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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.


Post-Filing Activity In An Illinois Bankruptcy

Posted on: August 21, 2017 by in Bankruptcy
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Nearly five years after the buy-sell-trade company filed bankruptcy, the trustee is still seizing and selling THR’s assets.

After locating a 2001 Chevrolet Suburban that belonged to the bankrupt company, the trustee almost immediately filed a motion to sell it at auction. Various state and federal agencies hold millions of dollars in liens against THR, and persistent allegations of bankruptcy fraud have kept the case open all this time. All told, the trustee has sold assets totalling $1.3 million to satisfy claims that exceed $57 million. Several years ago, the trustee seized a large number of collectibles and sold them at auction, including a New York State Prison electric chair, silver baby rattles, Elvis memorabilia, an armored van, and many other items.

THR acquired these items in its capacity as a reseller, and still had them when it ceased operations.

Seizing and Selling Assets

In corporate bankruptcies, the trustee is usually more aggressive in this area, because the intent of the Bankruptcy Code, which is to give the honest yet unfortunate debtor a fresh start, is not as applicable.

The trustee (individual who oversees a bankruptcy for the bankruptcy judge) has a duty to examine the debtor’s nonexempt assets and determine if selling them would be in the best interest of the creditors; the trustee does not have a duty to take everything possible and liquidate it, even in a Chapter 7.

Motor vehicles are a good example. Individual debtors in Illinois may exempt one vehicle with a value of up to $1,200. Bear in mind that this is the amount of equity in the vehicle, which is usually not the same as its fair market value.

Typically, new vehicles have high values but either little equity or, more likely, negative equity. On the flip side, older vehicles, like a 2001 SUV, usually have no outstanding loans but their fair market value is very low.

Assume the 2001 Suburban has a fair market value of $3,000. At the trustee’s recommendation, the judge could order the debtor to turn over the vehicle to the trustee for sale. After the trustee gave the debtor $1,200, the remaining $1,800 would be distributed among the creditors. However, the trustee must bear all the risk of sale, including towing costs, storage costs, make-ready expenses, any necessary repairs, auction costs, and all other expenses. Furthermore, there is no guarantee that the vehicle would sell for fair market value.

Therefore, when all is said and done, seizing this Suburban may likely result in a debt to the bankruptcy estate instead of a credit, or at best, a few dollars for each creditor, because proceeds must typically be distributed equally. Either result is arguably not in the best interest of the creditors.

Connect With Experienced Attorneys

Even if some of the debtor’s property is not exempt, the trustee will probably not seize it. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.


Could Illinois Be The Next Puerto Rico?

Posted on: June 14, 2017 by in Bankruptcy
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Congress just allowed the island commonwealth, which faces about $123 in pension and bond obligations, to file a form of municipal bankruptcy. Could the Prairie State, which faces over $130 billion in pension debt alone, be next? The economic problems that brought Puerto Rico to this point, including a crippling recession, rampant government borrowing, and emigration, are eerily similar to the situation in Illinois.

What are some signs of bankruptcy, and what can a Chapter 7 or Chapter 13 petition do for a family?

When to File Bankruptcy

Fortunately, none of us face tens of billions of dollars in pension and other liabilities. However, largely due to circumstances beyond our control, many of us have more debts than we can afford to repay.

Timing is essential in a bankruptcy case. If the voluntary petition is filed too soon, the debtor may not have explored all available non-bankruptcy remedies; if the filing is too late, there may already be some debt-related damages, like tax liens, that even bankruptcy cannot undo.

If a family is more than two months behind on secured debts or has more than about $5,000 in unsecured consumer debts, the family should probably think about bankruptcy.

Banks consistently deny that they target some homeowners for expedited foreclosure proceedings, but there are indications that such a practice is real. Unfortunately for debtors, there is no way to know if their property is on the targeted list until the foreclosure notice comes in the mail. So, while most banks consider one missed car or house payment an unfortunate aberration, serious adverse action usually begins after the second missed payment.

Similarly, most families can afford to pay an extra few thousand dollars of credit card or medical debt if given sufficient time to do so. But since so many people live hand to mouth, a bigger debt bite is often too much to swallow.

