Today I heard about a couple’s predicament:  They just had their second child.  Mom is staying home.  So the couple went from a two-income household to a one income household.  However, they did not go from a two-mortgage home to a one-mortgage home at the same time! As a result of the blessed event, they also faced big credit card and medical debts.  What to do?

Well, they could file a chapter 7 bankruptcy – if they qualify through the means test.  Their previous six-months income was still high, but that would change within a short period of time.  They could also try to defeat the presumption they are abusing the system by showing the permanent change in their income since Mom is staying home with the kids.

This would eliminate a lot of debt, but not the debt that’s giving them the most headaches:  Their second mortgage.  It’s a high interest home equity loan.  And the house is worth even less than the first mortgage. So we discussed Chapter 13 as an option.

Despite the huge influence banks have over Congress, the bankruptcy laws still allow a couple to eliminate the second mortgage in the Chapter 13 if the house is worth even less than the first mortgage.  This is fantastic news for our couple because they can stop paying their second mortgage, and pay their chapter 13 Plan instead.  That plan will mean that those creditors will be old news in 5 years, and so will that pesky second mortgage.    It may seem counterintuitive – paying more money saves you more money?  But sometimes that’s just the way it works out. 

For financial relief in Kenosha, Racine, Walworth or Milwaukee, call Lakelaw today at 262.694.7300 and ask for Attorney Ryan Blay or David Leibowitz. 

This post was written by Ryan Blay, Supervising Attorney in Lakelaw’s Kenosha office.

Share/Save

Lakelaw represents people in Wisconsin in Consumer Bankruptcy Cases and in defending against mortgage foreclosures.  Our office is in Kenosha.  However, we can help you just about anywhere in the State.  In Wisconsin, lawyers frequently appear in court by telephone and remote access.  We find it saves us a lot of time driving around the state.  We think that if this is good enough for us in working with the courts, it’s good enough for you in working with us.  If you would like to work with an outstanding, Board Certified, bankruptcy lawyer, recognized throughout
Wisconsin for expertise in mortgage foreclosures, Lakelaw is the place for you – from Eau Claire to Kenosha and from Monroe to Green Bay.  If you are reading this blog, you have demonstrated that you are techologically advanced.  We use technology to project our practice throughout the state.  Call 1 – 866- LAKELAW (525 – 5359) for bankruptcy and mortgage foreclosure help now.

Share/Save

Have you lost a lot of money in your business or investments?  Have you run up a lot of debts on your credit cards trying to keep your business afloat?  Then your debts might be “business debt” and not “consumer debt”.  If your debt is not “predominantly consumer debt”, then the means test doesn’t apply to you. This means that you might be making more than the median family income and still not be presumed to be abusing the bankruptcy system by filing a chapter 7 case.  That might be good news for you.  You might be able to avoid being an indentured servant for 5 years in chapter 13.

How do you know whether or not your debt is “predominantly consumer debt”?  The term “predominantly” is not defined.  The Supreme Court says to read the Code in accordance with plain language.  I take this to mean use words the way people use them in ordinary language.  Predominant to me means more than anything else.  Not necessarily a lot more but certainly more.  Look it up in the dictionary.  So if the majority of your debt is not consumer debt, the means test probably will not apply to you.  I’d see if you pass the means test anyway.  Often you will.  And if there are two ways to get to “GO”, then I would certainly suggest that you take both of them.

Share/Save

Clients often ask “Will my bankruptcy be go through?”  It’s a reasonable question.  The answer to this question could mean a lot of things.  Some people are wonder if they can file a case under chapter 7 or if they have to file a case under chapter 13.  We’ve written a lot about this before.

Often, people are really asking whether they will get a discharge in bankruptcy.  The general idea of bankruptcy is that an honest person gets a fresh start.  You can lose the chance to get a discharge in bankruptcy if you do something which the Bankruptcy Code considers bad.  You can also lose your discharge in bankruptcy if you don’t pay attention to details.

A discharge  is the most important benefit of filing a bankruptcy case.  A discharge wipes out most, if not all, of a debtor’s debts.  It also provides an injunction against creditors seeking to collect on those debts in the future.

