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Six Dischargeable Debts In An Illinois Bankruptcy

Posted on: January 8, 2018 by in Bankruptcy, debt
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Many people file a Chapter 7 or Chapter 13 debt relief petition to gain immediate relief from foreclosure, lawsuits, repossession, and other adverse action. While the case is pending, moneylenders can do none of these things, at least in most cases.

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

Medical Bills

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

Credit Cards

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

Small Business Association Loans

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

Income Taxes

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

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

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

Payday Loans

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

Home Equity Line Of Credit

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

Reach Out to Experienced Attorneys

Almost all unsecured debts are dischargeable in bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in both Illinois and Indiana.


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.


Do I Qualify For Bankruptcy?

Posted on: November 21, 2017 by in Bankruptcy
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Almost anyone can file either Chapter 7 or Chapter 13 bankruptcy and take advantage of the automatic stay to prevent adverse action, including repossession and foreclosure. But not everyone can obtain a Chapter 7 or Chapter 13 discharge, because each section has important financial and non-financial qualifications.

In reality, these qualifications are more like guidelines that steer families into the type of bankruptcy that is best suited for their financial situations, thus preventing them from compounding past mistakes or misfortunes with additional preventable errors.

Consumer Bankruptcy Qualifications

In 2005, Congress passed the oddly-named Bankruptcy Abuse Prevention and Consumer Protection Act, based on the mostly erroneous notion that families purchased expensive luxury goods with credit cards then immediately filed bankruptcy to avoid paying for them. This law requires all bankruptcy debtors to take a pre-filing debt counselling class. Each course usually costs about $20 or $40 and can be completed online in twenty or forty minutes.

Thereafter, before debtors receive their discharge orders, they must complete an additional budgeting and financial management class. These courses are available online as well. Additionally, free live classes are usually available at many bankruptcy trustee offices.

The other non-financial qualification — the duty to cooperate with the trustee — has been around for quite some time. At a minimum, that involves attending the 341 creditors meeting providing proof of identity (Social Security card and driver’s license) and proof of income. Most trustees want the last two years of tax returns and the last two months of paystubs or business profit and loss statements.

Some trustees require additional documents, such as insurance declaration pages and home mortgage documents. These requests usually do not mean that there are problems with the bankruptcy; they just mean that the person who oversees the bankruptcy for the judge wants more paper in the file.

Chapter 7 Qualification

The means test is another BAPCPA reform. To qualify for Chapter 7, a debtor’s income (or joint income) must be lower than the average income for that family size in that geographic area. As of November 2017, the figure for a family of four is just under $95,000 in Illinois and just over $79,000 in Indiana. The number changes about once every three months.

These are average figures. The actual threshold for a particular family in a particular location may be considerably different, so it’s important to consult with an experienced attorney.

Chapter 13 Qualification

Chapter 7 debtors must have low incomes because these filings are essentially declarations that the debtors cannot afford to pay their obligations. On the other hand, since Chapter 13 debtors essentially declare that they need income-based payment plans, they must demonstrate that they have sufficient income to support such plans.

An attorney can normally estimate the monthly debt consolidation payment to determine if a Chapter 13 is sustainable. This payment must fully satisfy all secured debt arrearage, cover a 10 percent trustee payment, and also satisfy all unsecured debts in the same way as a Chapter 7 (which usually means no unsecured debt payments).

Debtors who find that they cannot afford the debt consolidation payments can convert to Chapter 7 at any time.

Rely on 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. We routinely handle cases in both Illinois and Indiana.


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.


Obstacles To Bankruptcy: Security Clearances

Posted on: November 2, 2017 by in Bankruptcy
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Some distressed debtors who work at one of the many military bases in Illinois or Indiana, or at one of the many private companies that support these installations, hesitate to file bankruptcy because they are afraid that a voluntary petition will mean the revocation of their security clearance.

