Chicago Schools Mull Bankruptcy
Faced with a $1 billion deficit and almost no way to make up the difference, the Chicago Public Schools are once again contemplating bankruptcy. But what would happen if a petition is filed?
Both Governor Bruce Rauner and Mayor Rahm Emanuel have floated Chapter 9 bankruptcy as the best available option, as the state cannot afford a bailout. Such a move would be nearly unprecedented. Since 1954, only four school districts have sought Chapter 9 bankruptcy protection, and only two have successfully completed the entire process. Before CPS could even file a petition, the Illinois Assembly must give its blessing. Question marks abound, as CPS has mortgaged many assets in recent years to raise cash, and it cannot legally alter pension payments, which some claim is the main cause for the financial distress. Furthermore, the Chicago Board of Education, which some lawmakers blame for the crisis, would administer CPS during bankruptcy.
However, in the long run, bankruptcy would give CPS a fresh start, much like GM and Chrysler obtained after they filed Chapter 9.
What Happens During Chapter 13 Bankruptcy?
In general, debtors will qualify for a Chapter 13 bankruptcy as long as they meet certain prerequisites laid out under the law. In addition, filers must complete a debt counselling course, which can be completed online in only a few minutes.
About six weeks after the petition is filed and the automatic stay takes effect, at least in most cases, the bankruptcy trustee (person who oversees the case on the judge’s behalf) goes over the proposed repayment plan with the debtor. The monthly debt consolidation payment must take care of all arrearages on secured debts, like home mortgages, within the three or five year protected repayment period. It’s best if there are sufficient funds left over to at least partially address unsecured debts, like credit cards and medical bills.
At the end of the protected repayment period, and after the debtor completes a brief debt management course, any remaining unsecured debt is discharged.
What About Chapter 7 Bankruptcy?
The only prefiling qualification in a Chapter 7, other than the debt counselling class, is the means test. Chapter 7 debtors must earn less than the average for that household size in that part of the country. As of November 2016, that amount is just over $90,000 a year for a family of four in Illinois and $76,000 for a similar-sized Indiana household. The means test levels change every few months.
Chapter 13 trustees are basically financial overseers who put debtors on allowances to make sure they can satisfy their obligations during the protected repayment period, but Chapter 7 trustees are more like paperwork examiners. During the 341 meeting, they will verify identity with a Social Security Card and driver’s license, as well as verify income with a recent 1040 and perhaps some other financial documents as well. Chapter 13 debtors must produce these same documents, at a minimum.
Typically, the discharge order comes about three to five months after the trustee’s meeting. Chapter 7 eliminates debts, but it does not eliminate the collateral consequences of those debts, like income tax liens or security agreements.
Rely on Experienced Lawyers
Consumer bankruptcy gives fresh starts to financially distressed families. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. After hours appointments are available.
Resources:
chicagocitywire.com/stories/511065017-chicago-public-schools-face-several-challenges-in-filing-bankruptcy
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/discharge-bankruptcy-bankruptcy-basics
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics
