Bankruptcy And Your Post-COVID Monthly Budget

In October 2021, inflation rose to its highest level in more than twenty years. The last time inflation was at nearly this level, high prices on durable goods, like washing machines, television sets, and automobiles, were the main culprit. Most families can put off these purchases if needed. Today is different. Higher prices on things most people buy every week, like gas and groceries, are straining many family budgets to the breaking point.

There are contributing factors as well. Many people spend several hundred dollars a month on credit card bills. Usually, these high payments hardly make a dent in the unpaid balance. Additionally, many people fell behind on mortgage loans and other secured debts during coronavirus lockdowns. Once coronavirus protections end, these lenders often demand immediate repayment.

A Chicago bankruptcy lawyer cannot do anything about high inflation. However, filing bankruptcy often addresses the contributing factors listed above. Generally, when people miss their monthly bills, they are less than $400 short. Therefore, these families only need a little bit more breathing room. In many cases, bankruptcy provides that space.

Debt Discharge

In Illinois, Chapter 7 bankruptcy quickly discharges unsecured debts. These obligations include things like:

• Credit cards,
• Medical bills,
• Payday loans, and
• Revolving credit accounts.

In this context, “discharge” means a judge eliminates the legal obligation to repay a debt. The debt itself, as well as any collateral consequences, remain. If the IRS filed a lien because Chris owed back taxes, that lien remains in force, even if bankruptcy discharges Chris’ back taxes.

Speaking of back taxes, these obligations are priority unsecured debts. They are dischargeable in some situations. Other priority unsecured debts include student loans, which once again are dischargeable in some situations, and FSOs (Family Support Obligations). Alimony, child support, and other FSOs are usually not dischargeable.

Most people qualify for Chapter 7 debt relief. Their income must be below the average amount for that geographic area. A couple of other eligibility requirements, such as a pre-filing debt counselling course, usually apply as well.

Long-Term Debt Payment

The same discharge rules apply in a Chapter 13 bankruptcy. However, Chapter 13 is mostly designed for families who are behind on secured debt payments. This form of consumer bankruptcy, which is sometimes known as the wage earner plan, gives families up to sixty months to pay off these delinquencies.

Here’s how it works. Trustees (people who oversee bankruptcies for judges) help debtors set up income-based repayment plans. Usually, debtors put all their disposable income into a monthly debt consolidation payment. The trustee then distributes this money among secured debtors and other allowed claimants.

As long as the plan would pay all obligations before the clock runs out, the judge will most likely approve it. Section 362 of the Bankruptcy Code remains in force during the protected repayment period. The Automatic Stay prohibits creditors from taking adverse action against debtors. So, mortgage banks and other such lenders must wait in line for their money like everyone else.

Once again, most people qualify for Chapter 13. Some debt ceilings usually apply. Furthermore, the debtor must have enough monthly cash to fund the debt consolidation payment.

Contact Dedicated Cook County Lawyers

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Virtual, home, and after-hours visits are available.

Resource:

tradingeconomics.com/united-states/inflation-cpi