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Chapter 20 Bankruptcy Explained

Most individuals have heard or read about Chapter 7, 11 or 13 Bankruptcy. With big cities such as Detroit filing Bankruptcy, Chapter 9 Bankruptcy (municipality restructuring) has become a more mainstream term. Chapter 12 Bankruptcy also exists, but is mainly just a form of reorganization for farmers and fishermen. Oddly enough, nowhere in the Bankruptcy code is there anything actually called Chapter 20 Bankruptcy. Although not expressly mentioned in the Bankruptcy Code, Chapter 20 Bankruptcy  is a real thing. Filing Chapter 20 Bankruptcy in Chicago Chapter 20 Bankruptcy is a colloquial term given to a situation where a debtor files Chapter 7 and Chapter 13 Bankruptcy back-to-back (7+13=20). It should be noted that Chapter 20 Bankruptcy is not a common occurrence, it’s a unique strategy that we can offer in the right circumstances, particularly for homeowners who owe more than their home is worth. Although most debts can be discharged by filing Chapter 7 Bankruptcy, some debts will remain. Some examples are domestic obligations, tax debts, student loans and mortgages on your home. The first step of Chapter 20 Bankruptcy is filing Chapter 7 Bankruptcy. When a debtor files Chapter 7 Bankruptcy, if the mortgage isn’t paid, whether it is your first or second mortgage on your home, the creditor will have the right to foreclose on your home. This foreclosure can take place immediately after the Bankruptcy is completed or if the creditor obtains special permission from the Bankruptcy court. These mortgages remain on your home notwithstanding your Chapter 7 discharge because they are secured obligations against you and the home. Someone who wants to pay the debts financing the purchase of their home in order to keep the property must act quickly if they are behind on their payments. Thus, a subsequent filing of a Chapter 13 Bankruptcy case is taken as the next step in order to reduce that loan amount to the fair market value of the property. This creates an unsecured obligation that is removed from the property with a Chapter 13 Bankruptcy discharge, this is what is known as lien stripping. An example of Lien Stripping is when a homeowner has a home mortgage principle balance of $125,000, along with a second mortgage of $25,000. The home in this example is currently valued at $100,000 in the market. Although there is not enough equity in the home to secure the second mortgage, it could possibly be stripped or removed as a secured attachment from the home in a chapter 13 case and instead become a unsecured debt. This is very important because unsecured debts can be restructured in a Chapter 13 payment plan, and are eligible to be discharged once the payment plan is complete. We often recommend this approach to individuals and families who have a tremendous amount of unsecured debt and who are behind on mortgage payments as well. The goal of Chapter 20 Bankruptcy is to discharge as much debt as possible. When Chapter 7 Bankruptcy is filed and discharge is granted, we can then establish a sustainable repayment plan through Chapter 13 Bankruptcy to help you stay afloat on the debts that survive the initial Chapter 7 Bankruptcy discharge. Schedule a Free Consultation with our Chicago and Northbrook Bankruptcy Attorneys Chapter 20 Bankruptcy is a complex strategy because it involves two separate Bankruptcy actions. With the right legal assistance, this strategy can be a viable and beneficial one.  Don’t hesitate, pick up the phone and call us at (312) 878-6976 for your free, no obligation consultation!! Read More
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Bankruptcy Court: You Can Save for Retirement in Chapter 13

In a recently issued order, Judge Pamela S. Hollis, of the Bankruptcy Court in Chicago, ruled that individuals in chapter 13 bankruptcy cases can make 401(k) contributions while making payments to creditors under a debt repayment plan. The order, which was issued on October 22, 2013, in the case In re Hall, confirms that individuals in chapter 13 cases may continue to plan for their future while addressing their current debt problems. Under chapter 13 of the Bankruptcy Code, an individual proposes a plan to repay creditors over a three- to five-year period. The individual must commit all of her “disposable income” to the plan. “Disposable income” is calculated using a formula defined by the Bankruptcy Code. The debtor in the Hall case had proposed to pay $500 per month to her creditors and $700 per month to her 401(k). The chapter 13 trustee objected to the debtor’s plan and asked the Court to decide whether a chapter 13 debtor could continue making voluntary 401(k) contributions, or whether those amounts were part of “disposable income” that had to be paid to creditors through the chapter 13 plan. Courts outside of Chicago have addressed this issue before, and the Hall order outlines the three competing rules that those other courts have developed. First is the majority rule: voluntary retirement contributions are not “disposable income,” so debtors can continue to make them during a chapter 13 plan period. Second is the opposite rule: voluntary retirement contributions are “disposable income” and must be paid to creditors while a chapter 13 plan is in effect. Third is the middle ground: a debtor may continue to make contributions she made before filing for bankruptcy, but may not increase the contribution level or begin making contributions for the first time. In adopting the majority rule—that a debtor may make voluntary contributions during a chapter 13 case, even if she has not made them before bankruptcy—the Court relied on a close analysis of the text of the Bankruptcy Code, as well as Congress’s expressed policy of encouraging debtors to save for retirement. The Court’s rule is favorable to individuals considering a chapter 13 bankruptcy filing. A bankruptcy filing does not mean choosing between relief from debts now and financial security in retirement. Instead, an individual can repay her creditors, get a bankruptcy discharge, and continue (or even begin) planning for retirement, all at the same time. It is important to note, however, that Judge Hollis is just one of 12 bankruptcy judges for the Northern District of Illinois, the judicial district encompassing Chicagoland. The judges can and often do disagree with each other, and any one of them may preside over a particular case. Another judge may decide that 401(k) contributions are “disposable income” and must be paid to creditors. Until that happens, though, the Hall order provides a basis for individuals to propose debt repayment plans that protect their retirement as well.   Read More
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Top 5 Bankruptcy Myths Debunked

