Questions

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*Can I get discharge ALL my Debts?

Introduction: Chapter 7 bankruptcy can help you eliminate most, or all of your creditors, but there are some debts that you may not be able to get rid of. Generally, you can get rid of most credit cards, medical debts, personal loans and debts from accidents.

Debts come in three major categories, in the Bankruptcy Code. They are:

Secured debts;
"Priority" debts;
General, unsecured debts;
Leases; and
Co-Signed Debts

Let's take a look at each category.

Secured Debts:

These include debts for your house, your car, and sometimes debts for household goods and furniture.

Your Home: if you have a mortgage on your home, you must either "reaffirm" on the home, or surrender it to the bank. A "reaffirmation agreement" is an agreement between your creditor and yourself and your creditor that says you agree to make payments, and the creditor agrees to let you keep the property. Payments continue as before.

If you are behind on payments, the creditor may not reaffirm on your home and may want to proceed to foreclosure. If this is the case, you may want to consider filing Chapter 13 to save your home. Whatever you do, please keep on making payments on your home, if you intend to keep it. If you intend to surrender it in bankruptcy, there is no need to continue to make payments.

If a creditor has sued you and obtained a judgment, they may have placed a lien on your home. If this is the case, we may need to file a "Motion to Avoid Lien" to remove the debt. Please discuss this with us, when you come in.

Your Car: you can also "reaffirm" on your car and continue to make payments on it, assuming you are current with the car payments. You can also surrender the car to the creditor. This is sometimes a good idea, if you are "upside down" on the value of the car, or if your car payment is too high. Chapter 13 may offer other alternatives to you to lower the interest rate, or to lower the monthly payment.

Household Goods: If you are buying a computer, a TV, a couch, or other household goods through a store credit card (Gateway Computers, Best Buy, etc.), you may have to pay for these items in order to keep them. There may be a way to pay the current used value for them. You can also surrender them back to the creditor.

Some creditors have you write down a list of the household goods you own when you take out a loan. They are taking a security interest in that property. We should file a "Motion to Avoid Lien" to remove that lien, when you file.

Back to the types of debts

"Priority" Debts:

Some unsecured creditors must be paid first, if any money is paid in your bankruptcy. These usually include:

· Back taxes;
· Back child support and alimony; and
· Back wages you may owe to a former employee.

Debts that you owe your ex-spouse for your children's medical debts may be considered in the nature of "child support" and may not be discharged. These debts are also usually non-dischargeable, but there may be exceptions.

Back to the types of debts

General, Unsecured Debts:

The rest of your debts usually fall into a category known as "general, unsecured debts." These include credit card debts, medical debts, debts from personal loans, and debts incurred when you are involved in a car accident and owe money from this. These are usually debts you can eliminate, but there are specific exceptions set up by the Bankruptcy Code. Here are a few:

Student Loans. These are non-dischargeable, unless you can prove to the Bankruptcy Court that you have no ability to repay them, or that repaying them would result in an "undue hardship" to you and your family. Chapter 13 may help with these debts. Back Taxes. These are non-dischargeable, but there are some exceptions!!! Taxes CAN be discharged, if all of the following conditions are met:

The taxes must be:

  1. For personal income taxes;
  2. Actually filed by the debtor(s) or prepared by the IRS and signed by the debtor(s) and then filed;
  3. Due and owing for at least three years (or two years, if filed late); and
  4. Assessed by the governmental unit more than 240 days ago.

Again, Chapter 13 may allow you to pay off non-dischargeable taxes.

Debts from Fraud. If you lied to someone to obtain a loan, the debt may be non-dischargeable. If so, the creditor may bring an action against you in Bankruptcy Court to have the debt declared non-dischargeable.

If you have run up a debt just before the filing of bankruptcy, you may have committed what is known as "constructive fraud." That means that, at the time and place you took out the debt, you did not have the ability to repay the debt, and you either knew, or should have known that you could not pay it. If you have used any one credit card a lot just before the filing of bankruptcy, you may want to consider waiting to file bankruptcy so that you can let the credit card "get cold." Chapter 13 may be right for you, if you have these debts.

