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Category: Debt Settlement

Common Bankruptcy Misconceptions

Posted by Ryan Blay on April 17th, 2013 in Bankruptcy, Bankruptcy Information, Bankruptcy procedures, Chapter 13, Chapter 7, Debt Settlement, Exemptions, Illinois, Wisconsin

As an attorney who’s been practicing in consumer bankruptcy for five years now (in Illinois and Wisconsin), it’s heartbreaking and frustrating to see the huge amount of lies and misinformation about bankruptcy.

Some of these mistakes come from gossip or bad experiences in bankruptcy (including lying, bad attorneys, or other frustrations). Others come from rumors spread by the financial services industry to try to keep people out of bankruptcy (even though lenders can write off the uncollectable debt and take a tax break for it).  Even worse are errors from hacks – er, attorneys/writers – who blatantly skew statistics and facts about bankruptcy filings for their own purposes.  We can assure you that while nothing is ever certain with the law, the overwhelming majority of bankruptcies are successful, peaceful, and bring financial relief to our clients.

Here are some common statements about bankruptcy and the truth.

Statement 1:  Why not just settle debt? It’ll be better for your credit report and you won’t have to pay a lawyer to settle debts for 40-50 cents on the dollar.

Answer:  If your sole major debt is a $4,000 credit card and you can afford to pay a lump sum of $2,000, a credit card company may take it and waive the rest.  To do so, you’ll have to show you have a serious hardship (not just because you don’t feel like paying) and submit financial records to prove it.  You’ll also have to come up with a lump sum or a few significant payments, not a long term payment plan.  Unless you’re insolvent, you’ll have to pay tax on the forgiven debt.  But in the situation above, that’s fine because bankruptcy’s costs for a lawyer and the filing fees would make a bankruptcy unnecessary.  Where bankruptcy absolutely becomes necessary is if you are in the same financial situation but have $50,000 worth of credit card debt and medical bills.
Even if you get every card or hospital to settle for 10 cents on the dollar (an unrealistic goal for most clients), and even if you can avoid the tax on the 1099 for the forgiven debt, that’s still at least 2-3 times what you’d pay for a bankruptcy to discharge the debt altogether.  With so much debt, settlement is not only unrealistic, but it costs significantly more than a bankruptcy filing.  For an attorney not to disclose that is tantamount to malpractice.

2.  You cannot discharge student loans in bankruptcy.
Answer:  This is another major misstatement, largely perpetrated by student loan lenders.  In order to discharge student loans, there is a very high standard (possibly relaxed by a recent decision in the 7th Circuit Court of Appeals for Illinois/Indiana/Wisconsin) where you have to demonstrate a good faith attempt to make payments and a serious reason why it’s impossible to pay anything back.  Essentially the situation is for people who are unable to earn a significant income, will likely never have the means to do so, leaving the possibility of repayment fruitless.  That’s a high standard for sure, but it’s by no means impossible.  (Think a 60 year old disabled person with only $700 per month in social security/disability coming in, with expenses of $1000 per month and $60,000 of outstanding student loans).  With or without an attorney, people have successfully discharged significant private and government-backed student loan debt.

3.  I want to file bankruptcy, but if I do, I’ll lose my (car, boat, beagles, RV, bank account, retirement accounts, etc.)

This aggravates me this most because it assumes that the point of bankruptcy is to take everything from the debtor.  The exact opposite is true:  an honest but unfortunate debtor gets a fresh start (in Chapter 7, or a repayment plan in Chapter 13) in exchange for listing, valuing and exempting assets.  Every state has a scheme of exemptions (with some, like Wisconsin, allowing federal exemptions, while others, like Illinois, do not).  The easiest way to find out what you can maintain:  Talk to a competent bankruptcy lawyer.  Call us at Lakelaw or e-mail us. Even if we don’t practice in your jurisdiction, we can refer you to a qualified consumer attorney in another area.  You’ll be surprised, but typically 90% of Chapter 7 cases or so are no-asset  7 cases where the filing debtor turns over nothing.

The moral of this story:  Speak with an attorney and learn the truth before believing what people write and say to scare people away from bankruptcy.  It may not be for everyone, but for most debtors, it’s a huge relief and worthwhile decision.


When is an auto loan too old to be collected?

Posted by David Leibowitz on January 30th, 2013 in Debt Settlement

There is a time limit for auto loan debts on when they can no longer be legally collected.

Debt collectors and lenders cannot sue a borrower once the financing in question has been statute-barred. A statute of limitations is the deadline for filing a lawsuit.

But it can be difficult for borrowers to rid themselves of the burden. The time it takes for a debt to become statute-barred depends on the type of debt and the state in which it originated.

Gail Cunningham, vice president of membership and public relations for the National Foundation for Credit Counseling, said that due to the varying statue regulations “making a blanket answer [is] difficult.”

Cunningham said people often get this confused with how long a collection can show on the report, which is not the same, although just as difficult to figure out.

The time for statute-barred debts is measured from when the last payment was made towards a debt, when a debt was acknowledged in writing, or when a lender contacted the borrower and/or took action about the debt.

In the case of an auto loan, most lenders will try to collect the payments owed, repossess the vehicle, or turn the case over to a debt collection agency.