Bankruptcy has many misconceived stigmas to it. Frankly, there is a lot of misinformation out there, and much of the stereotypes regarding Bankruptcy are just not true. With just over One Million people declaring Bankruptcy as of the 12 month period ending on September 30, 2013, you are not alone in this process.[i] With Bankruptcy folklore continuing to emerge, our Chicago bankruptcy attorneys want to debunk some of these popular myths for your sake. Bankruptcy does not have to be a scary process, and we hope that this article helps clear some of the misconceptions you might have read or heard. 1.  You Must Be Broke Before Filing Bankruptcy A very common misconception. You should not wait until an emergency with bank restraints or until your home is getting foreclosed on to file Bankruptcy. A good rule of measure is to look where you will be financially six months from now. If for worse, then Bankruptcy might be worth looking into. 2. Bankruptcy Will Discharge All Debts NO! There are certain debt obligations that are nearly impossible to discharge. A great example is domestic support obligations (i.e., Child Support and Alimony).  Also, as a result of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, student loans fall in a similar category as domestic support obligations. Student loans can be forgiven if you are able to prove hardship, such as a permanent disability, but even that standard is nearly impossible to meet. 3. If I File Bankruptcy, I Will Lose Everything I Own If you file Chapter 13, you actually get to hang on to all your assets as long as you remain current in your payment plan. If you file Chapter 7, most exemptions provided in the State you file will let you keep your valuable assets. Our distinguished attorneys at the Law Office of William J. Factor are more than happy to discuss how your valuable assets can be protected in Bankruptcy. 4. Only Financially Irresponsible Individuals File Bankruptcy Definitely not true! Did you know Donald Trump filed Bankruptcy? Heck, even Mark Twain, one of America’s greatest authors, filed Bankruptcy. Unexpected-life changes always happen such as job loss, divorce, serious illnesses, etc. The Bankruptcy code was enacted to protect the “unfortunate but honest debtor,” with the idea of giving a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt. Bankruptcy is meant to give you the fresh start you need! 5. I Can Only File Bankruptcy Once In My Lifetime This popular myth is also not true.  If you have received a discharge in a previous Bankruptcy proceeding, that does not preclude you from filing again in the future.  If you received your first discharge under a Chapter 7 Bankruptcy, you cannot receive a second discharge in any Chapter 7 case within eight years from the date that the first Bankruptcy was filed. If you received your first discharge under Chapter 13, you cannot receive a second discharge in any Chapter 13 case that is filed within two years form the date that the first Bankruptcy was filed. Schedule a Free Consultation at (312) 878-6976 to Speak with a Chicago Bankruptcy Attorney There are many more common misconceptions out there. Before you decide to take the leap into Bankruptcy, consult one of our distinguished Chicagoland bankruptcy attorneys at the Law Office of William J. Factor, and learn the facts about how Bankruptcy will affect you. At the Law Office of William J. Factor we pride ourselves in having the “Big Firm Expertise at Reasonable Rates.” Don’t hesitate, pick up the phone and call us at (312) 878-6976 for your free, no obligation consultation!! [i] http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2013/0913_f2.pdf   Read More
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Full Disclosure: Why It's Important to Tell Your Chicago Bankruptcy Attorney EVERYTHING When Filing Bankruptcy