But it is illegal to take any adverse action against any individual based solely on a bankruptcy filing. Moreover, the DoD cannot unilaterally take such action. Instead, the security clearance holder must receive actual notice of the proceedings and have an opportunity to present a defense. Finally, according to DoD Directive 5220.6, a Chapter 7 or Chapter 13 petition may actually be the only way to save a security clearance that’s already in jeopardy.

Likely Considerations

As an area of concern, financial considerations are rather far down the list. They are well below items like foreign influence and even sexual misconduct. In other words, individuals who have in-laws who work at foreign consulates or those with disturbing relationship histories are far more likely to suffer adverse action than those with debt problems. The specific concerns are:

  • History of Unmet Obligations: Even if the debtors have multiple unpaid accounts on their credit reports, which is not always the case, such credit history is usually related to one financial storm, such as a job loss, that had a snowball effect.
  • Illegal or Deceptive Practices: Persons with issues such as “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust” hardly ever file bankruptcy, mostly because such obligations are often not dischargeable.
  • Financial Problems Tied to Security Concerns: Similarly, almost no one files bankruptcy due to “gambling, drug abuse, alcoholism, or other issues of security concern.”

So, most of the listed concerns do not apply to consumer bankruptcy, a fact that carries considerable weight in any adverse action proceedings, such as an attempt to downgrade or revoke a security clearance.

Possible Defenses

The opposite is true of the listed mitigating circumstances, because nearly all of them apply to those who seek consumer bankruptcy protection.

  • Isolated Incident: The same one time storm/snowball effect argument discussed above applies here as well.
  • Uncontrollable Circumstances: Just as people cannot control the weather, people also have either no control, or very limited control, over “loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation.” All these things prompt many bankruptcy filings, and they are all explicitly listed in E2.A6.1.3.3.
  • Good Faith Resolution Effort: A Chapter 13 petition certainly qualifies as a good faith effort to “repay overdue creditors,” and a Chapter 7 petition is often the only alternative available to “otherwise resolve debts.”

Another mitigating circumstance — “The person has received or is receiving counseling for the problem and there are clear indications that the problem is being resolved or is under control” — also applies to all consumer bankruptcy petitions.

Count On Experienced Attorneys

Bankruptcy petitioners have little to fear in the way of security clearance revocation. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.


Three Quick Ways To Rebuild Credit After Bankruptcy

Posted on: October 23, 2017 by in Bankruptcy
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Some people do not file a necessary bankruptcy because they think it will “ruin their credit rating for seven years.” That’s partially true, because a completed Chapter 13 bankruptcy stays on a credit report for seven years. That’s also partially untrue, because the debtor’s credit rating is already very low due to current issues. Late payments, repossessions, and foreclosures also stay on most credit reports for seven years.

Nevertheless, for those who understandably do not want to wait seven years for their post-bankruptcy FICO scores to improve, here are a few tips to hasten the process.

Stay Current on Secured Debts

Late payments ruin a credit score faster than almost anything else, which means that on-time payments raise a credit score faster than almost anything else. That’s especially true of those periodic payments which are reported directly to the credit bureaus, including mortgage payments, vehicle payments, and insurance payments.

Come hell or high water, stay current on these payments after bankruptcy, not only to rebuild your credit score, but also avoid a repeat filing.

One good method is to make thirteen payments every twelve months. That usually means about another $50 or $75 a month, which most families will never miss. The cushion gives families the flexibility to make it through another rough patch. Moreover, the stellar payment history makes moneylenders more likely to defer a payment until the end of the loan rather than taking adverse action against the debtor.

Refinancing may be an option as well. Many bankruptcy attorneys can connect former debtors with banks who specialize in post-bankruptcy restructurings.

Get a Credit Card

There are plenty of credit cards available to people who recently emerged from Chapter 13 bankruptcy, mostly because moneylenders know that these debtors cannot file another voluntary petition for a number of years. Ideally, the card should be one with a low initial credit limit that is easy to raise after a few months of timely payments.

A secured card may be an option as well. Try to choose a card that does not include a “secured” designation on a credit report, because such a label diminishes the payments’ effect on a score.

It’s usually best to charge several hundred dollars a month and pay off almost the entire balance every month. In this way, the unpaid balance stays low, there is considerable activity on the card, and the bank earns a little money off the interest.

Keep Making the Debt Consolidation Payment

In most cases, a Chapter 13 debt consolidation payment is about $400 or $600 a month. Instead of giving that money to the trustee, keep it in a savings account. Your family is already accustomed to living without this money, so there is no shock. The money adds up quickly, and in just a few months, a family will have an emergency fund of several thousand dollars, which is probably enough to weather almost any financial storm.

Rely on Savvy Attorneys

Bankruptcy can be the gateway to a higher credit score. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours appointments are available.


Bankruptcy And Student Loans: A Primer

Posted on: October 16, 2017 by in Bankruptcy, student debt
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Although student loans are unsecured debts, like credit cards, Small Business Administration loans, and medical bills, they are not automatically dischargeable like these other obligations. In fact, several years ago, Congress even closed the private student loan loophole, which is bad news for former ITT Tech students and other similarly situated borrowers.

There is an old saying among attorneys that “bad facts make bad law,” and that’s certainly the case in this regard, when closely examining the landmark decision Brunner v. New York State Higher Education Services.

The Brunner Rule

About ten years before the Second Circuit in New York decided this case, federal lawmakers rewrote the Bankruptcy Code, and there was considerable controversy about the student loan provision. Previously, such debts were automatically dischargeable. But there was some concern that student protesters in the 1960s borrowed their way through school and then adamantly refused to repay their loans.

Whether that was true or not, Congress included a provision that student loans could be discharged only upon showing of “undue hardship,” but lawmakers left it up to the courts to define that phrase.

Along came Marie Brunner, who graduated with a master’s degree in social work and had no apparent problems finding employment. Almost immediately thereafter, she asked a bankruptcy judge to discharge her debt, despite the fact that she had made no payments and had never asked for any other lesser kind of relief, such as a temporary forbearance.

In response, the appeals court endorsed what soon became known as the Brunner rule. It stated that student loans could be discharged in bankruptcy only if the debtor:

  • – Had made a good faith effort to repay the loan,
  • – Suffered from a long term disability, and
  • – Could not maintain a minimal standard of living if forced to repay the debt.

At first blush, the Brunner rule seems impossible to meet, since the elements of the test seem inconsistent, viz, if one cannot maintain a minimal standard of living, how can one make a good faith repayment effort? As a result only about .01 percent of consumer bankruptcy petitions even ask for a student loan discharge.

Meeting the Brunner Rule

Yet according to this same survey, about 40 percent of debtors who ask for student loan relief receive at least a partial discharge.

One factor in the debtor’s favor is that student loan debt is much, much higher now than it was forty years ago. Many people, especially those with graduate degrees, owe $40,000 or more, and it is a lot harder to pay off that amount of debt as opposed to $15,000 or $20,000.

As for the “minimal standard of living” prong, it’s generally understood that this level is akin to the poverty line, but there is a big difference between “generally understood” and black-letter law. If the debtor has to put off major purchases because of the student loan, some judges may be sympathetic and allow at least a partial discharge.

There’s another old saying in the law that “you don’t get anything unless you ask,” and in these cases, it may be worth asking for student loan discharge.

Connect With Experienced Attorneys

Student loan discharge is difficult, but not impossible, in consumer bankruptcy cases. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We aggressively represent student loan borrowers.


Four Dischargeable Debts In Bankruptcy

Posted on: October 9, 2017 by in Bankruptcy, chapter 13, chapter 7
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The end result of a bankruptcy petition, in almost all cases, is a fresh financial start for the honest yet unfortunate debtor. To get this fresh start, the bankruptcy judge will discharge (legally forgive) many different kinds of debts.

Sometimes, debtors want to pay what they owe, or at least most of it, but they lack the means to do so. Such repayment is an option in both Chapter 7 and Chapter 13 cases, because even if the debt is legally discharged, the moneylender will almost always still accept payments.

