This Is The End?

A prominent financial planner has advised the city of Chicago and state of Illinois to file bankruptcy and start over, because their financial problems are completely overwhelming.

Former FDIC head William Isaac said that now may be a good time to seek Chapter 9 protection, because the city and state are in “dire financial straits” and Congress may change the law in the wake of this summer’s Puerto Rico debt crisis. Currently, Illinois has the lowest bond rating of any state and unless Republican Governor Bruce Rauner and the Democrat-controlled legislature can work together, which seems unlikely, the state seems likely to default on about $8 billion in payments and will have a budget deficit of $17.5 billion by 2020.

According to Mr. Isaac, Chapter 9 bankruptcy would mean “two years of unpleasant headlines, but the city and the state will rebound far sooner and less painfully than if they stay on their current paths.”

When to File Chapter 13

Filing bankruptcy is a big decision that has a lot to do with timing. File too early, and it can seem like one is using a sledgehammer to swat a housefly. At the same time, debt is bad for your health, both physically and emotionally, so it almost seems silly to put your wellness at risk if the underlying cause for the distress can almost literally be wiped away with the stroke of a pen. Therefore, the question is: when does debt become unmanageable to the point that bankruptcy is an option? The answer largely depends on the type of debt.

There is an old rule of thumb about bridal jewelry (which may have been invented by jewelers) that prospective grooms should spend two months’ salary on engagement rings. That rule is effective in bankruptcy cases as well. If a household falls a month behind on secured payments, like car notes, rent, or house payments, it is often still possible to catch up, if the financial emergency has passed. Or, if the borrower has a good payment history, the moneylender may be willing to move the delinquent payment to the end of the note.

However, if a family falls more than two months behind, bad things are about to happen and bankruptcy is the best solution. Most moneylenders begin foreclosure, repossession, or eviction proceedings at about this point, and bankruptcy’s automatic stay puts a stop to all these adverse actions. Additionally, Chapter 13 allows debtors up to five years to catch up on delinquent payments, and as an added bonus, unpaid unsecured debts, like credit cards and medical bills, are normally discharged (forgiven).

When to File Chapter 7

Roughly 70 percent of Americans essentially live from hand to mouth, so there is often nothing to pay unexpected expenses or effectively weather unforeseen financial storms. So, the two-month rule may apply in Chapter 7 cases as well, because that is normally the time when some moneylenders start selling unpaid accounts to debt buyers. In terms of credit reports, “referred to collections” looks just as bad as “filed bankruptcy.” Many lenders consider collections referrals as evidence that the consumer simply gave up, whereas a bankruptcy filing is at least evidence that the consumer didn’t ignore the problem.

Get Your Fresh Start

Don’t wait too long to file a necessary bankruptcy. For prompt assistance in this area, contact an experienced bankruptcy lawyer in Chicago from the Bentz Holguin Law Firm, LLC. We have offices in Illinois and Indiana.

Resources:

rockislandtoday.com/stories/511014402-illinois-chicago-should-declare-bankruptcy-to-fix-fiscal-woes-ex-fdic-chief-says

news.health.com/2014/08/20/7-ways-debt-is-bad-for-your-health/

marketwatch.com/story/most-americans-have-less-than-1000-in-savings-2015-10-06