Bankruptcy Basics

Belleville 618.236.7000
Granite City 618.656.7941
Mt. Vernon 888.400.6763

Video Transcription:

Have you ever faced a problem so big that you didn’t know where to turn next? That’s what it feels like to face bankruptcy. The US is the world leader in bankruptcy filings, and over 2 million people filed for personal bankruptcy last year. What are the reasons? Loss of a job or a business, divorce, student loans, and overspending are just some of the grounds that create this living nightmare. Bankruptcy is not the end of your life. Pay close attention to what this local attorney has to say. The history of bankruptcy is rooted, actually, in the Bible. There was something called the Jubilee in the Old Testament, where every certain number of years all debt was forgiven. That was incorporated in our country in about 1800 as a way of dealing with debtor’s prisons.

I think the biggest myth about bankruptcy is that if you file bankruptcy you will lose everything you have – you will lose your house, you will lose your car - and that is simply not true. Bankruptcy is a way of dealing with insolvency. Insolvency is when you lack the reasonable means to pay back your debt in a reasonable time. Yes, if you have a lot of equity in your house, then Chapter 7 is not going to be a bankruptcy you could do, but you could still do a Chapter 13. If you have a car, you could keep your car in a bankruptcy with either a Chapter 7 or a Chapter 13. The difference is how much equity. If you have a lot of equity, a 7 is not going to be the bankruptcy for you. You could do a Chapter 13, however, and still keep all of your property.

When I’m deciding whether or not a client should file a Chapter7, I look at three different things: what do you own, what do you owe, and how much money do you make. As far as what you own, each state is a little different, so you’re going to want to make sure that the attorney you choose knows the law in their state. Each state allows you to own a certain amount of property, and you’ll hear your attorney refer to those as “exemptions”. Before you file anything, your attorney will go through what those are and make sure the value of your property won’t be in the way. And even if you do own more than you’re allowed to own in that particular state, there are ways to deal with that, either through a 13, or in other ways.

As far as what you owe, Chapter 7 can be really helpful with most unsecured debt. An unsecured debt is the common debt that you would think of as having no collateral, or property that you put up for the debt, things like credit card debt. Most unsecured loans, most of the payday loans would fall in that category; a signature loan with your bank, medical bills are a big one for a lot of clients who file. However, it is important to keep in mind that a Chapter 7 will not eliminate student loans or most taxes, and you will still owe your secured debts after Chapter 7: your house, your vehicle, those sorts of things.

As far as how much money you make, there is a process that your attorney will run through with you to determine whether or not you meet the income standards; and of course the expense standards will take into account how many children you have, are they dependents, and all that.

If the debtor is otherwise unqualified for a Chapter 7 for one reason or another (typically it’s because of income or because they’ve got secured assets that they are trying to protect) then we turn to a Chapter 13. A 13 is an excellent way to protect people that get behind on their mortgage or get behind on their car payments and otherwise want to save those assets. During a Chapter 13, over the 3 to 5 year period that a chapter 13 can run, those pre-petition devualts on a mortgage for example would be paid in full over a period of generally 36 months or less. Generally motor vehicles will be paid in full over the 3-5 year period through the chapter 13 trustee. So basically the debtors keep their vehicles and keep their houses and they truly reorganize in a Chapter 13. Ch 13 is also an excellent way to eliminate general unsecured debt. Rachel talked previously about credit card debt medical bills, and the like. Well, just because you file a Chapter 13 doesn’t mean necessarily that you are paying much, or anything, back to those general unsecured creditors. The point being that it comes down to an analysis of income minus expenses as to whether or not you have to pay anything back on that general unsecured debt. And generally, for most clients, their income minus expenses doesn’t leave much if anything to have to pay anything back to general unsecured creditors in the end.

The better your credit is going into bankruptcy, the better it will be coming out. So people that try to put bankruptcy off for a really long time, and they start getting delinquencies reported on their credit, they are really hurting themselves because they are eventually going to have to file bankruptcy. Yes, a bankruptcy can be on your credit report for up to 10 years. But that doesn’t mean that your credit score is going to be ruined forever. And there’s also something I like to refer to as Credit Worthiness. Credit Worthiness is when a human being is actually looking at your credit report and trying to evaluate you for a loan. And yes, they’re going to see your credit score and they’re going to see a bankruptcy. But they’re also going to see your income to debt ratio. All of your debts are wiped out and now you can afford new debt. Before you filed bankruptcy, you couldn’t afford new debt because you were leveraged to the hilt.

One of the things that I’m very proud of about being a bankruptcy attorney is that when people come into my office they are very stressed out, and what I do is I give them options. Maybe it’s Chapter 7, maybe it’s Chapter 13, maybe it’s not even bankruptcy; maybe what they need to is to just take some equity out of their house. But I provide options for them so that when they leave my office, they’re always going to be feeling better than when they first came to see me.

Memberships & Associations

memberships

Belleville Location

The Bankruptcy Center
5312 West Main Street
Belleville, IL 62226
Tel: 618.236.7000

Granite City Location

The Bankruptcy Center
2021 Johnson Road, Suite 1
Granite City, IL 62040
Tel: 618.656.7941

Mt. Vernon Location

The Bankruptcy Center (In the US Bank Building)
123 South 10th Street, Suite 202
Mt. Vernon, IL 62864
Tel: 618.236.7000

Disclaimer

The Law Offices of William A. Mueller is a debt relief agency, helping people file for bankruptcy relief under the Bankruptcy Code.