Source: http://governmentattorneys.illinoisprobono.org/legal-information/bankruptcy-lawyer-manual
Timestamp: 2017-06-24 20:52:26
Document Index: 779125126

Matched Legal Cases: ['§ 727', '§525', '§366', '§1692', '§ 104', '§ 523', '§ 523', '§ 523', '§ 1328', '§ 101', '§ 366']

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Federal Rules of Bankruptcy Procedure What is bankruptcy
As a general rule, there is little reason to file for bankruptcy if the total amount of debt is small, or if all of the client’s current income and assets are considered "exempt". Since there are limits on filing a subsequent bankruptcy, the client should not “waste” a bankruptcy in a situation where the benefit of filing bankruptcy compared to other alternatives is small. Likewise, clients should not immediately file a bankruptcy if they think they are at risk of going deeper into debt in the foreseeable future. A bankruptcy may be appropriate if the client is in immediate danger of losing important property, such as a home, car or utility service. Every case is unique, and the client should consult with an attorney to determine if filing for bankruptcy is appropriate.
This option liquidates non-exempt assets to pay debts, and leaves the debtor with little or no further responsibility to repay.
Chapter 7 is available only once every eight years as a remedy, and filing Chapter 7 prevents a debtor from receiving a discharge in a Chapter 13 case for 4 years. 11 U.S.C. § 727(a)(8) and 1328(f)(1)
After approval of the plan, the debtor retains control of assets during pendency of case.
In a Chapter 13 case, consumers can keep all of their property if the plan meets the requirements of the bankruptcy law. The plan must provide for secured debts, but in most cases the repayment terms can be modified.
735 ILCS 5/12–901 is the Illinois Homestead Exemption statute. It provides the owner/occupier of a home, which includes condominiums and mobile homes, with a $15,000 exemption. If there are two or more owners, an additional $15,000 exemption is allowed. If your client owns a $250,000 house with a $245,000 mortgage, he cannot lose it to his creditors or a bankruptcy trusteem as long as he is current in his mortgage payments. However, the $35,000 used mobile home which the client just finished paying off may be taken either by creditors, or by the trustee. Upon the sale of the property, the client would be awarded his homestead exemption, $15,000, and the balance of the proceeds would be used to pay the creditors.
Illinois also recognizes a tenancy by the entirety ownership in property that is the debtor’s principal residence. A property that is owned in a tenancy by the entirety is property that is jointly owned by a married couple or the parties to a civil union as a marital entity and is not owned separately by each individual. If a couple has a tenancy by the entirety ownership in their home or real estate, then that property will be exempt as long as there are not any debts that are jointly owed.
735 ILCS 5/12–1001 deals with personal property exemptions, other than retirement accounts. This statute is extremely important to your client, because it lists what cannot be lost to a creditor. The personal property enumerated here is what the Illinois legislature has determined to be the minimum everyone has a right to retain, no matter what they owe or whom they owe it to. The most common and important exemptions are as follows:
Personal property including family pictures, schoolbooks, health aids, and necessary wearing apparel;
A "wild card exemption" of $4,000 worth of any other property, not including wages that have been garnished. This is called the "wild card exemption" because the debtor has the right to choose the exempt property. It could be a bank account, a tax refund, household furniture and furnishings, jewelry, furs, collections, or anything or any combination of things as long as the total value does not exceed $4,000;
A motor vehicle exemption of $2,400 is included. If your client owns a car worth $40,000 but owes $39,000 on it, it cannot be taken. However, a $6,000 car which the client owns free and clear is at risk, at least theoretically. Note also that the $4000 "wild card" exemption can be "stacked" on top of the $2,400 motor vehicle exemption to create a $6,400 equity exemption of a motor vehicle; Tools of the trade of the debtor which do not exceed $1,500. These are items that a person uses to make a living;
Life insurance proceeds payable to a wife or husband or to a child, parent, or other person dependent upon the deceased;
All of these exemptions also apply to what a trustee may take from the debtor’s estate in a bankruptcy. In reality, however, if the trustee finds the debtor’s assets to just slightly exceed his statutory exemptions, it is probably not worth the trustee's time and expense to pursue them. Of course, what "just slightly" means depends on the case and the trustee. While we try to make sure that everything a client owns fits into one of the exempt categories when we file a bankruptcy, a client with as much as a few thousand dollars in non-exempt personal property, furniture and furnishings for example, may well be able to keep everything he owns.
If, after reviewing the foregoing information, it appears that the client has no assets that can be lost, it is difficult to see how a bankruptcy would improve the client’s condition. While the filing of a Chapter 7 stops creditors from taking the assets of the debtor, a collection-proof debtor has, unfortunately, already attained that level of protection. Still, there are limited instances when it is not unreasonable for even a collection-proof client to seek a bankruptcy. For example:
He is willing to deposit an amount equal to the damages claimed by the other driver with the Secretary of State’s office to insure payment if the other driver sues and obtains a judgment; and
The client who needs his license for work, as a delivery person, for example, or to transport a chronically ill child to and from the doctor, may need to file a bankruptcy even though he is collection proof. As long as the debt is dischargeable, the driver’s license must be reinstated after the case has been filed. 11 U.S.C. §525(a); Perez v. Campbell, 402 US 637 (1971). The debtor can be required to provide that he has insurance to cover future liability. Restoring utility service. A client whose gas or electricity has been turned off may not be able to restore service in any way other than through bankruptcy. 11 U.S.C. §366. This is one instance where the time of year may have a direct impact on legal proceedings. Late fall, the cold weather motivates some people to seek bankruptcy. While this may be a reason to file a bankruptcy for an otherwise collection-proof client, you should investigate two possible complications:
Once service is restored, does the client have the resources to pay for the current service? If not, a bankruptcy will be a very short lived solution. The utility will terminate service again and the client will have lost the right to file bankruptcy for another eight years; and
If the client’s bill is as a result of "tapping," (the illegal usage of the service provided by the utility) the creditor utility may file a lawsuit within the debtor’s bankruptcy – called an adversary complaint – objecting to the dischargeability of this debt. This complaint seeks a judgment that finds the debt to be non-dischargeable. The bankruptcy then proceeds to conclusion, but the debt to the utility is not wiped out. Again the client would lose the right to file a Chapter 7 for another eight years.
Health of the debtor. In certain instances, a collection-proof debtor may be under so much pressure from creditors that there is a chance that they will suffer real physical or mental illness as a consequence. If the debt collection efforts are covered by the Fair Debt Collection Practices Act, 15 U.S.C. §1692 et seq., the debtor can tell the debt collector to stop contacting her. Bankruptcy interview checklist
Chapter 13 is available to an individual, no partnerships or corporations, with regular income who owes less than $360,475 in unsecured debts and less than $1,081,400 in secured debts. These dollar amounts are adjusted every three years. 11 U.S.C. § 104
It is most important to look at the client’s debts and be aware of the red flags which may signal problems with dischargeability. The following are some typical debts that you will encounter and problems that each may present:
Theft, embezzlement, or defalcation while acting in a fiduciary capacity A debt for willful and malicious injury by the debtor to another entity or the property of another entity 11 U.S.C. § 523(a)(2), (4), and (6) Student loans are nondischargeable unless the debtor obtains a ruling from the bankruptcy court that the debt should be discharged because it causes an undue hardship for the debtor and the debtor’s dependents. The other exceptions to discharge are self-enforcing.