Debts from Drunk Driving, or Driving Under the Influence of Drugs. Most debts from car accidents can be discharged in Chapter 7, but not these debts. You may want to consider a Chapter 13, if you have these debts.

Debts for Property Settlements in a Divorce. In some divorces, one spouse must pay the other spouse for property the first spouse receives. This debt may not be discharged, but it should be listed if you file bankruptcy.

Back to the types of debts

Leases.

If you are renting property, you have the choice to keep the lease, or to "rescind" the lease. This also includes rent-to-own furniture. If you keep the lease, you must keep paying for the items.

Back to the types of debts

Co-signed loans.

Remember that if you file bankruptcy on a co-signed debt, the creditor has the right to go back on a co-signor and sue them for them money, if you do not pay the debt. You may want to consider reaffirming on this debt, if that is a problem. If you reaffirm on the debt and pay it, it will not show up as a negative remark on your co-signor's credit report.

If the co-signor makes the payment, you should not reaffirm on this debt: the debt will be their responsibility. So long as they make the payment, your co-signors will be unaffected by your bankruptcy.

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* What about my CAR and my HOUSE?

The answer to this question depends on what YOU want to happen! There are several options that I like to refer to as “fish, cut bait, or get out of the boat.”

  1. Loss to the Bankruptcy Court. It is a myth to believe that the Bankruptcy Court “has to leave you with a car and a house.” No one owes you a car, or a house in this life. In some cases, your car, or house may not be exempt under the bankruptcy laws for your state. If this is the case, the Bankruptcy Court may want to take these items and sell them to get money to pay your creditors.

    This rarely happens. Here’s why: first, you have to have “equity” in these items. This means they have to be worth more than you owe because the first people the trustee must pay off will be your mortgage holder, or the lender with a lien on the title of your car. Secondly, there has to be so much equity in your home, or car that the trustee can pay someone to sell them. Real estate agents do not work for free. Third, the trustee must pay you your “exemption” in cash. In Iowa, for example, you can protect up to $4,000 of equity in a vehicle. The trustee would have to sell your car, pay off the lien, pay the salesperson, and hand you a check for $4,000 in an exempt car! Fourth, and finally, the trustee must make enough money to make it worth his while and still have money to give your creditors. It costs a lot for the trustee to go through this process. Unless he is making around $1,000 for your creditors, it is probably not worth his time.

    This is why you MUST meet with a bankruptcy attorney! There is no substitute for experience and I have filed more than 3,000 successful bankruptcies. If you and I determine that you could lose property in Chapter 7, we may file a Chapter 13 to save the property. Call now at (309)788-3799 to schedule your FREE consultation in my office. You can also E-mail me.

    Click here to learn more about exemptions.

    Click here to learn more about how Chapter 13 can save your property.

  2. Surrender the Collateral to the Creditor. You can give your car and your house back to the creditor that holds a lien or a mortgage on them. If you do this, you should be able to walk away from the debt and be done with it. You surrender collateral in Chapter 7, or Chapter 13.

  3. “Reaffirm” with the Creditor. In most cases, the car, or house is “exempt.” The lender does not want them back and you want to keep them. A “reaffirmation agreement” is an agreement between you and your creditor that says you will continue to keep the collateral, but you will keep making payments. This happens in most Chapter 7 bankruptcies. There is no need for it in Chapter 13: your plan provides for the disposition of collateral.

    If you are behind on payments, a creditor may refuse to reaffirm with you. This is especially true with houses where you have fallen behind on payments. In that case, you may want to consider filing Chapter 13 so that you can use the Chapter 13 plan to order them to let you keep your property.

  4. “Redemption.” In Chapter 7, the Bankruptcy Code also permits you to file a “Motion to Redeem” to request the court to permit you to buy your car back from the creditor at the wholesale value. This is especially helpful, if you are “upside down” on a car, and owe far more on it than it is worth. Forty percent of all new cars that are sold, today, are “upside down” on the day of sale. Redemption can also work if you are buying household goods, or furniture from a creditor like Best Buy, or Sears. They may have a “purchase money security interest” in these items.

    You would have to make one single lump-sum payment. The payment would normally be due within 30 to 45 days from the date of the Bankruptcy Court’s order.

    Who would lend money to you for this purpose? Well, I often recommend going to a friend, or relative to ask them if they would lend money to you for this purpose. You CAN borrow money from someone after you file bankruptcy.

    But I would like to introduce you to a commercial lender that is willing to lend money to debtors, even though they filed Chapter 7 bankruptcy. They are 722 Redemption Funding. You can find out more about them at www.722redemption.com, or by calling toll free 1(888)-278-6121.

    You see? This is why you need an attorney who regularly practices in the field of bankruptcy. We know quite a lot about this process. Call now at (309)788-3799 to schedule your FREE consultation in my office. You can also E-mail me.

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* Will I lose my Property?

 

  1. Introduction. When you file bankruptcy, all your assets become an asset of your “bankruptcy estate.” In Chapter 7, you get to pull back and keep everything that is not “exempt.” The Chapter 7 trustee could sell everything that is not exempt to give money to your creditors. In Chapter 13, you keep all of your property, but you must pay your general, unsecured creditors at least as much as the value of the non-exempt property. Remember: if the property isn’t worth much, the bankruptcy trustee does not want it. If it is over-encumbered (you owe more on something than it is worth), the trustee has no use for it. This accounts for most property people own. Joint Debtors (husband and wives who file bankruptcy together) can each claim an exemption.

    Click here for help valuing your used cars.

    Click here for help valuing your recreational vehicles, motorcycles, and boats.

  2. Iowa Exemptions.
    Each Debtor can claim the following as exempt:
    Bank account & misc. property: $100
    Cars: 1 car with $4,000 of equity
    Household goods & furnishings: $2,000 of household goods (the “used” value)
    Homestead: this is 100% exempt, but the house can be sold to pay debts incurred before the home was purchased
    Worker’s Compensation: 100%
    Accrued wages and Tax Refunds: $1,000
    Pensions: 100%, in most cases
    IRA’s: 100%, in most cases
    Social Security/Disability payments: 100%
    There may be other exemptions available.

  3. Illinois Exemptions.
    Each Debtor can claim the following as exempt:
    Homestead: $7,500 of equity
    Personal property: $2,000
    Car: $1,200 of equity
    Personal injury awards: $7,500
    Pensions: 100%
    IRA’s: 100%
    Worker’s Compensation awards: 100%
    Social Security/Disability payments: 100%
    There may be other exemptions available.

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* Am I making too much money to file?

This issue will only affect people with well-paying jobs.

The Bankruptcy Code does not set a legal limit on how much money you can make and still file bankruptcy. Everyone is different, and it would be impossible to set an exact dollar amount that would fit all debtors.

However, the Bankruptcy Code states in Section 707(b) that a Debtor can be denied a bankruptcy discharge under Chapter 7, if granting the discharge would result in a “substantial abuse” of the bankruptcy process. Under this provision, the Bankruptcy Court conducts an independent analysis of your income and matches that with your basic living expenses. If you could pay off a sizeable percentage of your debts in a three-year Chapter 13 plan, you may be denied a discharge. The rule of thumb I use is this: if you could pay 1/3 of your debts in a three-year Chapter 13, you probably should be in Chapter 13.

Even if you cannot pay a large percentage of your debts in Chapter 13, the Bankruptcy Court could still find a Chapter 7 discharge to be “substantial abuse,” if you could make a large payment in Chapter 13, say, $500-1,000 per month.

The bad news is that there are expenses that you may be taking into account such as private school tuition, pet expenses, and cigarettes that the Bankruptcy Court does not count in its analysis. The good news is that there are expenses that you are likely underestimating. In most cases, I find people underestimate basic budget items for food, clothing and recreation because they have been scraping by without these for so long.

