Thursday, March 29, 2007

Save some money!

As a bankruptcy attorney in Chicago, I see many different people come through my office. It amazes me on the amount of money people spend on a day to day basis. Routinely people put down that they spend $500 a month on food, then make a point of putting down $300 'dining out' in addition!! My God! If people learn how to cook, they would save $300-500 a month. While I know that people like to go out with family and friends, but when did dining out turn from a 'special treat' to a 'necessity' ?

Same thing goes with gas and transportation expenses. It seems like some of my clients must drive around the neighborhood every day just to keep the car warm! If people realize what they are really spending on a day to day basis, I bet they would start making some changes to their lifestyles!

Thanks for listening.
Terrance Leeders
Chicago Bankruptcy Attorney

Tuesday, March 27, 2007

Must I list all of my debts in bankruptcy?

Recently, I received an email asking about filing a chapter 7 bankruptcy The writer asks:

"Do I choose which debts I want to include in my bankruptcy or does the trustee do this? I have a bank loan for my truck which I pay on time and I want to keep my truck and keep making payments. Do I have to include this loan in my paperwork for a bankruptcy? What happens if I don't include it?"

Answer: All debts must be listed in the bankruptcy petition. You can select to 'reaffirm' certain debts. Most chapter 7 consumers reaffirm financed items -cars, houses, jewelry, furniture and electronics. You can usually keep the asset by agreeing to keep paying for it. Now, your budget has to show that you can afford the payments, otherwise the judge could request that you prove how you can afford the payments if your budget shows you cannot.

Similarly, you must list all debts in a bankruptcy case, technically even small personal debts, such as the $10 you owe your Aunt Sue should be listed too! Otherwise, it would be bankruptcy fraud if you intentionally omit a creditor from a bankruptcy petition.

Amendments: if you find out that you inadvertently left a debt out of your bankruptcy filing, perhaps an old medical bill from 4 years ago, don't fret. You can always amend to include that bill in your case. If you do not, it will not be discharged under the bankruptcy code under BAPCPA. The court charges a nominal fee to amend to add another debt if you case is still open.

Wednesday, March 21, 2007

Can a spouse file an individual bankruptcy?

I received an email today from a prospective client asking if a spouse could file bankruptcy without her spouse. Excellent question.

Although both spouses are not required to file bankruptcy jointly, the Bankruptcy Code does require both spouses income to be included in the means test analysis for CMI - current monthly income. However, most people 'pass' the means test analysis and can file for Chapter 7 bankruptcy protection. See previous posts for the median income level in Illinois. As for any joint debts between spouses, or family medical debts, the non-filing spouse may still be responsible.

This prospective client also owned real estate joint with her spouse.
As for the home, it would depend on the value of the home, and the balance owed on the mortgage. Each party can exempt $15,000 of equity in Illinois, so unless it has a large amount of equity, then it shouldn't be effected in a Chapter 7.

Now, if their combined income is too high for chapter 7 or if their home has too much equity, a chapter 13 bankruptcy can help, where she could pay back her bills, sometimes as low as 10 cents on the dollar for unsecured debts, depending on her budget.

Since each case is unique, I encourage consumers to seek an attorney to get a free consultation where the lawyer can examine the case in more detail and provide more specific answers.

Tuesday, March 20, 2007

Substantial Abuse, Bankruptcy Planning & Chapter 7 bankruptcy

What does one have to do, or in this case from Wisconsin, NOT DO, to create substantial abuse ?

RECENT CASES: Feb. 6. 2007

Chapter 7 Debtor who fails to aggressively seek out work before the case is subject to dismissal based on the totality of the circumstances. 'Substantial abuse' is now just 'abuse.'

The court noted: " ... this Court concludes that a debtor who lacks the ability to pay because she has not engaged in a broad employment search, does not wish to work outside her chosen field, does not wish to work within her chosen field outside of southeastern Wisconsin, and takes this position at the expense of her creditors, abuses the provisions of Chapter 7 ..."

The court held, "The court concludes that it must look at the debtor's ability to pay her creditors at the time of the hearing on the motion to dismiss." " . . . it must delve further and find out why the debtor does not have the ability to pay. Finally, the Court concludes that if the debtor's inability to pay creditors is self-imposed, it may consider this fact ... in terms of the totality of the circumstances ..."

In re Richie, 353 B.R. 569 (Bankruptcy.E.D.Wis. 2006)

Therefore, as practitioners, this case is disturbing, as it takes out the element of bankruptcy case planning. What should a bankruptcy attorney advise their client? If a debtor's attorney advises the debtor to stop working, so that the debtor's income would allow them to pass the means test, it sounds like that would open the attorney up to malpractice, as it could get the chapter 7 case dismissed. Very interesting. Therefore, everything you advise a debtor must be very well thought out and planned, knowing that there are these type of pitfalls for the unwary practitioner!

Monday, March 19, 2007

Surrender Vehicle in Chapter 13 - Creditor allowed an unsecured deficiency balance

Northern District of Illinois - Eastern Division Chicago Bankruptcy Judge Squires recently ruled in the chapter 13 case of Linda J. Blanco, 06B 13223, where debtor tried to surrender a vehicle in full satisfaction of the claim owed. Judge Squires

The Court held that "the Debtor may not surrender the collateral in full satisfaction of the debt to the Creditor. The Creditor is entitled to seek its available state law remedies, including its right to an unsecured deficiency claim after liquidation of its collateral."

Judge Squires follows the minority argument in other jurisdictions, but it is also supported by fellow Chicago Bankruptcy Judge Schmetterer. This argument states that that when the collateral is surrendered, "the bankruptcy estate no longer has an interest in the collateral for purposes of § 506." Wherefore, the “hanging paragraph” does not preclude the creditor from claiming an allowed unsecured deficiency claim under § 502.

Judge Squires continued:
"Judge Schmetterer in the Morales case followed Judge Shefferly’s logic in Particka, and he aptly explained the interplay between § 506(a) and § 1325(a)(5)(C):

if a debtor surrenders the vehicle, the interests of parties in the collateral and the impact of § 506 changes. Section 506(a) applies only to “an allowed claim of a creditor secured by a lien on property in which the estate has an interest. . . .” 11 U.S.C. § 506(a). If a confirmed Chapter 13 plan provides for surrender of a vehicle under § 1325(a)(5)(C), the estate no longer has an interest in the vehicle. . . . When . . . . the debtor surrenders the vehicle and the estate no longer has an interest in the property that secures a claim, there is no reason to use the valuation process provided in § 506 to determine the amount of the allowed secured claim. Rather, once the vehicle is surrendered to the creditor pursuant to § 1325(a)(5)(C), the value of the creditor’s secured claim is determined under state law, Illinois U.C.C., 810 ILCS 5/9-610-624. "

Wednesday, March 07, 2007

Giveaway of the Day

Although this is a bankruptcy forum, my clients and visitors can all use a 'freebie' now and then. We'll, I have been using this site for a while now...and they offer some cool things! Check it out!

Giveaway of the Day