct up to $30,000 of home equity. Alas, many families who have been in the same home for several years have more than this much equity in their homes. To avoid issues, it’s important to give the home an accurate value in Schedule A. Under the Bankruptcy Code, the debtor must declare the asset’s as-is cash value, a requirement that works in favor of debtors in these situations.

To determine an asset’s as-is cash value, the IRS uses the Quick Salve Value metric, which in most cases, is 80 percent of the asset’s fair market value. It’s often an even better idea to obtain an offer from a home investor who will buy the house as-is. In most cases, such a cash offer rarely exceeds 50 percent of the home’s fair market value.

By decreasing the value of the home, the debtor maximizes the equity exemption and minimizes the risk of a forced sale or the need to use part of the Illinois wildcard exemption on the home.

Forgiving Tax Debt in an Indiana Bankruptcy

Whereas the previous two areas involve legal and factual arguments, successfully discharging tax debt is often a matter of attention to detail. Generally, only income tax debts are dischargeable, and they must meet the following guidelines:

  • – Three Years: The tax debt must be at least three years old, and the IRS and other taxing authorities are very particular about this requirement.
  • – Two Years: The returns must have been on file for at least two years, and the substitute returns which the IRS files on the taxpayer’s behalf do not count.
  • – 240 Days: If the debt has been assessed in the last 240 days, which essentially means that the taxpayer has received a collections letter in the last nine months, the debt is not dischargeable.

If the taxing authority filed a lien, bankruptcy does not eliminate this lien. However, if the taxing authority is garnishing a paycheck or taking other such measures, bankruptcy does end such direct adverse actions.

Contact Experienced Attorneys

Bankruptcy results often depend on the lawyer’s skill. 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:

media.ca7.uscourts.gov/cgi-bin/rssExec.pl?Submit=Display&Path=Y2015/D07-22/C:14-3702:J:Flaum:aut:T:fnOp:N:1591723:S:0

‘Neither A Borrower Nor A Lender Be’

Posted on: January 26, 2017 by in Bankruptcy
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Five former students want a federal judge to classify them as creditors in the ongoing ITT Tech bankruptcy.

The government began scrutinizing the Indiana-based for-profit school, which had 137 sites in 39 states, in 2014, as the Education Department looked into allegations of fraud regarding program offerings and students’ future job prospects. The hammer fell in 2016, when the government cut off student aid, which was ITT Tech’s primary income source. In January 2017, five students demanded a share of ITT Tech’s $389 million in assets and $94 million in escrowed funds to satisfy student debt obligations. The students hope that changing their status will convince bankruptcy trustee Deborah Caruso to end collections efforts, and they also hope that the judge would make a finding of fraud.

Over 800 former students and employees submitted statements to the court detailing fraudulent practices at the school.

Creditors’ Rights

Polonius’ advice to his son Laertes in Hamlet may have been very solid for a young man trying to make his way in the world, but creditors have many rights in consumer bankruptcy proceedings under the United States Bankruptcy Code.

First and foremost is a security agreement. While the automatic stay essentially eliminates the moneylender’s right to enforce the agreement, at least as long as the bankruptcy is pending, the underlying agreement remains in effect,because bankruptcy judges do not have the legal authority to invalidate such agreements except in rare cases. If the debtor stops making payments, the moneylender will usually file a motion for relief from stay, and if the judge grants this motion, the moneylender can enforce its security interest in the collateral through repossession, foreclosure, or whatever.

This issue often comes up with regard to delinquent mortgage payments, because typically by the time the mortgagor initiates foreclosure proceedings, the homeowner is at least four or six months behind. If the debtors cannot afford to retain the collateral but do not want a foreclosure on their records, a foreclosure alternative may be available, such as:

  • – Short Sale: The bank lets the homeowner sell the property for less than fair market value, the bank eats the loss, and the parties part ways.
  • – Deed in Lieu of Foreclosure: A voluntary foreclosure looks better on credit reports than an involuntary foreclosure.
  • – Cash for Keys: If the bank will not agree to a short sale or DIL, it may pay the departing homeowner to clean the property and get it ready for resale.

In some cases, especially furniture, appliances, and other goods with very low resale values, the moneylender may refuse to enforce the security agreement and allow the debtors to keep the property even if they violate the security agreements.

Second, creditors may be entitled to adequate protection payments. In many districts, several months may pass before the court confirms the repayment plan. If the plans aren’t confirmed, the trustee (person who oversees the bankruptcy on behalf of the judge) normally refunds nearly all the money that the debtors have paid, leaving the creditors with nothing. So, some courts require debtors to make additional payments to secured moneylenders during this period, so the creditors are protected if the plan is rejected.

The amount varies, but it is typically about 1 percent or 1.5 percent of the unpaid principal balance each month.

Contact Experienced Lawyers

Both creditors and debtors have rights in bankruptcy proceedings. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resources:

abi.org/abi-journal/when-is-a-secured-creditor-entitled-to-adequate-protection-an-emerging-trend

makinghomeaffordable.gov/steps/pages/step-2-program-hafa.aspx

shakespeare.mit.edu/hamlet/hamlet.1.3.html

nytimes.com/2017/01/06/business/student-victims-seek-to-become-creditors-in-itt-bankruptcy.html

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.

