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Some Debt Discharge Basics In Illinois


In addition to the temporary relief from repossession, foreclosures, and other adverse action, many people believe that bankruptcy eliminates most unwanted debts. For the most part, that’s true.

Technically, however, bankruptcy only eliminates personal liability to repay the debt, but the obligation itself remains. Once again, technically speaking, that debt never, ever goes away, because the Supreme Court recently relaxed some of the standards in the Fair Debt Collection Practices Act.

Here’s how it works. Assume Denise Debtor lied to her husband. She apologized and he forgave her. His forgiveness does not alter the fact that Denise lied; it just means that he will not hold her lie against her. The same result occurs if Denise files bankruptcy because of a $50,000 income tax bill. After the judge discharges the debt, she still owes the money, but the IRS cannot take any action to collect on the account.

For that reason, bankruptcy does not eliminate a debt’s collateral consequences. If the IRS filed a lien against Denise’s Chicago house, it will not dissolve the lien just because she filed bankruptcy. For that to happen, she must negotiate with the IRS and probably make payment arrangements.

Some Dischargeable Debts in Illinois

Most Indiana debts are dischargeable unless there is substantial evidence of fraud. Some common examples of dischargeable debts include:

  • – Medical Bills: Depending on what source you believe, the Affordable Care Act may have lowered the number of medical bill-related bankruptcies, but these issues still cause most of the Chapter 7 and Chapter 13 filings in Indiana.
  • – Credit Cards: The average American household with at least one card owes over $16,000 in credit card debt, a figure that’s just a little short of the all-time high it reached in 2008. With that massive debt load, it’s actually very surprising that there are any families who can retire this debt without filing bankruptcy.
  • – Small Business Administration Loans: Again depending on what source you believe, within a few years, the majority of new businesses either fail outright or fall well short of their owners’ financial needs. If you took out an SBA loan to start the business and you can no longer make the payments, that loan is probably dischargeable in bankruptcy.
  • – Payday Loans: Americans spend about $9 billion a year on payday loan fees. These loans are unsecured and dischargeable. Auto title loans may be secured, depending on the nature of the loan agreement.

Some other debts are dischargeable in many cases. Income taxes that are at least three years old are dischargeable if the returns have been on file at least two years and the debt has not been assessed in the last eight months. Student loans are dischargeable in Illinois and Indiana if the debtor establishes the three prongs of the Brunner rule (good faith repayment effort, long-lasting hardship, and inability to make payments).

Most fraud cases involve attempted concealment of assets or lying on the bankruptcy forms. A few other cases fall under the 90-day fraud presumption.

Reach Out to Savvy Attorneys

Debt discharge offers permanent debt relief. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours appointments are available.



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