Keeping Your House, Cars, And Cash In An Illinois Consumer Debt Relief Action
No one can turn back the hands on the clock to that point in time when people had no debt. But bankruptcy does the next best thing. These voluntary petitions discharge most unsecured debts, such as credit cards and medical bills, and create a protected repayment period of up to five years which allows debtors to make catch-up payments on secured debts, like home mortgage and auto loans.
Furthermore, while the bankruptcy is in effect, the Bankruptcy Code’s automatic stay prevents moneylenders from taking any adverse action against debtors, such as collections efforts, wage garnishment, repossession, or foreclosure.
The Bankruptcy Code’s purpose is to give debtors fresh starts. That cannot happen if they lose their core assets, which is why there are some effective strategies available to retain them.
Exempting Home Equity in Chicago
Both Illinois and Indiana have very large home equity exemptions, so if the debtor has less than a threshold amount ($30,000 for an Illinois married couple), the trustee, who is the person who oversees the bankruptcy for the judge, cannot seize the house and sell it to pay creditors.
If the debtors have lived in the house for a long time, they may have more than $30,000 in home equity. In these cases, accurate valuation is key.
Assume the homeowners have a $200,000 home with $50,000 in equity. If Schedule A lists the home at that value, the trustee may file a motion for turnover, demanding that the homeowners pay $20,000 or lose their house. But the Bankruptcy Code requires debtors to list the as-is cash value of an asset. For houses, a good place to start is the Quick Sale Value per the Internal Revenue Service, which is 80 percent of the fair market value. So, in this scenario, the home’s QSV is $160,000. After deducting the $150,000 unpaid principal balance on the loan, the owners only have $10,000 in equity, which is well below the exemption maximum.
Keeping Vehicles in an Indiana Bankruptcy
Roughly the same thing applies to personal vehicles. Typically, new cars have a very high value and almost no equity, while old cars have a considerable amount of equity but almost no value. But cars often have a very high turnaround cost.
Assume that the subject vehicle is a used car with a $1,500 value and $1,500 in equity. The trustee would probably not seize and sell the vehicle in this situation, because by the time the trustee pays towing fees, storage fees, hires a mechanic to make any necessary repairs, and so on, the creditors would only see a few dollars. In other words, the bankruptcy trustee is not a used car salesman, and therefore the trustee does not bother with assets that have little value.
Keeping the Cash in Your Indianapolis Bank Account
Cash is hard to protect, because there is no turnaround cost. The trustee can simply take it. In these situations, a legal doctrine called mootness sometimes come into play.
Assume that two people each claim to own a house, but before the case goes to court, the house burns down. Since the house is gone, there is nothing for the judge to decide and the case is moot. Arguably, the same thing applies to cash. If the trustee files a motion for turnover that demands $5,000 in cash and that cash is gone by the time the judge hears the case, the matter may be moot.
Go With Experienced Attorneys
There are a number of ways for debtors to keep nearly all their assets in bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.