Resources:

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

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

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.

modernhealthcare.com/article/20141211/news/312119987

Bankruptcy And Student Loan Debt

Posted on: June 30, 2016 by in Bankruptcy, debt
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Until recently, it has been widely accepted that student loan-related debt can only be cancelled in a bankruptcy proceeding if the borrower is able to show that paying the debt would impose an ‘undue hardship’. Successfully showing an undue hardship in a bankruptcy case is hard to do and rarely happens. However, this may be changing as several consumer advocacy groups and some lawmakers are lobbying for changes in the Bankruptcy Code that would allow bankruptcy to wipe out at least part of the filer’s student debt. Additionally, a recent decision from the U.S. Bankruptcy Court in Brooklyn, N.Y. has helped chip away at the near immunity that student loans have enjoyed from bankruptcy proceedings.

The Bankruptcy Court’s Recent Ruling

According to the Wall Street Journal, a federal bankruptcy judge has ruled that law school graduates who incur debt while studying for the bar exam can in fact have that debt cancelled if the student files for bankruptcy protection. The court reasoned that a bar exam loan is the result of an arm’s length agreement based on commercial terms, and therefore is distinct from a traditional student loan. This is in part due to the fact that bar exam loans involve low risk for lenders because the borrower has already received their degree and only has to pass the bar before they theoretically will be able to start working and repay the loan.

This ruling is particularly important because it contradicts the court’s prior approach to bar-study loans which has historically been to treat them as a student loan. The Wall Street Journal’s article notes that bankruptcy judges have traditionally had a knee-jerk reaction that if a debt is anything like a student loan then it is classified as nondischargeable. This recent ruling greatly departs from the traditional mindset and may indicate that there is a movement towards allowing some types of student-related debt to be cancelled via bankruptcy.

The Push For Bankruptcy To Cover Student Loans

The Student Loan Hero reports that in 2016 Americans have more student loan debt than ever before. This claim is backed up by some staggering figures including the fact that Americans owe almost $1.3 trillion in student loan debt and that this debt is spread out among 43 million borrowers. Because so many Americans are swimming in education-related debt, consumer advocacy groups and others are calling for reforms to our bankruptcy laws that would provide legal relief for student borrower who are bankrupt.

For example, the SCTimes recently reported that a lawyer out of St. Cloud is lobbying his state senators to change the rules surrounding Chapter 13 bankruptcy. The lawyer is arguing that debtors who file for Chapter 13 bankruptcy should be able to discharge their student loan debts in the same way that some other types of debt are currently allowed to be wiped out. He insists that debtors are rarely able to show undue hardship in court because debtors have the deck stacked against them as it can be very expensive to attempt to prove undue hardship.

How Can We Help?

If you live in Chicago and feel that you are unable to dig out from under your student loans or other debt, contact a local bankruptcy lawyer today. The experienced lawyers at the Bentz Holguin Law Firm, LLC are happy to speak with you about your bankruptcy options and can be reached today at (312) 881-5112.

Chapter 7 Bankruptcy: The Means Test

Posted on: June 7, 2016 by in Bankruptcy, chapter 7
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Bankruptcy-Road-Sign-3362974

Chapter 7 bankruptcy is the most common type of bankruptcy for consumers and is designed to help average-income and low-income people who need help getting out of debt. More specifically, Chapter 7 bankruptcy is only available to bankruptcy filers who either do not have income or do not have income sufficient to repay their debts. In order to satisfy this requirement for Chapter 7 bankruptcy relief most debtors must pass the “means test”. Essentially, the means test looks at your monthly income and expenses and disqualifies you from filing for Chapter 7 bankruptcy if your figures do not fit within the test’s guidelines.

How Does The Means Test Work?

The means test was added to the Bankruptcy Code in 2005 and today is the biggest hurdle to qualifying for Chapter 7 bankruptcy relief. The Bankruptcy Code’s means test (11 U.S.C. § 707) only comes into play if the debtor’s current monthly income is more than their state’s median income for a household of the same size. In other words, if your monthly income is less than your state’s median income then you qualify and do not need to do any further calculations under the means test.

However, if your monthly income is more than your state’s median income for a household of your size, then the next step of the means test is to calculate your “monthly disposable income”. This is calculated by deducting certain expenses from your income. The idea is that if your monthly disposable income is high enough to allow you to pay off a portion of your unsecured debts then you should not be eligible to file for Chapter 7 bankruptcy. Determining which deductions you can take is often a complicated process that can be made much easier by employing the help of a bankruptcy lawyer.

What If I Don’t Pass The Means Test?

If your income is too high for you to utilize Chapter 7 bankruptcy to wipe out your debts, you may still be able to file for bankruptcy under Chapter 13. However, under Chapter 13 bankruptcy you will likely still be required to repay a portion of your debts. But before you file under Chapter 13, consider that you may qualify for an exemption from the means test. If this is the case then you can still file for Chapter 7 bankruptcy even if you fail the means test.

Exceptions To The Means Test Requirement

It is important to note that not everyone is required to pass the means test. For example, according to the Bankruptcy Code § 707(b)(2)(D), certain disabled veterans are exempt from the means test requirement altogether. In order to qualify for this exemption the debtor must be a disabled veteran, and the debt must have primarily occurred while he or she was on active duty or while performing a homeland defense activity. There are also other complicated exemptions that our bankruptcy lawyers would be more than happy to discuss with you.

How Can We Help?

If you are in the Chicago area and are considering filing for bankruptcy, it is imperative that you speak with an experienced local bankruptcy lawyer. The lawyers at the Bentz Holguin Law Firm, LLC can assist you today. Call us at (312) 881-5112.