10 QUESTIONS TO ASK YOURSELF Before You File For Bankruptcy

Many people facing financial hardship feel stressed and overwhelmed. They can’t see past the pile of bills or focus on solutions with the incessant phone calls from belligerent bill collectors, “Final Notices” in the mailbox or process servers appearing on their doorstep.The Martucci Law Office has developed these 10 questions about bankruptcy to help struggling debtors do a self-assessment to better understand whether a bankruptcy filing could improve their situation, and if so, what Chapter would be best.

1. What is the Cause of Your Financial Problems?

Have you lost your job, insurance or savings? Have you tapped into or depleted your retirement fund? Is your home in foreclosure or are you being evicted from your rental property? Have you racked up large credit card debt? Are you carrying high-interest short-term loans at triple-digit interest rates? Has your car been repossessed? Have you suffered an illness or injury and incurred crippling medical bills? Have you been served with a Summons to Court? Are you recently divorced? Are your wages or bank account being garnished? Maybe the tax refund you were waiting for has been grabbed by another branch of government.These are some of the common reasons why people have called my office and become clients. They have tried everything else to keep all the plates spinning, but now the plates are wobbling and about to come crashing down. But it is important that you first determine what you are trying to accomplish - what is your goal?

2. What is Your Goal?Are you seeking relief from crushing debt, collection calls or court judgments? Has your bank account been garnished? Is money being deducted from your pay check due to a wage deduction order? Are you looking to get rid of your credit card debt and start fresh? Are you trying to save your home from foreclosure?

The Bankruptcy Code, with its origin in the U.S. Constitution, provides options through Chapter 7 and Chapter 13 to stop the collection activity by filing a bankruptcy petition. The “stop” is the “Automatic Stay,” and this becomes effective immediately upon filing a bankruptcy petition. What then? Well, it depends upon your goal and what you qualify for.If your goal is to get rid of your debts and you don’t make a lot of money and don’t own much property, you may be able to accomplish this goal with a Chapter 7 bankruptcy. The process normally takes about four months, after which time you will receive a Discharge of Debtor.If your goal is to save your home from foreclosure, and you have fallen behind in mortgage payments, but can now afford to make your regular mortgage payment, plus an extra payment to the Chapter 13 Trustee, you may be able to accomplish this goal with a Chapter 13 bankruptcy. The Trustee will use your Plan payments to pay your past-due payments (mortgage arrears) and pay some or all of your remaining debt over a term of 60 months or less. At the end of your Plan term, you will receive a Discharge of Debtor.

3. What Bankruptcy Chapter Would Benefit You Most?

A Chapter 7 case leads to a Discharge of Debtor, which legally forgives many debts. Some of the more common debts discharged in a Chapter 7 case are personal loans, credit cards, medical bills, court judgments for money, and deficiency claims following a repossession. Some debts, however, are not ordinarily dischargeable. These include current and recent tax liability, alimony, child support, injury claims from drunk driving accidents caused by the debtor, fines and court costs, court-ordered restitution, unpaid tolls and student loans.On occasion, a creditor may file an Adversary Petition, which is a separate lawsuit seeking a Court finding and Order that a debt due to the creditor is not dischargeable in bankruptcy. Some of the grounds for denying a discharge include luxury purchases made shortly before filing bankruptcy, misrepresentation, fraud, theft by a person in a position of trust, and injuries caused by intentional acts of the debtor.A Chapter 13 case requires the Debtor to commit to a repayment Plan, generally ranging from 36 to 60 months.

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10 Questions to Ask Yourself Before You File

for Bankruptcy

630.980.8333 • martuccilaw.com

630.980.8333 • martuccilaw.com

Professional. Competent. Compassionate.

The Plan payments pay mortgage arrears and secured claims in full, but may pay less than 100% of unsecured debt. The Martucci Law Office allows a portion of their attorney’s fees to be paid through the Plan, so the client does not have to pay the entire legal fee up front. Upon successful completion of a court-approved Chapter 13 Plan, the Debtor receives a Discharge of Debtor as to any remaining unsecured debt.

4. Do You Qualify to File a Chapter 7?

Whenever possible, most debtors would prefer to file a Chapter 7. They want to get rid of the debt and keep all their property (which they can do if the value does not exceed the amount they can protect by claiming allowed Exemptions). And they don’t want to be burdened by a long-term repayment plan, which would be required in a Chapter 13 case.However, there is an income limit as to who can file a Chapter 7. The current limit for an individual in Illinois is $49,741 per year, but this increases with family size and may be flexible depending upon other factors. Including a spouse in a Joint Petition, and having dependent children, increases the amount of income the debtor can earn and still qualify for a Chapter 7. Also, certain pay check deductions, such as mandatory contributions to retirement plans, allow a Chapter 7 debtor to earn a little more than the limit.But Debtors earning more than the income limit for a Chapter 7 case may have to pay a portion or all of their debt to creditors over the term of a Chapter 13 Plan, depending upon their income and assets.

