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Posts Tagged ‘ Chapter 7 Bankruptcy ’

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

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

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

Filing Chapter 7 Bankruptcy in Indiana

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

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

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

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

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

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

How Does Chapter 13 Bankruptcy Affect Me in Illinois?

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

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

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

Pursuing a Chapter 20 Bankruptcy in Indiana

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

Connect With Experienced Attorneys

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


The Different Types Of Bankruptcy

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

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

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

Chapter 7

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

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

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

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

Chapter 13

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

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

Chapter 20

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

Connect With Experienced Attorneys

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


Court Decision Highlights What Bankruptcy Can And Cannot Do

Posted on: June 27, 2017 by in Bankruptcy, chapter 7
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In a March 2017 opinion, the Indiana Supreme Court distinguished between an in rem proceeding against property and an in personam proceeding against individuals to deny mortgage relief in a Chapter 7 case.

McCullough v. CitiMortgage involved a long-running dispute between the homeowners and a mortgage company. According to court documents, in the early 2000s, the McCulloughs fell behind on mortgage payments from a 1994 loan. They filed bankruptcy three times (two Chapter 13s and a Chapter 7). As they were apparently unable to make the debt consolidation payments in a timely manner, both the Chapter 13s were dismissed without discharge; the Chapter 7 discharged the outstanding balance on the mortgage loan.

CitiMortgage began foreclosure proceedings after the automatic stay expired, and in this action, the McCulloughs claimed that the Chapter 7 discharge paid their mortgage in full and therefore the bank could not foreclose on the lien. But the court disagreed and ruled that while the bankruptcy forgave the debt, it did not affect the promissory note, and that contract between the McCulloughs and the bank remained in force.

The borrowers went to court without a lawyer.

What Bankruptcy Does

A lawyer is essential to get the full benefits of bankruptcy. In the above case, an attorney could have advised the McCulloughs that their claims had almost no chance of success because the law on this point is so well-established, thus saving them thousands of dollars, thousands of hours, and a countless amount of stress.

The automatic stay is arguably the most significant benefit of bankruptcy. In most cases, Section 362 takes effect the moment that the debtors file their voluntary petitions. The automatic stay applies to all adverse actions, including:

  • – Foreclosure,
  • – Repossession,
  • – Harassing phone calls,
  • – Lawsuits, and
  • – Wage garnishment.

In most cases, Section 362 remains in full effect until the moment that the bankruptcy ends.

Furthermore, in Chapter 13 cases, there is a protected debt repayment period that lasts as long as five years. During these 60 months, so long as the debtor makes the debt consolidation payments as agreed, moneylenders can take no adverse action.

Finally, bankruptcy gives debtors a fresh start. Most of their outstanding debts are discharged, a legal term that has a very precise meaning, so that debtors can start rebuilding their credit free from oppressive debts.

What Bankruptcy Does Not Do

Bankruptcy judges have limited powers, so while lawyers commonly say that “discharge” is synonymous with “forgiven,” that’s not exactly true. Legally, debt discharge means that:

  • – The debtor no longer has any personal liability to repay the debt, at least in most cases, so moneylenders cannot pursue any in personam actions against the debtors themselves.
  • – The debt cannot be used against them for many purposes; for example, a discharged debt cannot be listed as unpaid on a credit report and the bankruptcy filing cannot serve as the only basis for a denial of credit.

If the debtor signed a contract for repayment outside of bankruptcy, such as a security agreement, that contract survives bankruptcy, and although the debtor does not need to repay the mortgage and that failure cannot be used against him in many situations, the moneylender still has the right to enforce the security agreement.

Reach Out to Experienced Attorneys

Bankruptcy is a powerful shield, but it is not a magic wand that makes all problems disappear. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We handle cases in both Illinois and Indiana.


What Happens To Property In A Chapter 7?

Posted on: March 13, 2017 by in Bankruptcy, chapter 7
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Probably because of the procedural nickname (“liquidation”), many people erroneously believe that they will lose most or all their property after they declare bankruptcy in order to pay their creditors. After all, that’s essentially what happens in Monopoly and some other finance-based party games.

This belief does have some basis, because debtors do indeed risk losing their nonexempt property to repay their debts. However, those two key words (“risk” and “nonexempt”) usually make a tremendous difference in a bankruptcy case’s outcome.

