Bankruptcy Case Study – April, 2016

Facts:

This is the bankruptcy case study for Miss Y., who resides in Lake County, Illinois. We are going to examine whether or not this person qualifies for bankruptcy and whether or not this person should file for bankruptcy relief. Let’s look at the specific fact pattern. The first thing to note is that the debtor filed a prior chapter 7 bankruptcy in 2006. Thus, we have an individual who is not only aware of the relief that chapter 7 provides, but is familiar with all of the requirements which have been in place since prior to her initial case filing. With that in mind, let’s see what she owns and owes.

Property

In terms of real estate, she does not own any property. She is currently living with family and there is no formal written lease. She does not have a vehicle in her name. In terms of personal property, she has a checking account and a savings account at Bank of America with an approximate balance of $360. She has very little in the way of clothing, very little in the way of household items, and she has a small, 401(k) account with a value of $800. She does expect to receive a federal income tax return in the amount of approximately $2000. Other than that, she has no other real or personal property.

Income

In terms of her description of household, she is currently divorced and she has an 11-year-old son who resides with her. She has been working for the past 2 1/2 months earning approximately $1200 per month. In addition to her income, she receives $38 per month for link, which is a source of food spending benefits. She is paid every other week and she is not receiving any other income from any other source.   Thus, we have an individual who is not making enough to survive if she had to actually pay a fair market value rent.

Expenses

Looking at her monthly expenses, she contributes $300 towards the monthly rent. Her other expenses per month include cellular phone at $120, food at $200, laundry and cleaning at $20, gas and transportation expenses of $50, recreation at $100, and no other expenses. In terms of her financial affairs, prior to the current year, she earned approximately $45,000 per year. One of the big sources of her debt is money owed to a guardian ad litem which was incurred through her divorce proceedings. That guardian ad litem is currently seeking to collect approximately $1700.

Debts

The debtor does have federal student loans totaling $30,000, which would be non-dischargeable in a chapter 7 bankruptcy. She also has IRS debt owed from tax year 2013 which would also be non-dischargeable regardless of the dollar amount. When we look at her other debts, she has credit cards totaling $9000, payday loans totaling $6000, a car accident with no insurance totaling $10,000 and the previously mentioned guardian ad litem fee of less than $2000.

Analysis

When we look at the totality of the debtor circumstances, it would appear that she would benefit fairly well from a chapter 7 fresh start. Although there are some debts such as the student loans, Federal tax and the guardian ad litem fees that would be non-dischargeable, she would still be discharging close to $25,000 of other miscellaneous debt. This would allow the individual to get back on her feet to provide for herself and for her family once again. She can work out a reasonable payment plan with the guardian ad litem as well as with the IRS. It terms of the student loan debt, I would recommend she make a payment arrangement after the other non-dischargeable debts are paid and if and when she has any disposable income going forward.

Thus, my recommendation for Miss Y., from Lake Villa, Illinois would be a chapter 7, fresh start bankruptcy. This will afford the debtor the relief needed to get back on her feet financially and to be able to contribute towards her non-dischargeable debt.

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