Bankruptcy Benefits

They say that no one can turn back the clock, and in most instances, that’s true. But bankruptcy does turn back the financial clock, because it gives debtors fresh starts. Most individuals and families who successfully emerge from either Chapter 7 or Chapter 13 have no outstanding unsecured debts and are completely caught up on their secured debts, so instead of worrying about paying the bills, they can focus on rebuilding their credit ratings.

There are some specific benefits as well.

  • – Automatic Stay: Moneylenders have a wide range of debt collection tactics that range from annoying and embarrassing (like letters and phone calls) to overwhelming and cripplings(like wage garnishment and foreclosure). Section 362 of the Bankruptcy Code stops all these things, at least in most cases.
  • – Debt Discharge: Most all unsecured debts, like credit cards and medical bills, are wiped away from a repayment standpoint; some other types of debts, such as student loans, back taxes, and Small Business Administration loans, are dischargeable as well in many cases.
  • – Repayment: Chapter 13 has a built-in protected repayment period of up to five years. Repayment is optional in Chapter 7 cases, because although they have no legal obligation to do so, debtors can still repay some or all of their discharged debts to improve their credit scores and satisfy their moral obligations.

Chapter 7 eliminates debts in as little as a few months; Chapter 13 both eliminates debts and allows for an extended repayment period that protected by the automatic stay.

Partner With Experienced Attorneys

Many people reading these words right now know, at least deep down, that they need to file bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments are available.


Coming Changes To Illinois Foreclosure Law

Posted on: December 20, 2016 by in Bankruptcy, Foreclosure Defense
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Several tweaks to the Illinois Mortgage Foreclosure Law will expire around the end of the year, barring some unforeseen legislative action.

One provision, the GPN rule, expired in July 2016. Lawmakers allowed the Grace Period Notice loophole to lapse, in part, because of a lower foreclosure volume. Similarly, a 0.1 percent foreclosure sale fee increase should remain in effect only until March 2, 2017. Finally, a provision allowing borrowers to vacate sales tha violated HAMP’s rules expires on December 31, 2016, the same day the government’s Home Affordable Modification Program is scheduled to end.

All these matters bear watching, as lawmakers have the option to resuscitate such statutes after the deadline passes.

Protecting Home Equity in a Chapter 7

During periods of financial distress, many people shift money away from unsecured debt servicing, like credit cards and medical bills, and apply these funds to secured debts, like auto loans and home mortgages. As a result, they fall behind on the former to stay current on the latter, a variation on the old “robbing Peter to pay Paul” idea. When these people file Chapter 7 liquidation, which nearly always happens eventually, they want to exempt their home equity and keep their homes. Both Illinois and Indiana have rather large home equity exemptions, especially for joint filers. In some cases, the wildcard exemptions are available to augment these dollar limits even further.

But non exempt home equity is still sometimes an issue, especially in single-filer scenarios. Some people may need to use the wildcard to exempt other property, such as savings accounts, rental property, or additional vehicles. Other people have a considerable amount of home equity, and they are understandably reluctant to tap into it in order to pay credit card bills.

In these situations, property valuation on Schedule A can be key. Debtors must list the as-is cash value (a.k.a. “Garage sale value”). Most investors will pay a maximum 60 percent fair market value in an as-is cash home sale, so arguably, a home’s as-is cash value is about fifty cents on the dollar, and should be valued as such.

The trustees (people who oversee the bankruptcy on behalf of the judge) nearly always object to home valuations this far below fair market value. To defend the figure, it may be best to obtain several written offers from different home investors that substantiate the claimed amount.

Satisfying Mortgage Arrearage in a Chapter 13

If secured debts are an issue, Chapter 13 is normally the best option. More to the point, if mortgage arrears are an issue, bankruptcy debtors basically have two options to satisfy them.

By law, Chapter 13 debtors have either three or five years to make catch-up payments and come current on secured debts. Because of the automatic stay, moneylenders can take no adverse action during the repayment period without special permission from the judge. So, Chapter 13 allows debtors to set up repayment plans that meet their budgets, and the bank has little choice other than to quietly take the money.

Mortgage modification is a better option for some homeowners, because these payment deferral plans immediately eliminate arrearage and usually lower the interest rate. The bankruptcy judge normally oversees any such negotiations, so bankruptcy debtors have a much better chance of obtaining mortgage modifications than other homeowners.

Rely on Experienced Lawyers

Bankruptcy laws are designed to help distressed homeowners. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in both Illinois and Chicago.