Asset Valuation and Exemption

Under the Bankruptcy Code, bankruptcy trustees (people who oversee these cases on the judges’ behalf) have a legal responsibility to evaluate nonexempt assets to determine whether their seizure and sale would benefit the creditors or simply punish the debtors, and in practical terms, a tie goes to the debtors, because the Bankruptcy Code also guarantees them fresh starts. Generally speaking, both Illinois and Indiana have dollar-based exemptions as opposed to item-based exemptions. For example, Illinois exempts an unlimited number of motor vehicles that have up to a $1,200 value and Indiana law exempts houses with up to $17,600 in equity; those values may be higher in joint petition situations.

Those values may seem rather low, but bear in mind that they only measure the amount of equity in an item, so a new car may have a Blue Book value in the tens of thousands of dollars but no equity whatsoever. Asset valuation comes into play as well. Under the Bankruptcy Code, debtors must list an asset’s as-is cash value, and that’s usually very small compared to its economic and emotional value. Home furnishings are excellent examples. An expensive workout machine that cost thousands of dollars originally might have a garage sale value of a few hundred, and a nearly-new microwave oven might have a $30 or $40 as-is value.

Back to the used car. Even if the vehicle has $1,500 in equity, the trustee may leave it alone, because the cost of seizing and storing the vehicle, not to mention the risk of finding a buyer willing to pay fair market value, will probably exceed the $300 that the creditors would divide.

Asset Ownership

Technically, any nonexempt property, such as cash in a checking account, belongs to the trustee. However, the law is not very clear on who “owns” cash.

Most people have very little discretionary income. They are more like caretakers over their money as opposed to owners, because the funds must go to fixed expenses (rent, mortgage, car payment, etc.). The floating check controversy often comes up in these cases. Assume David Debtor has $2,000 in his checking account when he files bankruptcy toward the end of the month. However, most of that money is not his to spend, because he must pay next month’s bills. If the trustee claims that cash is not exempt and tries to seize it, David has no way to pay the mortgage, car note, and other expenses. Therefore, if the trustee takes the money, David will fall behind on his debts, which is the opposite result from the one the Bankruptcy Code is intended to bring about.

Moreover, the trustee would most likely not file a motion for turnover until several months after David filed his voluntary petition. By that time, the $2,000 would be gone, and so there is no money for the court to award. Under the Constitution, judges can only decide cases that involve an actual controversy, at least in most cases. The mootness doctrine is thus an additional defense to many motions for turnover.

Count on Experienced Lawyers

All bankruptcy debtors get to keep most or all of their property. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.


New Republic Airways To Emerge From Bankruptcy

Posted on: February 9, 2017 by in Bankruptcy, chapter 11, chapter 13, chapter 7
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The Indianapolis-based regional airline submitted a Chapter 11 reorganization plan to a bankruptcy judge, and if it is approved, Republic should emerge from bankruptcy sometime in the first quarter of 2017.

A protracted contract dispute with its pilots meant that the carrier could not fulfill its obligations to United, American, and Delta, forcing the company into bankruptcy. In the last few months, while under the bankruptcy court’s protection, Republic has renegotiated its contracts with all three airlines and phased out its older 50-seat jets in favor of sleek new 76-seaters. Additionally, Republic has partnered with twenty college aviation programs to deepen its pilot hiring pool.

Company officials say that the plan, which details what Republic has done during reorganization and what it plans to do going forward, has the “full support” of the creditors’ committee.

Chapter 13 Endgame

In large Chapter 11 corporate bankruptcies, most of the creditors must approve the reorganization plan. Chapter 13s work basically the same way, because the trustee (person who manages the bankruptcy on the judge’s behalf) must approve the debt consolidation plan. Also, just like companies can renegotiate unfavorable contracts while they’re in bankruptcy, Chapter 13 debtors can renegotiate loans with moneylenders to obtain more favorable terms.

The debtor has leverage in these situations, because truth be told, the moneylenders want money and not banged-up collateral. For example, if a debtor is behind on a car payment and files Chapter 13, the bank does not want a used car that it must repossess, store, clean up, and sell at auction for a price that will probably be less than the outstanding loan balance. These factors are even more pronounced if the dealer has sold the note to a finance company, and that is often the case. Because the creditor knows that the debtor can very easily surrender the collateral and force the moneylender down that path, the creditor will often agree to extend the number of payments or take some similar action to make repayment terms a little more manageable.

If the parties legitimately dispute the amount owed, judges often refer these disagreements to mediation. In this forcum, moneylenders must negotiate in good faith to resolve the dispute. This issue comes up a lot in mortgage modifications, because banks often refuse aid based on technicalities. For the most part, judges will not tolerate such intransigence in mediation.