The decision to file bankruptcy is a difficult one for most people, and it requires disclosure of a tremendous amount of information. The temptation can be great to hold back in some areas, just to feel like one is retaining a little bit of control. Perhaps there’s some jewelry that was just received as a gift, or an inheritance that is expected soon. Will what your lawyer doesn’t know hurt him? Maybe not–but it will very likely hurt you. Whether you are filing Chapter 7 or Chapter 13 bankruptcy, failure to accurately disclose every detail of your financial situation can come back to haunt you in a number of very serious ways. Just because you don’t tell doesn’t mean they can’t find out You may think that holding something back from your attorney means that the information is a secret. The reality is that bankruptcy trustees are skilled in looking for hidden assets, and technology has made it easier than ever. Many trustees and their staff regularly make use of social media to discover information that might not have made it onto the bankruptcy schedules. Even if you think your social media accounts are locked up tight, they’re probably not as private as you think. And you have no control over what other people’s privacy settings, and what they share about you. If you’re in a Chapter 7 case, and your best friend tags you in a picture with your new X-Box  or iPad you “forgot” to disclose, there could be trouble. If you’re in a Chapter 13, and a friend congratulates you on that new freelance gig you neglected to mention to your lawyer or the trustee, you are going to have some explaining to do. Tell the truth–or face the consequences If you fail to disclose assets, at the very least, you may be denied a discharge of certain debts. At worst, you could face jail time. Here are some of the possible consequences for failure to disclose information in a bankruptcy case: Your discharge will be denied, meaning that whatever debts you hoped to erase by filing bankruptcy will have to be paid in full. Even if you file a subsequent bankruptcy, you will not be able to discharge debt identified in a previous case where you failed to disclose assets. Your bankruptcy case may not be dismissed, meaning that even though your discharge is denied, the trustee can still collect and liquidate your assets to pay your creditors. If you’ve already received a discharge, it can be revoked. A bankruptcy discharge does not close the bankruptcy case. A discharge that has been granted can be revoked up until the case is closed, and in some cases, even after the case is closed. You could go to jail–for years. When you sign your bankruptcy schedules, it’s just like testifying to information in court: you are under oath. Misrepresenting or failing to disclose could lead to a perjury conviction, subjecting you to up to five years’ imprisonment and up to hundreds of thousands of dollars in fines. There is nothing to be gained by holding information back from your attorney. Don’t think of your lawyer as one more person trying to catch you with your hand in the cookie jar. Instead, realize that he’s trying to help you keep as many “cookies” as he legally can, so you can enjoy them without forever having to look over your shoulder. Schedule a Consultation with Our Chicago or Northbrook Bankruptcy Attorneys If you’re contemplating filing bankruptcy, contact our office today to learn how we can help you to protect as many assets as possible. Read More
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What NOT to Do Before Filing Bankruptcy

Most people who file a Chapter 7 or Chapter 13 bankruptcy have done everything they could to avoid filing, or even consulting with a bankruptcy attorney. People take pride in being to solve their own financial problems. Unfortunately, sometimes their honest attempts to do what they think is best end up jeopardizing their chance for a financial fresh start. Here are some things that you should NOT do if bankruptcy is a possibility in your near future–even if they initially seem like a good idea. Don’t spend down your retirement accounts. When there are piles of bills to be paid, the temptation to borrow from your 401(k) or other retirement accounts in an attempt to stave off bankruptcy is great. After all, it’s your money, it’s just sitting there, and you need it now. Why you shouldn’t do it: Borrowing from, or completely liquidating, your retirement accounts may not be enough to prevent an eventual bankruptcy. If you leave those funds where they are, they will very likely be exempt in a bankruptcy–meaning that when your debt is gone, you’ll still have your retirement funds. Also, if you do take money from retirement accounts, there may be stiff penalties and taxes that cannot be discharged in bankruptcy. Last but not least, those funds won’t be available when you really need them. Don’t sell or give away property to friends or family. Another temptation when the possibility of bankruptcy looms is to raise funds by selling your property, or to protect it by giving it to a family member for safekeeping. You get some much-needed cash, and your brother gets your motorcycle for a great price. It seems like a win-win. Why you shouldn’t do it: Bankruptcy trustees are highly suspicious of transfers of property to friends or family, especially if fair market value was not received for the items. The trustee might undo the transfer. Worse, you may be found to have intentionally committed fraud and have your bankruptcy discharge denied. Worst of all, criminal charges for fraud might be brought against you. Don’t repay family or friends money you owe them. You don’t have much cash on hand, and bankruptcy seems like a likely option. Shouldn’t you use what little you have to repay your mother for those few months’ rent she gave you the money for? It seems like the honorable thing to do. Why you shouldn’t do it: If you’re looking at a bankruptcy, your mom isn’t the only one to whom you owe money. The bankruptcy courts don’t permit debtors to give one creditor preferential treatment over others. The trustee has the right to reclaim preferential payments and redistribute them. Don’t run up your credit card bills. You know you shouldn’t, but you also know that once you file bankruptcy, you’re not going to be able to use your cards, and there are some things you really want. The credit card debt is going to be discharged in bankruptcy anyway; you’re just adding a little more. Is it really such a problem to do a little extra spending before you give up your cards? Why you shouldn’t do it: People who ran up credit card debt, then tried to have it discharged in bankruptcy, inspired some 2005 changes to the Bankruptcy Code. These changes, aimed at preventing such abuses, lowered the threshold for “luxury” purchases, and extended the period prior to the bankruptcy filing in which purchases are most carefully scrutinized. If the trustee finds that you ran up debt you didn’t intend to repay, he or she may not allow that debt to be discharged, and you’ll be on the hook for it. There are more “don’ts,” and many “dos,” to observe when considering bankruptcy. Don’t decide on your own. Call our Chicago bankruptcy firm for a consultation. Read More
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