If you must file Chapter 13, how is it different from consumer credit counseling? Well, it may not be very different and you are encouraged to consider that option before filing bankruptcy. But there are some advantages. First, bankruptcy can help you catch up on mortgage arrearages and pay for vehicles. Second, not all creditors cooperate with credit consumer counselors. Bankruptcy Court is THE LAW: creditors MUST comply! Third, Chapter 13 should stop all interest on general, unsecured debts. Credit counselors cannot always accomplish this. Remember: you do not always have to pay everyone in full in Chapter 13.

Press here to learn more about Bankruptcy Alternatives.

Press here to learn more about Chapter 13.

Please understand: no one can force you to be in Chapter 13. That would be “indentured servitude” and the U.S. Constitution prohibits slavery. But the Bankruptcy Court can deny you a discharge of your debts under Chapter 7. This matter is complicated and this is one of the main reasons why you need an experienced attorney to review your prospects for bankruptcy relief.

Please call, today, at (309)788-3799 for your FREE consultation!

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* Things NOT to do before Bankruptcy!

Hiding Assets: During our initial interview, I will ask you a number of questions about items that you own. I will also ask you about money other people may owe you (inheritances, loans you have given to other people, etc.). I need you to be 100% honest with me because when we prepare your bankruptcy papers, we must report these items to the Bankruptcy Court.

Sometimes, I have clients who I warn may face a problem with a debt, or a particular piece of property and they ask me, "But do we have to tell the Court about that?" It's an honest question. Here's the answer that I give: "The Good news is it's a federal prison, and you get to meet some interesting people, but the BAD NEWS is that it's still FIVE YEARS IN PRISON and a $500,000 FINE if you lie on your paperwork, and the worst news is that your attorney gets to go with you!"

Here's the trick: there may be lots of things that we can do to help you address particular situations before you file bankruptcy. Do NOT worry about the consequences: just tell me the truth, and let's figure out how best to proceed. If you have substantial assets that could be lost in Chapter 7, then maybe Chapter 13 is right for you.

Either way, you must list all of your assets and all of your debts in your bankruptcy petition. No one at my firm can tell you to avoid listing an asset, or a debt. If they do, you should go to another law firm. We are honest lawyers.

Paying Back Relatives: Many of my clients owe their relatives money and they try to pay them back just before they file bankruptcy so they do not have to include their relatives when they file. This is what we call a "preference." The Bankruptcy Code gives the trustee special powers to avoid these preferences. If you repay a relative a substantial sum of money within one year before you file bankruptcy, the trustee may be able to obtain a court order to go get that money from your relative. Please consult with me before making any such payments.

Transferring, or "Giving Away" Valuable Property: If you give valuable property away for little, or no money just before filing bankruptcy, this may look fraudulent to the Bankruptcy Court. You could lose your bankruptcy discharge, or face criminal prosecution. You may be able to sell some items for fair market value, but this cannot be done fraudulently. Please see me before making any move like this. Our initial consultation is free: messing up your own bankruptcy could be very expensive for you!

Paying Off Large Debts: Some clients pay off large unsecured debts to their credit union, or their favorite credit card, just before they file bankruptcy. If you repay more than $600 to a general, unsecured creditor within 90 days before you file bankruptcy, and it is not your regular monthly payment, the trustee may have the authority to go to that creditor and recover the money. In that case, you may be defeating your goals.

If you want to keep an unsecured creditor happy, you may want to simply "reaffirm" with that creditor and sign an agreement in bankruptcy in which you agree to keep making payments after you file bankruptcy.

Destroying Business Records: If you are in business, the trustee may want to review your business records to determine that there are no assets to administer. If you destroy your business records, (s)he cannot determine this. You could lose the right to your discharge and face possible prosecution for "obstructing, hindering, or delaying" the trustee. PLEASE cooperate with the trustee! He, or she holds a lot of power.

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* Repossession

Chapter 7 may delay a repossession, but Chapter 13 may allow you to catch up back payments and save your car.