Credit Cards

The math is very simple. Since 2003, wages have increased by 28 percent and prices on many items have increased between 35 and 55 percent. Something has to fill in the gap, and in most cases, that something is borrowing money on credit cards. In fact, the average credit card-holding household has account balances over $16,000 in revolving debt alone.

There is no doubt that poor financial planning and overspending account for some of this debt, but unexpected emergencies, such as medical bills and unemployment, account for a lot more.

Since there is no security agreement, credit card debt is dischargeable in both Chapter 7 and Chapter 13 cases. In addition, because of the automatic stay, moneylenders cannot pursue any adverse actions, such as lawsuits, while the case is pending.

Medical Bills

As most people might expect, medical bills have increased more than most other types of expenses over the past fifteen years, and even if the debtor has good medical insurance, the membership fees, copays, and deductibles are often financially debilitating.

Legally, medical bills fall into the same category as credit cards and so they are completely dischargeable.

Signature Loans

Small Business Administration and other bank loans, as well as payday and other nonbank loans, are also unsecured, even if the lender required bank account information or if the debtor agreed to a certain withdrawal on a certain day.

Student loans, whether or not a governmental unit guaranteed them, are only dischargeable if the debtor establishes undue hardship, and admittedly, that is not an easy showing to make in court.


Somewhat similarly, income taxes, as opposed to payroll and other kinds of taxes, are dischargeable only under limited circumstance, but the showing is a little easier to make because it is based on time as opposed to other circumstances. The rules for both the IRS and state taxing authorities are:

  • Tax must be at least three years old,
  • Returns have been on file for the past two years, and
  • The authority has not assessed the debt in the last 240 days, which usually means that the taxpayer has not received a notice or bill in that time period.

The IRS, as well as states, are very particular on dates, and it is not unusual to see opposition based on one or two days off the deadlines.

If the taxing authority placed a lien on the taxpayer’s assets, such liens remain, because the bankruptcy judge has limited powers.

Contact Experienced Attorneys

Most debts are dischargeable in bankruptcy. 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’s The Difference Between Chapter 7 And Chapter 13?

Posted on: September 25, 2017 by in Bankruptcy, chapter 13, chapter 7
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A number of times over the last hundred years, and perhaps most recently in 1998, the Supreme Court has reaffirmed that the purpose of the Bankruptcy Code is to give the “honest but unfortunate debtor” a fresh start. There is only one kind of honest, but there are several kinds of misfortune, which is why there are basically two types of bankruptcy.

The most successful bankruptcy debtors either are victims of unforeseeable, and usually once in a lifetime, financial storms, or they understand the mistakes they made and are committed to doing better. Many times, there is a little bit of both, as the debtor may have had an unhealthy financial habit or two that created a vulnerability to job loss, divorce, medical bills, or another unexpected event.

Chapter 7

If the debtor has mostly unsecured debts, which are credit cards and other debts that the debtor has promised to repay, an ill-named liquidation bankruptcy may be the best option. This nickname is inaccurate because, in most cases, Chapter 7 debtors do not lose any of their assets. By law, Indiana and Illinois debtors can keep their:

  • – Retirement Accounts: If the IRA, 401k, or other nest egg was earned and not inherited, the debtor can keep the entire amount, regardless of the account balance.
  • – House: Both Illinois and Indiana use value-based exemptions that protect a certain amount of home equity in a primary residence. Bear in mind that if the house is worth $200,000 and the debtor still owes $190,000, the exemption only needs to protect the $10,000 in equity.
  • – Cars: The same rule applies for motor vehicles, and generally, new cars have almost no equity and used cars have almost no value.
  • – Personal Property: Other personal property, including cash in many cases, is also exempt.

To determine value, the debtor must declare the as-is cash value (“garage sale”) value. This amount is usually much lower than the fair market value.

About six weeks after the debtor files a petition and schedules, the trustee (person who oversees the bankruptcy on behalf of the judge) reviews the paperwork to ensure that everything is in order, and about six months later, all unsecured debts are discharged.