Chapter 7 Endgame

Successful Chapter 13 debtors emerge from bankruptcy with clean current payment histories and a better debt-to-income ratio than before, so they are well on their way towards complete rehabilitation. Chapter 7 rehabilitation requires a little more work, but it is not very daunting.

Most bankruptcy lawyers can refer clients to lenders who work with people that have damaged credit. Taking on an auto loan or other secured debt, and maintaining a good payment history, goes a long way towards rebuilding a FICO score.

By the same token, a credit card is also a good rebuilding tool. Because of the post-filing waiting period, most former debtors receive many credit card offers, since moneylenders know they cannot declare bankruptcy again for several years. As a rule of thumb, about 120 days or so is all it takes to convince creditors that the debtors really have turned over new leaves and are now much better credit risks than they were before.

Reach Out to Assertive Lawyers

Bankruptcy is the best way to rebuild a financial life. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments are available.


Chicago Schools Mull Bankruptcy

Posted on: February 2, 2017 by in Bankruptcy, chapter 13
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Faced with a $1 billion deficit and almost no way to make up the difference, the Chicago Public Schools are once again contemplating bankruptcy. But what would happen if a petition is filed?

Both Governor Bruce Rauner and Mayor Rahm Emanuel have floated Chapter 9 bankruptcy as the best available option, as the state cannot afford a bailout. Such a move would be nearly unprecedented. Since 1954, only four school districts have sought Chapter 9 bankruptcy protection, and only two have successfully completed the entire process. Before CPS could even file a petition, the Illinois Assembly must give its blessing. Question marks abound, as CPS has mortgaged many assets in recent years to raise cash, and it cannot legally alter pension payments, which some claim is the main cause for the financial distress. Furthermore, the Chicago Board of Education, which some lawmakers blame for the crisis, would administer CPS during bankruptcy.

However, in the long run, bankruptcy would give CPS a fresh start, much like GM and Chrysler obtained after they filed Chapter 9.

What Happens During Chapter 13 Bankruptcy?

In general, debtors will qualify for a Chapter 13 bankruptcy as long as they meet certain prerequisites laid out under the law. In addition, filers must complete a debt counselling course, which can be completed online in only a few minutes.

About six weeks after the petition is filed and the automatic stay takes effect, at least in most cases, the bankruptcy trustee (person who oversees the case on the judge’s behalf) goes over the proposed repayment plan with the debtor. The monthly debt consolidation payment must take care of all arrearages on secured debts, like home mortgages, within the three or five year protected repayment period. It’s best if there are sufficient funds left over to at least partially address unsecured debts, like credit cards and medical bills.

At the end of the protected repayment period, and after the debtor completes a brief debt management course, any remaining unsecured debt is discharged.

What About Chapter 7 Bankruptcy?

The only prefiling qualification in a Chapter 7, other than the debt counselling class, is the means test. Chapter 7 debtors must earn less than the average for that household size in that part of the country. As of November 2016, that amount is just over $90,000 a year for a family of four in Illinois and $76,000 for a similar-sized Indiana household. The means test levels change every few months.

Chapter 13 trustees are basically financial overseers who put debtors on allowances to make sure they can satisfy their obligations during the protected repayment period, but Chapter 7 trustees are more like paperwork examiners. During the 341 meeting, they will verify identity with a Social Security Card and driver’s license, as well as verify income with a recent 1040 and perhaps some other financial documents as well. Chapter 13 debtors must produce these same documents, at a minimum.

Typically, the discharge order comes about three to five months after the trustee’s meeting. Chapter 7 eliminates debts, but it does not eliminate the collateral consequences of those debts, like income tax liens or security agreements.

Rely on Experienced Lawyers

Consumer bankruptcy gives fresh starts to financially distressed families. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments are available.


Bankruptcy In The Ohio Valley

Posted on: January 10, 2017 by in Bankruptcy, chapter 13, chapter 7
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Although the gross numbers have dropped precipitously, the filing rate for all kinds of bankruptcies remains high in Kentuckiana.

The number of cases has dropped by 40 and 44 percent in Kentucky and Indiana since 2010, but the states still rank eighth and sixth in terms of the number of filings per person. Statistically, lower wage-earning areas usually have higher bankruptcy filing rates, because according to New Albany bankruptcy lawyer Lloyd Koehler, falling behind “only requires one catastrophic event” for households that already struggle to make ends meet. Some other residents of this area are on the other end of the spectrum, as they have more debt than they can realistically afford to repay.