5. Do You Qualify to File a Chapter 13?

A Chapter 13 debtor must have regular income for making plan payments, and owe less than $383,175 in unsecured debt and less than $1,149,525 in secured debt. These are arbitrary numbers set by Congress that change from time to time. Debtors who owe more than the debt limits for a Chapter 13 case may be able to reorganize their debts in a Chapter 11 case. But that is a complex, costly proceeding, beyond the scope of this writing.

6. If You File a Chapter 7, Can You Keep Your Property?

Some of your property or equity in property may be protected from creditors by Illinois Exemptions: For example, Illinois law permits debtors to claim as exempt (and protected from creditors) $15,000 of equity in the debtor’s home, $4,000 in personal property, $2,400 in a motor vehicle and 100% of retirement funds. Married debtors who file jointly can double their exemptions. Property is valued at “fair market value,” which, in the case of used household goods and furnishings, equates to garage-sale value. If you own property that has value in excess of the allowed exemptions, a bankruptcy Trustee can sell the non-exempt property to generate funds to pay your creditors. If there are not sufficient funds to pay everyone in full, creditors who file claims within the allowed time period are paid, based on levels of priority, on a pro-rata basis.

7. Are You Willing to Give Up Non-Exempt Assets to Get a Chapter 7 Discharge?

If the debtor has assets that exceed the exemption limits by a thousand dollars or more, such as cash, a tax refund, a car, a cash-value life insurance policy, stocks and bonds, the Trustee may seize those assets and sell them to pay creditors. Still, some debtors find it worthwhile to surrender a non-exempt asset in exchange for a Discharge of a much greater amount of debt. For example, it makes sense to give up a $5,000 tax refund if, in exchange, you can get a Discharge of $50,000 in credit card debt. This is especially true if the Trustee uses the funds to pay off tax liabilities or student loans, debts that are not dischargeable and would have to be paid anyway.

8. If Filing a Chapter 13, Are You Willing to Live Within a Fixed Budget?

To successfully complete a Chapter 13 Plan, debtors need to be able to live within a budget, maintain their employment or other income, forego vacations or other luxury purchases and budget for emergency repairs. This is difficult for many debtors who are used to living a more comfortable lifestyle, often going out for entertainment,

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taking vacations, and paying with credit cards. When a Chapter 13 is filed, the credit cards are cancelled. It may be new and challenging to live on a cash-only budget, but the rewards come at the end of the case, when the mortgage is current, the unpaid debts are discharged, and the debtor can move forward with a better understanding of money management, and a fresh start.

9. Is Your Home Worth Keeping?Some debtors break their backs trying to save their home when they may be way upside-down comparing debt to value. For example, if you owe $300,000 on a home, but because of a bad economy or declining property values in the community, it is only worth $200,000, does it make sense to spend 5 years in a Chapter 13 Plan to repay past-due mortgage arrears of $30,000? Once you’ve paid the $30,000 in mortgage arrears and brought the mortgage payments current, your house may still be $100,000 upside-down at the end of your case. It might make more sense to surrender the home and start fresh. On the other hand, if the mortgage payments are comparable or less than rent payments, and you have good reason to believe that the home’s value will appreciate, you may choose to hold on to it.

10. Do You Understand That Some Debts Will Remain After Discharge?

While most people are in much better financial shape after receiving a Discharge of Debtor, some debts such as taxes, student loans, domestic support obligations (alimony, maintenance, child support), fines, court costs, court-ordered restitution and debts deemed “nondischargeable” under the law, or by Order of Court, will remain due and owing to creditors. By now you may have a better understanding of what a bankruptcy filing can and cannot accomplish, and whether bankruptcy is the answer to your financial problems. The Bankruptcy Code is complex and courts in different jurisdictions interpret certain provisions of the code differently. A good bankruptcy lawyer is essential to properly evaluate your individual situation and offer valuable legal advice.

BONUS QUESTION: Do you have a good bankruptcy lawyer?Greg Martucci is a good bankruptcy lawyer with over 30 years of experience who has personally handled over 1200 cases. He will counsel you about the bankruptcy options available to individuals and businesses under the Bankruptcy Code, and in particular, how the bankruptcy laws can help YOU.Stop creditor harassment. Get a fresh start. Call the Martucci Law Office at 630-980-8333 to schedule your FREE initial office consultation.

Contents © Copyright 2016 Gregory J. Martucci. All Rights Reserved.

Gregory J. Martucci, a licensed attorney since 1983, is a member of the Illinois Bar, the Federal Bar in the Northern District of Illinois and the United States Supreme Court Bar. He is also a member of the Illinois State Bar Association, the DuPage County Bar Association and the Northwest Suburban Bar Association.

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