Credit cards: It is very important to find out when the client last used the card. Clients should be advised to stop using their credit cards immediately. If the debtor has made charges for luxury goods or services totaling more than $600 in the 90 days before bankruptcy is filed, those charges are presumed to be nondischargeable. Cash advances aggregating more than $875 obtained within 70 days of the filing of a bankruptcy are presumed to be non-dischargeable. 11 USC 523(a)(2)(C). Regardless of the amount or timing, charges made by a debtor before bankruptcy with no intention to repay can be challenged by a credit card company by way of an adversary complaint;
Student loans: Student loans are not dischargeable, unless the debtor can show that payment of the loan will impose an undue hardship on the debtor and their dependents. 11 U.S.C. § 523(a)(8); Taxes: A personal income tax debt can be discharged in a bankruptcy. However, to be dischargeable, the debt must fall within these strict guidelines:
Domestic Support Obligations: Any domestic support obligation in the nature of alimony, maintenance, or support of a spouse, former spouse, child of the debtor, or parent of the debtor’s child cannot be discharged in any kind of bankruptcy. 11 U.S.C. § 523(a)(5); 11 U.S.C. § 1328(a)(2). The definition of a domestic support obligation can be found at 11 U.S.C. § 101(14A);
Debts due to the Department of Public Aid, Unemployment Compensation and other public benefit agencies: The question here is, how was the debt incurred? If the debt was the result of an error by the agency involved, the obligation can be extinguished by a bankruptcy.
For example, the debtor was a recipient of Public Aid for several years. Each time the debtor was employed he would submit copies of his paystubs to his case worker and would receive a monetary supplement based on his pay. At some point his case worker mistakenly computed his supplementary benefit incorrectly with the result that the debtor received several hundred dollars of excess benefits. The debtor was eventually notified of the error on the part of the Department and the amount of overpayment. If the debtor goes into bankruptcy, this debt will be discharged. If, however, the debt was incurred as result of provable fraud on the part of the debtor (i.e., failure to report employment income) while receiving Public Aid, the Department may file an adversary proceeding and prevent discharge of the debt.
Bad checks: Bad checks may be dischargeable. Much depends on the circumstances. Did the debtor know that there were no funds to cover the check when it was written, or did the debtor think there was money in the account, or there would be money in the account by the time the check would be presented? Is there a pattern of bad checks over a period of time or is there a single event, "My boyfriend always deposited his pay into my account on Friday so I thought I had the money", which may have resulted in a number of bouncing drafts? The client should be advised that a bad check debt will be discharged in a bankruptcy unless the creditor files a successful adversary complaint; and
Utility bills: Utility bills are dischargeable. 11 USC § 366 of the Bankruptcy Code prohibits a utility from refusing, discontinuing service to, or discriminating against a debtor simply because they have filed a bankruptcy. However, the debtor must, within the 20 days of the filing of the bankruptcy, provide the utility with "adequate assurance of payment" for future service.
Note: As discussed previously, it is important to find out from your client how the utility bills were incurred, especially very large bills in the thousands of dollars. While these debts can be discharged, a utility bill incurred through fraud or theft can be found to be non-dischargeable. For example, Commonwealth Edison disconnects service to the home of a client who has failed to pay his bill for several months. The client, at this point, could file a bankruptcy and discharge the debt. Instead, the client illegally hooks his service up again. ComEd finds the illegal tap, again disconnects service, and sends the client an estimated bill for the months of unauthorized usage. The client should be advised that the utility may now file an adversary complaint to determine the dischargeability of the debt if a bankruptcy is filed. Only the service obtained after the illegal self-restoration is nondischargeable. If the utility chooses not to file an adversary complaint the debt will be discharged.
Secured debts: Clients who seek to file a bankruptcy in order to avoid paying secured creditors while retaining the secured items should be advised that a secured creditor has the right to expect payment or a return of the security, whether or not the debtor goes into a bankruptcy. Therefore, if the purpose of the bankruptcy is to wipe out the car loan or the mortgage, this will only be accomplished in conjunction with the return of the car or the house to the creditor. Sometimes, the creditor will offer to reduce a secured debt, typically on furniture or home appliances, if the debtor will agree to reaffirm on this lower figure;
Medical bills: These are always unsecured. However, finding out the reason for these bills may be very important. A client who went to the emergency room because of a broken arm or had successful surgery some time ago is in a much different position than the client who suffers from a chronic condition or a life threatening illness. The first individual should have no qualms about proceeding with a bankruptcy. Time should be taken with the second person to make sure that the client understands that:
A bankruptcy can only discharge debts which have been incurred as of the date of the filing of the petition. This means that if a new medical bill is incurred the day after the bankruptcy is filed, it cannot be included in that bankruptcy; and
A second Chapter 7 bankruptcy cannot be filed within 8 years of the first. If the purpose of the bankruptcy is to wipe out medical bills, but the individual suffers from a chronic condition which can result in hospitalization at any time and the client does not have medical insurance, the client should be advised of the drawbacks of bankruptcy to make sure she is making a fully informed decision.
