Bankruptcy Case Study 1/5/17

Overview

This is the bankruptcy case study for Mr. M., who resides in Chicago, Illinois. He is seeking advice on whether or not chapter 7 bankruptcy will provide relief. Let’s go through and look at the particulars of his case. For starters, he has no significant assets whatsoever. He is not a homeowner; He does not own his own vehicle; He has no retirement accounts; He has no assets which can be taken by a Chapter 7 trustee, administered, and paid pro rata to his creditors. Thus, right from the outset, we are looking at a clear chapter 7 eligibility case.

Financial Picture

In terms of his household, he is single with no dependent children. He is currently working as a driver and has been working in that capacity for the past 12 months. He is a 1099 employee so his income is based upon how much he is able to work on a weekly and monthly basis. During the past six months, he is averaging approximately $1200 per month net income. Now let’s turn to his expenses. He pays $350 per month for rent, $150 per month for electricity and gas, $80 per month for cable television, $450 per month for food and groceries, $75 per month for clothing, $400 per month for transportation expenses, $125 per month for entertainment, $44 per month for automobile insurance, and approximately $200 per month for additional expenses. When we look at his income versus his expenses, we see that he does not have disposable income from which to pay his creditors. Thus, this is another significant indicator that chapter 7 will be a good option.

Earnings And Banking

In terms of his statement of financial affairs, he has earned approximately $600 this year as the year has just gotten underway. In the prior two years he has earned approximately $7000 in each. He is currently being sued by Capital One for a credit card debt in the amount of $6000. In the prior two years he has had multiple bank accounts which have been closed. He personally closed a checking and savings account at PNC Bank earlier last year. At the time of the closing, there were no significant values in the accounts. Chase Bank closed an account on him in the past three months. This was a debit card account and it had a zero balance. He has no cosigners on his debts, he does not owe for any student loans, and he does not owe any tax debt state or federal.

Debt Scenario

In terms of debts, he has approximately $45,000 worth of miscellaneous debt. The debt consists of credit cards, medical bills, personal loans, parking tickets, and moving violations. He is aware that some of those debts are going to be nondischargeable. This means that they will survive a chapter 7 bankruptcy filing and discharge. However, he has significant debt which will be eliminated in a chapter 7 bankruptcy discharge. For these reasons, I am recommending a chapter 7 bankruptcy. This type of bankruptcy will provide for a fresh start except for the debts that are not going to be eliminated. He will keep all of his property free and clear while going through the process and he will be able to rebuild some forms of credit in approximately six months to two years after filing.

Conclusion

Further, he advised me that he has been struggling with this debt for many years. He clearly indicated that he wished to start fresh and that he would deal with the nondischargeable debt separately by way of payment plans. I encouraged him to proceed with the chapter 7 in order to eliminate all of the debt that could possibly be eliminated under the bankruptcy code. The remaining debt would be rather insignificant and he would be permitted to enter into payment arrangements with those creditors. That way, he would be able to protect his driver’s license and prevent further interest, penalties, and late fees on those debts. Thus, I am recommending a chapter 7 bankruptcy for Mr. M., who resides in Chicago, Illinois.

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