Here are some of the things people do which result in loss of their discharge in bankruptcy:

• transfer, remove, destroy, mutilate, destroy or conceal property within a year prior to the bankruptcy or during the course of the bankruptcy case with intent to hinder, delay, or defraud 
• conceal, destroy, mutilatie, falsify or fail to keep books and records concerning business or financial affairs without justification
• lie on papers, make a false claim, give a bribe, or withhold property, books or records from the trustee 
• fail to explain loss of assets
• fail to obey an order of court in a bankruptcy case
• do any of the above things within a year prior to the bankruptcy case or in the bankruptcy case of a close family member or other insider
• obtain a chapter 7 discharge within the past 8 years or a chapter 13 discharge within the past 4 years.
• fail to take a financial management course within the prescribed period

Not only that, but a person’s discharge can be revoked under some circumstances if:

• it is obtained by fraud; or
• debtor obtains property which should be administered in bankruptcy but fails to disclose it; or
• debtor fails to cooperate in a government ordered audit of his case

If you file a bankruptcy case, you must be honest and act properly.  If you don’t, you could lose your discharge. Worse, you could be fined and even imprisoned in a criminal prosecution.

So remember, an honest debtor gets a fresh start.  A dishonest debtor loses his discharge and faces criminal prosecution.

Share/Save

If you are buying something on credit, like a car or a house, this is called a secured debt.  In bankruptcy, you need to make choices about your secured debt.  There are three options and maybe a fourth one too.  These are called:

• Reaffirm or reaffirmation
• Surrender
• Redeem or redemption
• “Pay and Retain” or “Ride-Through” – the 2005 bankruptcy law tried to abolish this but was not completely successful

Here’s a brief explanation of each one:

Reaffirmation:  In this instance, you, the debtor, agree to continue to pay the debt to the secured creditor, like GMAC or Ford Motor Credit.  In exchange, you keep your car and keep paying  your monthly payments just as you did in the past.  Sometimes, your bankruptcy lawyer can help you negotiate a better deal with the lender in order to persuade you to reaffirm the debt.  Maybe the lender will agree to do this because it is better off with you paying than it is for the lender to sell the car at a loss at auction.  If you don’t reaffirm a debt secured by a vehicle, you run the risk of having the car repossessed or taken away from you outside of bankruptcy.  This will almost certainly happen in Illinois and is likely to happen in Wisconsin too.  Laws do vary in other states.

If you decide to reaffirm, your lawyer needs to certify that you can afford to do so.  That’s why we charge a little extra for each reaffirmation agreement – we need to be sure we can give this certification taking into account your economic situation after bankruptcy.  Otherwise, you’d have to go to court to explain to the judge why you can still afford this secured debt.

Surrender:  Here, you decide that you can’t afford to keep a property securing the debt.  Maybe your car is too expensive, or not worth much compared to the loan.  Maybe it would pay you to give up the car and try to get another less expensive vehicle rather than keep paying on it.  In this case, you’d give up the car and be discharged from debt on the balance.  Surrender is often the right choice when you are deeply underwater or “upside-down” on your the mortgages on your house.

Redemption:  This is sometimes a good choice when you have a late model car which has substantially declined in value compared to the loan, especially when you have a high interest rate.  If you have the money, maybe from an IRA or even better, from a new loan, you can pay off the loan on your car for the present value of the car.  For example, if your car is worth $15,000 and the loan is $30,000, you can get a new loan for $15,000 and discharge the remaining $15,000 in your bankruptcy case.  This could result in a much lower payment for the balance of your loan.  Ask us about redemption.  We know how to do this – there’s an additional fee but in many cases, it’s worth it.

“Pay and Retain” or “Ride-Through” You can’t do this any more for personal property. However, we have found that you don’t have to reaffirm a debt secured by your house in order to keep paying it as normal.  This is a good option since you maintain your mortgage as normal, but no longer have personal liability in the event that you default in the future.  Ask us about this too.