However, most folks from this area are in that first category. “Low-wage jobs punctuate an already difficult situation,” commented U.S. Bankruptcy Judge Joan Lloyd.

Chapter 13 Bankruptcy

There’s a reason this type of bankruptcy is sometimes called the “wage earner” plan, because in a nutshell, Chapter 13 debtors must have sufficient income to catch up on all past-due secured loans, like mortgages and car notes, within the three or five year repayment period. During this time, the automatic stay generally keeps moneylenders from taking adverse action against debtors, so in effect, the bank must accept the repayment terms that the debtor proposes, as long as the trustee (person who oversees the bankruptcy on behalf of the judge) approves of the plans.

In these plans, all past-due secured debts are consolidated into a single monthly payment that goes through the trustee; in some jurisdictions and some plans, regular secured debt payments go through the trustee as well. If the debtor has the funds to pay off these secured debt sooner, the bankruptcy process wraps up sooner as well.

Chapter 7 Bankruptcy

According to the Atlanta Federal Reserve, wage growth plummeted during the Great Recession and it is just now returning to its 2008 levels. So, lower wage earners are caught in a very bad position, because inflation is starting to creep back up as well. With prices rising almost as fast as wages, working-class families seemingly have nowhere to turn if a financial crisis hits, such as a divorce, serious illness, or job loss.

Chapter 7 bankruptcy is normally the place to go in these situations. In addition to the automatic stay’s protection against adverse action, such as moneylender harassment and wage garnishment, Chapter 7 discharges (forgives) most unsecured debts in as little as a few months. Therefore, instead of a death spiral of debt, families obtain fresh financial starts and are able to move on with their lives.


Debtors have an absolute right under the Bankruptcy Code to convert from Chapter 13 to Chapter 7 at any time, assuming they meet the means test qualification. Conversion is an excellent tool for those families who are on the borderline between repayment and liquidation.

A common strategy involves filing a Chapter 13 and then making the first few debt consolidation payments, to see how things work. Many times, the financial sacrifice is not nearly as bad as the family expected, and three or five years later, the family is essentially out of debt. However, if the payments are too much and the trustee refuses to modify the plan, the conversion to Chapter 7 is almost seamless and the entire matter is concluded quickly.

Rely on Experienced Lawyers

Bankruptcy eliminates debt. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. We have offices in both Indiana and Illinois.


Bankruptcy Month

Posted on: December 28, 2016 by in Bankruptcy, chapter 7
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Some observers believe that venerable retailer Sears may be getting a head start on the unofficial holiday that does not involve a gift exchange or warm nostalgic feelings, and so no one wants to celebrate it.

Just as the busy holiday shopping season started, Sears announced that it was closing several K-Mart locations and that two of its top executives had left to “pursue other career opportunities.” Over the last fifteen years, the retailer’s sales have dropped from $41 billion to a scant $15 billion; over the same period, partner K-Mart has fared no better, as its sales have declined from $37 billion to $10 billion. Spinoff Sears Hometown and Outlet Stores is doing even worse, and is expected to lose over $93 million this year. Citing concern about their financial health, several suppliers have reduced shipments to the retailers, and Moody’s recently downgraded the stores’ liquidity rating.

Former Sears Canada CEO Mark Cohen bluntly stated that “business is terrible” and that the company is not likely to recover.

Why People File Bankruptcy

Some practitioners call January “Bankruptcy Month,” because cash-on-hand and accounts payable are typically at their highest levels of the year in the month after Christmas. If they plan to stay in business, most large companies file Chapter 11 reorganization, because they come out with a fresh start. In fact, when General Motors recently emerged from Chapter 11 bankruptcy, the company unsuccessfully argued that it was the “new GM” and not legally responsible for the mistakes of the “old GM.” Those mistakes included selling cars with defective ignition switches. Economic downturn drives most corporate bankruptcies.

Families file bankruptcy for basically the same reason: to get fresh starts. However, the causes are much more diverse and can strike at any time of the year. Some common ones include:

  • – Medical Bills: The government estimates that 20 percent of people have economically burdensome medical bills, and 10 percent of people have medical bills they cannot afford to pay.
  • – Unemployment: Most families have virtually no savings, so most households simply cannot deal with a short-term income change.
  • – Divorce: Similarly, the unexpected legal bills coupled with the added expense of maintaining two household forces many people into bankruptcy.

Chapter 7 normally eliminates unsecured debts within a few months, and Chapter 13 gives debtors up to five years to catch up on house payments and other delinquent secured debt.

