Bankruptcy Case Study For Mr. W.

In this bankruptcy case study, we are going to find someone who has significant assets compared to most people who file for bankruptcy relief. Let’s start with the real estate property. Mr. W. has a single-family home located in Brookfield, Illinois with a market value of $180,000. The balance to pay off his mortgage is $142,000. His monthly payment on the property is $1100 per month, he is current on his payment, and he wishes to keep that home. In examining the equity numbers of that property, he has approximately $38,000 worth of equity.

He has a second piece of real estate located in Elmwood Park, Illinois. That property is worth $160,000 and the outstanding mortgage balance is $110,000. He has a first mortgage on the property owed to Chase and a second mortgage on the property owed to Citibank. He pays $320 per month for Chase and $150 per month for Citibank. He is up to date on both mortgages and he wishes to keep the property. By examining this equity situation, he has approximately $50,000 worth of equity. When we combine the two properties, he has $88,000 worth of equity. This amount of equity would not allow him to file a chapter 7 bankruptcy. Thus, we are looking at how chapter 13 could be of some assistance.

Moving towards vehicles, Mr. W. has a 2006 Ford truck which is paid in full, valued at $4000. He also has a 2002 Lexis valued at $7000 which is paid in full. He also has a 2008 Lexis valued at $18,000 which is paid in full. The three paid-up vehicles add to his equity situation. Since there is significant equity in real estate as well as vehicles, let’s take a look at what chapter 13 can do by checking out his income and expenses.

The debtor is self-employed earning approximately $40,000 per year from his job. He also earns approximately $1000 per month from rental income. Thus, his monthly net is approximately $9100 per month. Looking to his expenses, his primary mortgage is $1100 per month, property tax $500 per month, homeowner’s insurance $100 per month, home repairs and maintenance $200 per month, water and trash is $80 per month, electricity and gas is $200 per month, home phone is $60 per month, cellular phone is $100 per month, cable television is $153 per month, Internet is $50 per month, food is $1000 per month, clothing is $100 per month, laundry is $40 per month, medical expenses are $300 per month, transportation expenses are $300 per month, recreation is $100 per month, auto insurance is $200 per month, the second property first mortgage is $320 per month, the second property second mortgage is $150 per month, and real estate taxes are $500 per month.

In terms of debts, he has approximately $125,000 worth of credit card debt. Most of this credit card debt was used for his business.  However, he has personally guaranteed those obligations. He would be looking at a repayment plan of approximately $2100 per month to a chapter 13 trustee. This amount will pay off his outstanding debt over a 60 month period. By doing so, he can keep all of his real estate, all of his vehicles, and any other asset that he may have. Thankfully, it appears from his budget that his business has improved to the point where he definitely has money available to pay the chapter 13 trustee. Thus, I would recommend a chapter 13 to stop the high interest and collection efforts from his mostly credit card debt.  Otherwise, he will continue to accrue interest and he will carry the credit card debt way beyond the 60 months that would cure the ill if he filed a Chapter 13.