Statement of Intention: One of the papers you’ll sign in your bankruptcy case is a “Statement of Intention”.  On this paper, you’ll tell your creditors whether you want to keep your property and keep paying on it, surrender the property and be discharged from the debt or redeem the property by paying the current balance.  Look this paper over carefully and make sure it’s correct

Some retail stores claim a security interest or lien in items like jewelry or computers.  If you have this situation, let us know.  We have some ideas which can help you.

Act on your intentions – Remember, you have to act on your intentions promptly, so when we send you a reaffirmation agreement, read it, make sure you agree with the terms, sign it and return it right away.  And call us if you have any questions about any aspect of a reaffirmation agreement.

Share/Save

If you are paying 100% to your creditors in a chapter 13 case, you can take up to 60 months to do so – even if you aren’t paying 100% of your disposable income every month.

Lakelaw just won a case in Rockford, in the Western Division of the Northenr District of Illinois, proving this point for our client.  

For years, the experienced and able  Chapter 13 trustee in Rockford had been taking the position that a debtor had to pay 100% of disposable income to her every month, even if it would result in a chapter 13 plan being paid in full in less than 60 months.  It was her belief that debtors were acting in bad faith if they wanted to be fair to their families as well as to their creditors. From this trustee’s point of view, it was more important for the creditors to be paid quickly than it was that the creditors were being paid in full over the term of the plan.

However, the Bankruptcy Code provides that the debtor in a chapter 13 must pay all of his or her disposable income to a chapter 13 trustee only if the plan pays less than 100% to creditors.  If a plan pays creditors in full, the requirement that debtor pay 100% of disposable income does not apply.

Judge Barbosa had the courage and wisdom to reconsider his prior views on this issue in light of the plain language of the statute as well as recent precedent in other jurisdictions.  Debtors throughout Northern Illinois, from Woodstock to Galena and all points in between will benefit from this new precedent and the clarity of thought Judge Barbosa demonstrated from the bench.

Lakelaw went to the mat for our clients before Judge Barbosa and against the Chapter 13 trustee.  And we’ll go to the mat for you too.  In the meantime, we hope that the Rockford trustee will post Judge Barbosa’s decision on her recent decisions page so that everyone in the Northern District of Illinois, Western Division, will become aware of Judge Barbosa’s new ruling.

Share/Save

What is projected monthly income?  And why do we care?  It tells us your monthly payment in a chapter 13 case.

If you are a debtor in a chapter 13 case, you need to know the amount of your projected monthly income because that is the amount of money you have to pay to the chapter 13 trustee during your applicable commitment period.  

What’s an applicable commitment period?  That’s the time a debtor must remain in chapter 13 case – 3 years for someone who made less than the median income for the six months before banrkuptcy and 5 years for everyone else.

But what is projected monthly income?  We really don’t know because this term is not defined in the Bankruptcy Code.  We know that current monthly income is the average income you made from all sources during the six months prior to your bankruptcy case.  But we don’t know whether what you made before is what you are likely to earn in the future.  Nor do we know whether your present budget is going to be the same in the future.  You may have a new job.  Or you may be threatened with layoff or furlough.  And your expenses might change.  So current monthly income isn’t necessarily the same as projected monthly income.

We have 11 different judges in Illinois and another 6 judges in Wisconsin.  There is no uniformity yet among these judges.  So when we know the judge who will oversee your case, we will know how to calculate your responsibilities under a chapter 13 plan.  

And soon, we hope that the Seventh Circuit Court of Appeals, which oversees all federal courts in Illinois, Indiana and Wisconsin, will give us some clarity on how to deal with these issues in a case called In re Johnson. 

So keep up with Lakeblawg and we’ll keep up on the latest developments in chapter 13 cases for you.

Share/Save

When you file a bankruptcy case, you need to make some decisions about your secured loans.  These are loans secured by your house, your car or other personal property.

When you file your bankruptcy case, you must make a Statement of Intention for each of your secured loans.  The law offers three options.  These are:

• Reaffirmation
• Redemption
• Surrender

Reaffirmation means that you intend to continue paying the secured debt just as before.  More importantly, it means that you agree continued personal liability for the debt.  Normally, bankruptcy eliminates all personal liability on debts, including secured debt.