Warning Signs

If sales fall off a cliff over a period of a year or more, the company is obviously in financial trouble and should at least make contingency plans for bankruptcy. Although illness, job loss, and divorce can strike at any time, it may be several months before the financial ramifications of these events sets in. So, most families probably know they should file bankruptcy long before they call lawyers.

There are some specific warning signs. If the household has less than about $10,000 in unsecured debt, most people can afford to pay that amount over time. But if the debt is larger, it is essentially impossible to pay it off, and delay only makes the problem worse. Similarly, if people are a month or maybe two behind on their car or mortgage payments, it is possible to catch up. However, a larger delinquency is simply too much to overcome, in most cases.

Count on Experienced Lawyers

If you see the warning signs of bankruptcy in January or any other month of the year, reach out to an experienced Chicago bankruptcy lawyer from the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.


Can I Keep My Sports Memorabilia In Bankruptcy?

Posted on: December 28, 2016 by in Bankruptcy, chapter 7
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Former basketball phenom and erstwhile actor Darius Miles, who made over $60 million in his brief professional career, may have to part with his sports memorabilia collection at an upcoming bankruptcy auction.

The Los Angeles Clippers selected the 18-year-old East St. Louis High School standout in the first round of the 2000 draft; in 2001, Mr. Miles was the first prep-to-pro player to make the NBA’s all-rookie team. But a knee injury shortened his career, and poor business developments ate away at his assets. Some observers speculate that the young Mr. Miles also lacked maturity; for example, he was once suspended two games for arguing with coach Maurice Cheeks and later sat out ten games for violating the league’s drug policy. When Mr. Miles filed Chapter 7 in September 2016, he listed a $240,000 IRS debt and over $100,000 in “business debts.” Now, the bankruptcy trustee (person who oversees the bankruptcy on behalf of the judge) wants Mr. Miles to auction off a number of collectibles, such as a LeBron James signed jersey and an autographed Mark McGwire bat, to repay moneylenders. Mr. Miles’ money troubles are far from unique, as 60 percent of former NBA players file bankruptcy within five years of retirement.

Mr. Miles appeared in several basketball-related docudramas, as well as a 2002 National Lampoon film.

Exempt Assets in Bankruptcy

Some people refer to Chapter 7 as “liquidation,” but that term is very misleading, because it implies that Chapter 7 debtors must sell most or all of their assets to pay their debts. In most cases, the opposite is true, because Chapter 7 debtors very rarely part with anything during bankruptcy.

Mr. Miles’ case is an exception, but not because he was a basketball player and the trustee is somehow “out to get him.” Sports memorabilia is quite unlike rental houses, old vehicles, and some other commonly non-exempt assets. Memorabilia needs no fixing up and there are nearly always lots of buyers with cash in hand, so these assets are easy to dispose of. In contrast, some other property may need substantial repairs, and even then, the trustee may have to hold it for several months, and discount the price several times, before finding a buyer. Given these facts, the return is so low that seizing and selling the asset may not be in the creditors’ best interests, and that is the only consideration that counts in these cases.

Second, although Illinois has a large “wildcard” exemption which can apply to any asset, there is a dollar limit, and sometimes assets must be prioritized. Mr. Miles declared substantial amounts of cash in his Chapter 7 petition, so he made the wise decision to hang onto cash and part with some items that may have been sitting in his garage.

Even considering the memorabilia, Mr. Miles got to keep far more assets than he lost. Some of the exempt assets under Illinois law include:

  • Homestead: Single filers can exempt up to $15,000 in home equity, and unless they have been in their homes for many years, most people are far under this limit.
  • Retirement Accounts: Earned 401(k)s, IRAs, pension plans, and other retirement accounts are 100percent exempt regardless of value.
  • Cash: 85 percent of current wages are exempt, up to 45 times the federal minimum wage per week.
  • Wildcard: Debtors can exempt up to $4,000of otherwise non-exempt property simply by checking boxes on their schedules.

Bankruptcy’s automatic stay prohibits moneylenders from taking adverse action, so if any assets are liquidating, the debtor is in control.

Reach Out to Experienced Lawyers

To hang onto as many of your assets as possible while still getting your fresh start, contact an experienced bankruptcy lawyer in Chicago from the Bentz Holguin Law Firm, LLC. We routinely handle cases in both Illinois and Indiana.


The Financial Comeback Trail

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

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

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

What If It Were Today?

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

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

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

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

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

Recovery from Bankruptcy

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

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

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

Go with Zealous Lawyers

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