Chapter 13/Chapter 7 Analyses

Case Overview

This is the bankruptcy case study for Mrs. T. who resides on the northwest side of Chicago. She is in the office today to determine whether or not chapter 13 is going to provide the financial relief that she desires. Let’s look at the facts of her particular situation to make that determination. She is living in Chicago and she is renting. Her lease is up in June of this year and she plans on renewing that lease for another one year term. She has a 2010 Nissan Ultima which is financed through Global Lending. She is one month behind on her auto payment. She owes approximately $14,000 total to pay off the debt and her current monthly payment is $435. The value of her vehicle does not exceed the amount owed to the lender.

Personal Property

In terms of her personal property, she has a checking account at Chase Bank with an approximate balance of $400. She has a security deposit on hand with her landlord of only $200. Other than those two items, she only has some minor household goods and clothing in terms of personal property. She has no 401(k), pension, profit sharing or other retirement account. She does not expect to receive a tax refund this year and she does not expect to inherit any money in the next six months.

Finances

In terms of her financial situation, she is currently working and has been working for the past two months as a nurse’s assistant. Her earnings amount to $2000 per month net, take-home pay. She is paid every other week and her hours do not fluctuate. Let’s now examine her monthly expenses to determine whether or not there is available money per month to pay a chapter 13 trustee.

Monthly Expenses

Her rent is $1019 per month. Renters insurance is $28 per month. Her cellular phone is $120 per month. Her cable television expense is $171 per month. She spends $350 per month on food. Her laundry expense is $40 per month. She spends $200 per month on transportation. Her auto insurance is $130 per month. Lastly, her auto payment which she is currently a little bit behind on is $435 per month. When we do a quick look at her income and expenses, it appears that she is currently spending more than she is making. This would not bode well for a chapter 13 where you have to have a surplus income above your expenses.

Financial Affairs

Turning to her summary of financial affairs, she has earned anywhere from $16,000 to $29,000 over the past three years depending upon which jobs she was working. She has had one prior address in Chicago. She lived at that prior address from 1993 to 2014. She does have a student loan owed to Great Lakes in the amount of $40,000. She is not currently making any payments on that student loan. In terms of other debts, she owes $10,000 to the Illinois Tollway Authority, $300 in miscellaneous credit cards, and $3500 in minor medical bills.

Recommendation

Based upon all the information provided and ascertained from the debtor, it would be my recommendation that she file a chapter 7 fresh start bankruptcy and not a Chapter 13. By eliminating her miscellaneous debt, she will be in a better position to work some sort of small payment plan with the Illinois Tollway Authority and with her student loan debt. She simply does not have the funds available from which to fund a chapter 13 plan. If she were able to earn additional income or somehow cut her expenses, then chapter 13 would be a great idea. Chapter 13 would allow her to pay 10% back on her Tollway debt as well as restructure the auto payment and stretch it out over 60 months, in essence, lowering the payment. However, without that additional income or without cutting her expenses, chapter 13 is not a viable option. Thus, I am recommending a chapter 7 bankruptcy to at least eliminate a portion of her debt.

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