Redemption means that you will pay the secured debt by paying the creditor cash equal to the value of the property securing the debt.  For example, if your car is worth $10,000, you could pay $10,000 to satisfy that debt in full even though you owe much more.  Even if you don’t have the cash, you can redeem a late model car through a specialized lender.  We can help you with this.  

Surrender means that you don’t intend to pay the debt and are willing to give up the collateral.  This might be a good idea for a car worth $10,000 when you owe $25,000 on it.  It is also the typical choice when facing foreclosure on a house you can’t afford to keep.

Reaffirmation isn’t always a good idea.  You could continue to pay a mortgage debt on a house without reaffirming.  The lender has to accept payments as long as you aren’t in default.  If you default later, you won’t have personal liability.   Reaffirmation isn’t a good idea if you might not able to pay the loan in the future.

However if you don’t reaffirm, redeem or surrender in the case of a car loan, you’ll probably find that the car will be repossessed.  

You’d be surprised to find that items like jewelry, computers and electronic equipment often are security for payment of a debt.  When this happens, please tell us about it.  We have to deal with these situations on a case by case basis with the lenders.  

We charge you a little extra for reaffirmation agreements.  That’s because we have to certify to the court that you are able to pay without it being a substantial hardship.  We also try to negotiate better terms for you whenever possible.  Lakelaw wants to give you good value in all aspects of your bankruptcy case.  

This is a technical area of bankruptcy law.  This blog is not the place to describe all of the details.  But Lakelaw wants you to be informed and ask questions about how to proceed in your particular case.

Share/Save

You must take a credit counseling course before you file a bankruptcy case.  This is sometimes called the “ticket in” to bankruptcy.  Bankruptcy attorneys are supposed to check to be sure that you’ve done this before you file your case.  So this is not much of a problem any more.

However, you must also take a “personal financial management instructional course” – I call it a financial management course myself – before your case closes in order to get a discharge.  This is sometimes called the “ticket out” of bankruptcy.  We spend a lot of time telling our clients to do this.  We remind clients to take the financial management course when we file their case.  We write emails and letters to them asking them to take financial management training.  We tell our clients to take the financial management instructional course in our engagement letters.  Surprisingly, some clients still don’t do this.

Bad idea.  Their case is then closed without a discharge.   The client contacts us.  We have to move to reopen the case.  That costs $250 just for the filing fee.  We have to charge our client an attorneys’ fee for this additional work.  We don’t like having to do that and we know that the client doesn’t like that either.

So, take the course.  Personal Financial Management Instructional Courses are actually a bargain.  You spend just a few dollars on this course and you may get some ideas which will really help you in your financial affairs in the future.  This may actually be the one aspect of the “Bankruptcy Abuse Prevention Consumer Protection Act” which actually was a good idea.

Share/Save

Clients ask me “I have big student loans – can bankruptcy help?”  Frequently, student loans are only a part of the client’s problem.  People also have a great deal of credit card debt to go along with the student loan.

Sometimes, the client’s education has paid off.  The client has a high-paying job.  Such clients need to consider filing chapter 13 if they can’t keep up with their debts.  In chapter 13, they can establish a monthly payment to the chapter 13 trustee.  Over a period of five years, the unsecured debt will be satisfied.  And progress will be made on the student loan.  With other unsecured debt satisfied, the debtor can concentrate on paying the student loan.

Sometimes, the client’s education has not paid off.  The client has a low paying job or no job at all.  Chapter 7 can eliminate the non-student loan debt.  However, unless the debtor is facing a “substantial hardship” the debtor is still obligated to pay the student loan – possibly for a very long time.

Unfortunately, it is very hard to establish a “substantial hardship” – essentially the debtor has to be in such bad straits that he or she will never be able to satisfy the loan – usually because of a serious disability.  

To establish this condition, you literally would have to sue your lender.  You’d have to contend that you can’t live, even minimally, while paying the loan, and that your situation is unlikely to change for the foreseeable future.  It’s a catch-22.  You can’t afford to pay the student loan.  And you can’t afford to pay an attorney to file a suit to establish that you can’t pay the student loan.

If student loans are part of  your problem, don’t be afraid to call us – we can be part of the solution.

Share/Save