If you pledge collateral as security for a loan, the creditor can repossess the items and sell them to satisfy its debt. Some creditors place a lien on the title to a car. Others take a security interest in household goods. A lien-holder on a car can repossess the car, anywhere they find it, if you fall behind on payments, or drop the insurance. They cannot “disturb the peace” to get your car. That means they are not legally allowed to pull it out of your closed garage, or take it from you by force.

Once the car is repossessed, you still might save it by filing Chapter 13, if it has not been sold. Ask me how at (309)788-3799.

Household goods can be obtained by a creditor, only by filing a Motion for Replevin with the state court. Until that happens, they are not allowed to enter into your house to obtain the items.

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* Garnishment
Chapter 7 and Chapter 13 can stop garnishments!

If a creditor obtains a judgment against you, the creditor may garnish your wages. Federal law prohibits regular creditors from garnishing more than 25% of your wages. Illinois imposes a 15% limitation. Iowa has limitations depending on how much you make and there is an annual cap on how much can be taken. Child support may garnish more money.

Some creditors call and threaten to garnish your wages. They CANNOT garnish you until they SUE you! Student loan creditors are the exception. Yes, you are SUPPOSED to get notice of a garnishment. The moment it is served on your employer, the sheriff gives a second copy to your employer to give to you. You normally have 10 days to file a “Motion to Quash” the garnishment, if you have a reason to dispute the judgment. Unfortunately, some employers do not give the notice to their employers.

“Automatic payroll deductions” are voluntary and can be cancelled by you at any time by simply informing your payroll department.

Keep in mind that your bank account may also be garnished. There is no limit to how much money can be levied on from your bank account, but a creditor is not allowed to take social security monies from there.

Please call me, if you are facing threat of garnishment at (309)788-3799.

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* Foreclosure

Chapter 13 may be able to help you save your home facing foreclosure! Call today at (309)788-3799. Once a sheriff’s sale has happened, it is too late!

A “foreclosure” is the legal action by a mortgage holder to obtain possession of a piece of real estate in order to sell it to satisfy a debt. To do this, a lawsuit must normally be filed.

Iowa: A Petition to foreclose on a home must be answered within 20 days of being served with the papers. If no Answer is filed, a default may be entered and you will lose your homestead. Please check the date of service and read all papers. The moment you get ANYTHING that says “foreclosure,” call an attorney!!

You do have the right – in Iowa – to file a “request to delay sale” in a foreclosure lawsuit. This will give you six months to a year to live in a home, rent free, even after the foreclosure order has been entered by the judge. During this time, you may redeem the house by paying off the balance, or you may file a Chapter 13 bankruptcy.

In Iowa, there is also a “non-judicial foreclosure” which must be answered within 30 days from the day it was served on you. If it is not answered, the real estate automatically goes to the mortgager. Notices of forfeiture of contracts for purchase of real estate must be acted on within 30 days, or the real estate is automatically lost, in either state. READ the papers! Know your rights.

Illinois: A Complaint for foreclosure must be answered by the date on the paperwork. Normally, that is 30 days. Please check the summons to make sure. There is also a redemption period after the foreclosure action has been entered and before sheriff’s sale.

NOTE: Until a sheriff’s sale, it is not too late to save your home in a foreclosure lawsuit by filing Chapter 13 bankruptcy, but it is important that you contact me, right away.

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* Judgment Liens

If a creditor sues you and obtains a judgment, there may be a lien on your house, or any other piece of real estate you may own. Liens on your house may be “stripped off” in bankruptcy.

Iowa: Judgments are automatically liens on all real estate in the county where the judgment is registered.

Illinois: Judgments must be “registered” at the Recorder of Deeds office to become liens on real estate.

Please be sure to tell us about any judgments entered against you. If you are unsure whether there is a judgment, be sure to tell us about all lawsuits against you, especially if the debt was never paid. Please call our offices at (309)788-3799 and let us help you to find out whether there is a judgment against your home!

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