Bankruptcy is a golden opportunity for many distressed debtors in Illinois and Indiana. Although it’s impossible to turn back the clock to a time before debt became a problem, both Chapter 7 and Chapter 13 do the next best thing. They stop foreclosure and other kinds of adverse action, end the obligation to repay many kinds of debt, and protect the consumer’s assets all along the way.
Part of a bankruptcy’s success depends on the debtor’s commitment. For example, if a Chapter 13 debtor does not adhere to the repayment plan, the trustee (person who manages the bankruptcy case for the judge) will most likely have the case thrown out of court. But the attorney’s skill level is usually an even bigger factor in success or failure.
Discharging Student Loans in an Illinois Bankruptcy
Student loans are a significant source of financial stress for many area families. Most students leave school with tens of thousands of dollars in loans, and for various reasons, these loans are often difficult to repay. Even though many factors that affect repayment are beyond the debtor’s control, in both Illinois and Indiana, debtors must establish relief under the undue hardship test. These obligations are dischargeable if the following elements are present:
- – Inability to maintain a minimal standard of living (e. live above the poverty line) if loan repayment is part of the monthly budget,
- – Long-term problem, such as physical disability, which affects the ability to repay the loans, and
- – Prior good-faith efforts to repay said loans.
Many judges have questioned this standard because of its harshness and internal inconsistencies, and as a result, some other circuits have adopted a more lenient totality-of-the-circumstances analysis in these cases. Eventually, the Supreme Court will probably permanently resolve this question.
Maximizing the Homestead Exemption in Chicago
Married couples in Illinois may deduct up to $30,000 of home equity. Alas, many families who have been in the same home for several years have more than this much equity in their homes. To avoid issues, it’s important to give the home an accurate value in Schedule A. Under the Bankruptcy Code, the debtor must declare the asset’s as-is cash value, a requirement that works in favor of debtors in these situations.
To determine an asset’s as-is cash value, the IRS uses the Quick Salve Value metric, which in most cases, is 80 percent of the asset’s fair market value. It’s often an even better idea to obtain an offer from a home investor who will buy the house as-is. In most cases, such a cash offer rarely exceeds 50 percent of the home’s fair market value.
By decreasing the value of the home, the debtor maximizes the equity exemption and minimizes the risk of a forced sale or the need to use part of the Illinois wildcard exemption on the home.
Forgiving Tax Debt in an Indiana Bankruptcy
Whereas the previous two areas involve legal and factual arguments, successfully discharging tax debt is often a matter of attention to detail. Generally, only income tax debts are dischargeable, and they must meet the following guidelines:
- – Three Years: The tax debt must be at least three years old, and the IRS and other taxing authorities are very particular about this requirement.
- – Two Years: The returns must have been on file for at least two years, and the substitute returns which the IRS files on the taxpayer’s behalf do not count.
- – 240 Days: If the debt has been assessed in the last 240 days, which essentially means that the taxpayer has received a collections letter in the last nine months, the debt is not dischargeable.
If the taxing authority filed a lien, bankruptcy does not eliminate this lien. However, if the taxing authority is garnishing a paycheck or taking other such measures, bankruptcy does end such direct adverse actions.
Contact Experienced Attorneys
Bankruptcy results often depend on the lawyer’s skill. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in both Illinois and Indiana.