Bankruptcy Case Study For May, 2016

Overview

This is the bankruptcy case study for Mr. and Mrs. C., who reside in Addison, Illinois. Although the case will be filed in DuPage County, the majority of the assets reside in another county. Let’s begin with the fact that the couple rents their current home in Addison. Their former home was foreclosed upon and went to a short sale back in April, 2015. There is a large deficiency judgment in the amount of approximately $200,000 from that sale. Their current rental will expire in April, 2017 as they are on a yearly lease. In terms of other personal property, the couple has three vehicles which are all paid in full. They own a 1999 Lexus with 170,000 miles on it. They own a 2006 Toyota with 110,000 miles on it. Lastly, they own a 1996 Chevrolet Silverado with 120,000 miles on it.

Personal Property

In terms of personal property, they have a checking account with a very small balance, minor household goods valued at $400, normal clothing valued at $500, life insurance with a death benefit only and no other personal property. They do have an interest in the business which they are running out of Bellwood, Illinois. The business provides for their means of monthly income, however, the business does not have any significant assets which could be taken by a Chapter 7 trustee. The couple is bringing in approximately $1700 per month from Social Security and an additional 30,000 per year from the business.

Monthly Expenses

In terms of monthly expenses, the couple spends $2000 per month on rent, $17 a month on renter’s insurance, $30 per month for repairs, $200 per month for water, sewer and trash, $275 per month for electricity and gas, $300 per month for cellular phones, $62 a month for cable TV, $600 per month for food, $83 per month for clothing, $100 for laundry and dry cleaning, $290 per month for transportation expenses, $20 per month for recreational expenses, charitable contributions are approximately $20 per month, health insurance at $900 per month, automobile insurance at $200 a month, and other miscellaneous expenses of approximately $50 a month.

Major Debts

In terms of debts, the couple owes approximately $50,000 to the IRS for income tax and sales taxes. The tax years in question are 2010 through 2015. The same situation applies with the state of Illinois.  However, the total amount owed is 15,000. In terms of other debts, the couple owes approximately $35,000 to a variety of credit cards. Lastly, the couple owes approximately $8000 in medical bills. At first sight, it would appear that this couple would benefit greatly from a Chapter 7, fresh start bankruptcy. In fact, that would be the case and it would be my recommendation. However, there were assets which were disclosed at the tail end of the consultation which need to be analyzed.

Asset IssuesVacant Land Part 2

The couple are co-owners of vacant hunting land in central Illinois. The land was purchased for $240,000 although they feel the value now is greatly reduced. They have attempted to sell the property for several years with no success. I would still recommend a Chapter 7 bankruptcy with the caveat that the trustee will sell that vacant land for potentially less than the fair market value. The co-owner of the land would have the ability to buy out the trustee’s interest or simply receive a check for 50% of the value of the property.  Based upon this information, the couple is going to talk with the co-owners to decide whether or not they would like to buy out the trustee’s interest or whether they would simply like to get a 50% interest payment. In any event, the couple has the ability to file bankruptcy or not file bankruptcy regardless of what the co-owner’s wish to do with their interest in the property.

Thus, the recommendation would be a Chapter 7 bankruptcy with the understanding that the vacant land in central Illinois will either be surrendered or a buyout will have to occur regarding the trustee’s interest in the property. This is the only true way for the debtors to gain a fresh start and pay off all of their outstanding debt. Since the couple is not utilizing the land in any significant way, it makes perfect sense to give up the asset in exchange for a fresh start.

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