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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.


Dischargeable Bankruptcy Debts

Posted on: January 26, 2017 by in Bankruptcy, debt
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Mortgage underwriters talk a lot about debt-to-income ratio, and as a rule of thumb, a 43 percent DTI ratio is the ceiling for mortgage qualification purposes. The thinking is that people who owe more money than that cannot afford to pay it back, and therefore they are very poor credit risks.

So, according to current government statistics, if your family pays more than $1,600 in debts each month, and that includes mortgage notes and other secured debts, it will be difficult or impossible to repay these obligations in full without outside assistance. Unfortunately, that category includes most all middle-income families in Illinois and Indiana; fortunately, relief is available.

Debt Elimination

Although they operate a little differently, both Chapter 7 and Chapter 13 eliminate unsecured debts, including:

  • – Credit Cards: Families who have credit card debt owe an average of $16,000 on credit cards alone, which is almost more than most incomes can accommodate.
  • – Medical Bills: One in five families have unpaid medical bills, and as for the percentage of people who are at-risk for default, the number is even higher.
  • – Signature Loans: Although the moneylenders would like people to think differently, payday loans fall into this category. Auto title cash loans are usually secured.

Immediately upon filing, bankruptcy’s automatic stay forbids moneylenders from pursuing foreclosure, lawsuits, wage garnishment, and all other forms of adverse action, at least in most cases. A Chapter 7 discharges (forgives) debts in about four to six months, and a Chapter 13 discharges debts at the end of the three or five-year repayment period.

Bankruptcy judges can extinguish debts but not the collateral consequences of debts, meaning that income tax liens, blacklists, and other items usually survive bankruptcy.

Debt Reduction

Most people sincerely want to repay their debts to the greatest extend possible, either because of a moral obligation or because they want to retain the secured property, and Chapter 13 is tailor-made for these families.

Rather than throwing money at secured debt delinquency, Chapter 13 debtors consolidate all these accounts into one monthly payment based on their incomes, and moneylenders basically cannot object, as long as the judge considers the repayment plan to be reasonable. Moreover, if there is a legitimate dispute as to the amount owed, judges usually refer the matter to mediation, where the moneylender must negotiate in good faith to reach a mutually-satisfactory agreement. Even if there is no dispute, an experienced lawyer can sometimes independently negotiate with the moneylender and obtain more favorable repayment terms.

What Stays Behind

Child support delinquency, past-due alimony, and other DSOs (domestic support obligations) are typically not dischargeable in bankruptcy, even though they are technically unsecured debts. The same thing applies to some criminal fines. Student loans are dischargeable if the debtor establishes an undue hardship, and income taxes (but not income tax liens) are dischargeable if the tax is at least three years overdue, the return has been on file for at least two years, and the taxing authority hasn’t assessed the debt in the last 240 days (nine months).

Go With Experienced Lawyers

Bankruptcy is the best way to help people eliminate and manage det. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in Indiana and Illinois.