David Leibowitz, founder and managing member of Illinois-based law firm, Lakelaw, said time-barred debt is often referred to as zombie debt because “it somehow springs back to life.”

Leibowitz said statutes of limitations are affirmative defenses.

“If the defendant does not raise them, then the defense is waived,” he said.

The statute of limitations for credit cards is usually shorter than limitations for other versions of debt such as auto loans.

Leibowitz said debt on a written contract, in Illinois, has a 10-year statute of limitation. Auto loans fall under this category. In the same state, general claims last five years and credit card debts last for four years.

Not all states are as extreme though. For example, in both Texas and California, written contracts on auto loans have a four year limitation.

But there is a loophole that creditors take to renew their time to collect the debts.

“Once a debtor pays even a small payment on an otherwise time barred debt, then the statute of limitation is revived and starts all over again,” he said. “Debt collectors often try to ‘refresh’ stale debt by getting a consumer to pay even a small payment on it.”

In addition to statute of limitations, Leibowitz warns of auto loan collection deficiency rules.

When auto loans are not paid on time, lenders auction the car off to try to reclaim their lost profit. What is received at auction is deducted from what is still owed on the auto loan. This becomes the deficiency balance. These balances are often sold to debt buyers, then collectors, which can be later used in a judgment against a borrower.

Deficiency balances are yet another area of debt that needs to be considered when auto loan payments are not met, further complicating the auto lending industry.

“Because cars are so pervasive to our society, most states have statutes for cars,” Leibowitz said.

Since each state varies, it is best for borrowers to check a state’s government website for up-to-date limitations.

If that poses a difficulty, it is best to seek legal counsel to navigate the complicated rules. Leibowitz said that statute of limitations, state-by-state, are available but that consumers should get specific details from a local lawyer due to the potential for differing claims.

“A retail installment sale contract for automobiles may have a different statute of limitation since it is governed typically by the automobile or motor vehicle code in each state — and each state is different,” he said. “This is not an area of uniform law.”

This article was provided by

A Follow-Up on Legal Helpers Debt Resolution – More Problems For the Company?

Posted by Ryan Blay on July 11th, 2012 in Debt Settlement, Illinois

Every state has a regulatory body that oversees regulation and registration for lawyers.  For Illinois, that body is the Illinois Attorney Registration and Disciplinary Commission, or ARDC.  In June, the ARDC filed a complaint against the principal attorneys, Thomas Macey and Jeffrey Aleman. The complaint alleges that the attorneys breached a fiduciary duty, failed to consult with clients, assisted non-lawyers in the practice of law, and commited other acts that breached Illinois professional duties.

At least 36 individuals paid them anywhere from $150 to  $2258 to assist with debt resolution.  Guess what?  They weren’t happy with the results.

There are other solutions out there to resolve debts in an appropriate way, in Illinois and elsewhere.  For an ethical consultation with our Illinois attorneys about debts and options in addressing them, please contact Lakelaw at (847) 249-9100.

Can I go to Jail for Not Paying a Debt?

Posted by Ryan Blay on April 16th, 2012 in Consumer Law, Debt Settlement, Illinois, Legal, Wisconsin

Debtors' Prison


Yes…well, sort of.  But you should never go to jail for a debt.

When you don’t pay a debt for too long, it goes into “default”. In almost all contracts, once a default happens, the creditor has certain rights to collect on the debt. One of these options is going to court and getting a judgment for the amount of the debt plus attorney’s fees and costs.

That part is simple.  You aren’t going to debtor’s prison for failing to pay your credit card bill.  The United States eliminated those a long long time ago.  Unless you intentionally took out a large sum of money and knew you couldn’t pay it, or lied to get it, you aren’t going to be charged with a crime like fraud simply because you tried your best and couldn’t pay.

But after getting a judgment, a creditor has the right to try a wage garnishment or take some unprotected property to pay the judgment down.  Which assets?  How much?  Well, that depends on where you work, where you live, and what you own.  These are questions the creditor has the right to insist you answer in writing.  This form is usually called a Financial Disclosure Form or Citation to Discover Assets.

If you ignore the writing, or if your writing is confusing, or you don’t back it up with paystubs, bank statements, tax documents, and so forth, you might get a letter in the mail informing you of a “supplemental examination” in front of a “court commissioner”.  When the creditor uses the power of the court to insist you appear, you must show up – it’s a big deal.  And if you can’t make it for any reason, call the creditor’s lawyer and the court commissioner.  The court doesn’t care much about the debt but it cares a lot about you not showing up, even if you don’t have money to pay the debt.

This problem is easy to avoid. When you are called to court Just Show Up! You can explain to the creditor why you can’t pay the debt. Maybe you have only social security or unemployment income.  It may seem like a waste of your time to go to a commissioner’s office for 10 to 15 minutes, but it’s not.  By failng to show up, the court can hold you “in contempt” and fine or even jail you for insulting the court and ignoring their rules.

If you have any questions about the possibility of going to jail for a debt, or any other questions related to your financial life give the professionals at Lakelaw a call. We take pride in our work and strive to always treat clients with Care, Kindness, Courtesy, Respect, Professionalism and Dedication.

This post was co-authored by Lakelaw Associate Nicholas D. Strom


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