Chapter 7 Bankruptcy and Government Benefits: A Primer

Social Security, workers’ compensation, VA disability, and other government benefits are essential to the fresh start the Bankruptcy Code guarantees. Many families depend almost exclusively on government benefits to pay bills and they have no employment or other options. So, if a bankruptcy or other court takes away government benefits, it essentially takes away the family’s ability to survive.

A Chicago bankruptcy lawyer advocates for families from start to finish. Attorneys strategically complete bankruptcy forms, so the case gets started on the right foot. After filing, an attorney continues advocating for debtors during routine matters, such as trustee meetings, and adversarial actions, such as motions for turnover. Finally, a Chicago bankruptcy lawyer helps debtors recover from bankruptcy and live their best lives possible.

Classification Issues

Government benefits are exempt assets in Illinois bankruptcy actions. These exemptions are item-based exemptions. The exclusion applies regardless of the amount of benefits. This same exemption applies to 401(k)s, IRAs, and other private retirement accounts.

Most bankruptcy exemptions in Illinois are value-based. A Chicago bankruptcy lawyer helps debtors maximize these values.

The home exemption is a good example. U.S. law requires debtors to list the as-is cash value on Schedule A, which details the debtor’s assets. “We buy ugly houses” home investors often set the as-is cash value in these situations. Normally, home investors only pay about ten cents on the dollar for as-is, no-inspection sales.

Only a Chicago bankruptcy lawyer should use strategies like this one. Improper Schedule A valuation could lead to charges of bankruptcy fraud, which is a serious federal offense.

Usually, money in a DDA (demand deposit account), such as a checking or savings account, is not exempt in Illinois bankruptcy matters. Therefore, most lawyers suggest that debtors keep government benefit money in separate DDA accounts, to avoid commingling issues.

Chapter 7 Nuts and Bolts

These protections are meaningless unless a Chicago bankruptcy lawyer properly files, executes,  and follows through on a Chapter 7 bankruptcy.

Bankruptcy forms are extremely complex. DIY bankruptcies are almost automatically doomed to failure. Completing the forms is like filing a corporate tax return without using the instructions. Nonlawyer bankruptcy petition preparers often give effective assistance in this area. But their assistance ends at this point. Non-lawyers cannot give debtors legal advice and certainly cannot represent them in court.

The most important post-filing matter in a Chapter 7 is the 341 meeting. At this meeting, the trustee reviews financial documents, verifies the debtors’ identity, and looks for red flags of bankruptcy fraud. If all three areas check out, the judge usually signs a Chapter 7 discharge order without holding a hearing.

Chapter 7 discharges most unsecured debts, such as credit cards and medical bills. Some unsecured debts, such as back taxes and student loans, are only dischargeable in some situations.

Recovering from bankruptcy may be the most important step in the bankruptcy process. Attorneys have professional relationships with moneylenders who work with damaged credit individuals. A credit score measures a person’s ability to responsibly manage credit, not the ability to pay cash for everything.

Connect With a Thorough Cook County Lawyer

No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Source:

uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics