Chapter 7 Bankruptcy Get Out Of Debt: Save For Your Future Again

This is the case of Jonathan and Paula Rialto who resides in Chicago, Illinois and who are in my office to consult regarding Chapter 7 bankruptcy.  The parties do own a home worth $139,000 and they owe $247,000 to pay off the debt to PNC Bank.  So they have negative equity in the property and they are up-to-date on the property.  In terms of vehicles, they have a 2004 Cadillac CTS financed by Wells Fargo with an approximate balance of $9700.  The vehicle is worth approximately $11,000 so slight equity in that vehicle.  They also have a 2008 Ford Mustang financed through Allied Financial.  The balance on that vehicle is $22,000 and the market value is somewhat less than that.  They also have a paid off vehicle, a 1994 Ford Explorer with an approximate value of about $2000.

In terms of personal property, the parties have a checking account at Bank of America with a very low balance and another checking at First Merit bank, once again with a very low balance.  So their assets in the accounts are protected.  They have minor household goods, TV, audio, furniture worth about $1500 and they have normal clothing, jewelry and those items worth approximately $500.

Husband has a life insurance policy with no cash value, it’s a death benefit only policy so upon his death, there will be a dividend or death benefit paid to the beneficiary.  He also has a deferred compensation plan through his employer which is also protected under bankruptcy law in the state of Illinois with approximately $18,000 on account.  In addition to the couple, they have to other children living on the property, a 21-year-old son and a 17-year-old daughter.

In terms of employment, we have one job between the two and that is the husband who is a firefighter with the city of Chicago and he’s been doing that for the last 10 years.  He’s paid approximately $4300 per month net and he is paid twice a month.  Looking through the monthly expenses, we have the mortgage payment of $1700, a second mortgage of $139, we have association fees of $200 per month, electricity and gas expenses of $350 per month, home phone, cell phone combined is approximately $300 per month, food is $400 per month, clothing is $75 per month, laundry and dry cleaning is $50 per month, gas, tolls and transportation is approximately $700 per month.  Health insurance out-of-pocket is $156 per month, auto insurance is $382 per month and tuition for one of the children is $478 per month.  And then we have the auto payments which add up to $882 per month.

What we have here is a case where the expenses are exceeding the income and there is absolutely no way to continue making these minimum payments.  The husband’s income at times has been anywhere from $82,000-$99,000 per year depending on overtime.  But when you look at what is actually taken home after ordinary deductions and taxes, there’s just not enough left to fund any kind of Chapter 13 plan.  There are no student loans, there is no tax debt.

To complicate the issue even more, the parties have entered into a couple timeshare agreements.  One timeshare has a value of $14,000 and the balance owed on it to Blue Green Vacation Unlimited is $7700.  So there’s about $7000 worth of equity in that timeshare but I don’t think a trustee is going to try to administer it.  The other time-share is through Monterey Financial and that is valued at $1400 and paid in full.  So that’s another timeshare that has a little bit of equity but once again, the trustee is not interested in those properties.

My advice to the debtors would be possibly to surrender the timeshares so they could lose that ongoing association expense and file a Chapter 7 and eliminate the nearly $70,000 worth of combined credit card debt that they are carrying right now.  So for Jonathan and Paula Rialto, Chapter 7 is going to be your best bet.  Get a fresh start; get back on your feet; start being able to save a little, put a little money for retirement again and be able to provide for yourselves and your family.

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