Chapter 13

Other debtors have issues with secured debts, such as home mortgages and vehicle loans. In these cases, the debtor probably does not want the debt to disappear, because that would mean losing the secured asset. So, the wage earner plan is probably a better option. Chapter 13 debtors have up to five years to catch up on secured debts, and during the entire period, they are under the protection of the bankruptcy court. So, in most cases, moneylenders cannot take any adverse action during this time, and that includes anything from harassing phone calls to repossession.

During the trustee meeting, the debtor and trustee come up with an income-based repayment plan, which is nearly always a better alternative to the debt-based “repayment plans” that moneylenders offer.

Debtors can voluntarily convert their plans from Chapter 13 to Chapter 7, and vice versa, at almost any time. So, many debtors file a Chapter 13, and if they find they cannot afford the debt consolidation payments, they convert to Chapter 7, wrap things up quickly, and take full advantage of their fresh starts.

Go With Experienced Attorneys

Different distressed debtors have different legal options in bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Our attorneys are licensed in both Illinois and Indiana.


Bankruptcy: Help For Student Loan Borrowers

Posted on: July 18, 2017 by in Bankruptcy, student debt
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Forty-four million Americans owe a collective $1.4 trillion in education debt, a staggering total that works out to just under $40,000 per graduate. Because of the large monthly payment, many borrowers must put off large purchases, like houses and cars. Furthermore, a significant percentage of these loans are in delinquency, which indicates that the borrowers cannot make the minimum payments at all.

Bankruptcy provides relief in two different student loan scenarios.

Repayment Options

A Chapter 13 filing triggers the automatic stay under Section 362 of the Bankruptcy Code. Most moneylenders, including most lending institutions and debt buyers, cannot take any adverse action against bankruptcy debtors as long as the cases are pending. That includes the lawsuits and wage garnishments often associated with delinquent student loan accounts. Chapter 13 bankruptcies can last for as long as five years.

Moreover, a bankruptcy attorney can negotiate with a student loan lender or debt buyer for a lower interest rate, principal reduction, and other forms of relief. Additionally, in many jurisdictions, federal judges refer these matters to bankruptcy mediation, where the creditor must negotiate in good faith.

Discharge Possibilities

Since lawmakers could not agree about student loans when they revised the Bankruptcy Code in the 1970s, courts followed the Brunner Rule, which came from a 1987 New York court of appeals case. Judges adopted this rule in response to an entirely different set of circumstances than the ones that borrowers face today.

Marie Brunner owed about $9,000 in student loans, a large but not overwhelming sum in the 1970s and 1980s. Furthermore, she filed bankruptcy just one year after graduation and never made any payments toward her debt. In other words, according to the judges, the issue was more unwillingness to repay the debt, as opposed to inability to make payments.

So, the Second Circuit concluded that student loans were dischargeable in bankruptcy if the debtor could prove “undue hardship,” which required a showing that the debtor:

  • Could not maintain a minimal standard of living while repaying the loans,
  • Had made a good faith effort to repay the loans, and
  • Had a permanent or long-lasting hardship.

Essentially, under the Brunner Rule, debtors who have a physical or other disability are eligible for discharge, but other debtors probably do not qualify.

In light of the changed student loan landscape, many courts have either questioned the Brunner Rule or stopped following it altogether But the Seventh Circuit, which covers Illinois and Indiana, has made no such move. In fact, this court recently affirmed the Brunner Rule in 2015’s Tetzlaff v. Educational Credit Management Corporation.

Although Mr. Tetzlaff owed over a quarter million dollars in student loan debt and was basically unemployable due to a variety of issues, the court ruled that he did not meet the “undue hardship” test according to Brunner and therefore he must repay his student loans. There were no dissents, which indicates that the Seventh Circuit will probably not reconsider the Brunner Rule unless the Supreme Court invalidates it.

Rely On Experienced Attorneys

Many distressed student loan borrowers can find relief through bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours appointments are available.