The filing fee for a Chapter 11 is $1717; and Filing fees for a Chapter 7 case can be waived for debtors earning below 150 percent of the federal poverty level.
After filing for bankruptcy, the debtor must send their pay stubs for the 60 days preceding the filing of the bankruptcy case to the trustee for his case. In a Chapter 7 case the debtor must also provide the trustee with the most recently filed tax return. In a Chapter 13 case the debtor must provide tax returns for the 4 years before the case was filed. If the debtor has not received any pay stubs or pay advices, the debtor can submit an affidavit or declaration to that effect.
Landlords seeking eviction Secured creditors seeking to foreclose on a mortgage or to repossess personal property
Satisfy the "liquidation test" i.e., the present value of proposed payments to each unsecured creditor must be at least equal to what that creditor would have received in a Chapter 7 liquidation
Provide for payment in full of certain priority claims e.g., domestic support obligations and nondischargeable income taxes
If unsecured creditor(s) or the trustee object to the plan, it cannot be confirmed unless it meets an additional test. Under the additional test, the plan must either:
Use all of debtor’s excess income to repay creditors over either a three-year period, if the debtor’s “current monthly income” as determined by the means test is under the state median income, or over a five year period.
Discharge of remaining debts is granted after all plan payments have been made. All debts within the plan are discharged except:
Debts resulting from drunk driving or willful or malicious injury that caused personal injury or death A "hardship discharge" may be granted despite debtor’s failure to complete the plan, if:
Chapter 13 to 7 The debtor may convert at any time. This is done by a notice of conversion. A creditor may also request a 13 to 7 conversion, but if the creditor requests conversion, there is no conversion unless it is approved by court after notice and a hearing. The debtor has the right to dismiss a Chapter 13 case, and may prefer to have the case dismissed instead of converted. If a case is converted from Chapter 13 to Chapter 7, debts incurred after the Chapter 13 case was filed and before conversion are eligible to be discharged, if they are dischargeable in a Chapter 7 case. Conversion does not affect eligibility for discharge. If the debtor was not eligible for a Chapter 7 discharge when the case was filed under Chapter 13 she will not be eligible for a discharge after the case is converted, even if the conversion occurred more than 8 years after the prior Chapter 7 bankruptcy was filed. This is an example of a situation where dismissal would be preferable to conversion.
Occasionally, if complications arise, or if the debtor chooses to dispute a debt, the consumer may have to appear before a judge at a hearing. If the debtor needs to go to court, the debtor will receive notice of the court date and time from the court or from the attorney. Things to know about bankruptcy
Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. The consumer can keep exempt property and anything obtained after the bankruptcy is filed. However, if the consumer receives an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to creditors if the property or money is not exempt.
Although it may be possible for some people to file a bankruptcy case without an attorney, it is not a step to be taken lightly. The process is difficult and consumers may lose property or other rights if they do not know the law. It takes patience and careful preparation. Chapter 7, straight bankruptcy, cases are easier. Very few people have been able to successfully file Chapter 13, debt adjustment, cases on their own.
Within 180 days prior to filing a Chapter 7 or 13 bankruptcy, the debtor must receive a briefing from a nonprofit budget and credit counseling agency that has been approved by the United States trustee or bankruptcy administrator. This can be done the same day that the case is filed, as long as it is completed before the case is filed. Agencies must waive the fee for debtors who are unable to afford the fee. If an agency refuses to waive the fee and the debtor is very low income, the debtor should shop around. There are many approved agencies. The briefing can be done by phone or by internet, and can be done quickly, so the courts almost never waive the credit counseling requirement. After the case is filed debtors must also complete an instructional course on personal financial management in order to get a discharge.