Bankruptcy Relief
Recently, I met with a man who was running a small business out of a storefront. Well it turned out that he was unable to survive at that current location. The problem was that he had a lease that expired five years into the future. So here he was with a business that was not making ends meet and yet he was still on the hook for a lease going out another five years. The first thought that he had was possibly filing a chapter 7 bankruptcy and eliminating the debt owed to the landlord. If he was able to do that, he could shut down the business, close the doors, file chapter 7 bankruptcy and get out of the debt in its entirety. He thought he was really onto something here. He thought he had found a solution to his financial problems with this business. He was so excited that he made an appointment to see me and brought along his accountant. What they heard next surprised them.
Chapter 7
Well it turns out the gentleman would have been a perfect candidate for a chapter 7 bankruptcy with regard to his business and the lease. The problem however was that the gentleman had personal assets which were not only significant, but they were paid in full. He has a house that is worth over $250,000 and there is no mortgage or debt on that property. He owns a vehicle that is worth $15,000 which has no payment or debt on the vehicle. So essentially, it’s as if he is sitting with $265,000 in a bank account and asking the bankruptcy court to let him out of a lease obligation. We simply cannot file a chapter 7 bankruptcy in that type of scenario. The chapter 7 trustee would sell his assets in order to pay the creditor its fair share. The debtor would be given an exemption amount for his homestead as well as his wildcard exemption here in the state of Illinois. This is obviously not a good option for this debtor and not an option that he would ever choose to go forward with. There is another option however.
Chapter 13
Chapter 13 is what this individual should and can file. The benefits to a chapter 13 are huge in this case. Once he files a chapter 13 bankruptcy, he can, through the chapter 13 plan, terminate the lease obligation. Thus, he will owe for the portion of the lease that he is behind up until the date of filing and nothing further. The future years that will become due and owing will be eradicated in a chapter 13. This is a nice compromise between chapter 7 and paying the debt in full. By my calculations, he will be paying approximately $300-$350 per month over a 60 month timeframe. This will allow the debtor to protect all of his property and provide a means to pay less than what is owed on the lease obligation. He is currently thinking about this solution. He needs to think about it because his mind was so set on a chapter 7 fresh start and the thought of paying 300 or so dollars per month for 60 months is a little bit unsettling. However, when he stops to think of what he will owe if he doesn’t file chapter 13, he will likely be in the office real soon to start the filing.
Qualifying Factors
So the important thing to keep in mind when it comes to filing chapter 7 bankruptcy is that not everyone qualifies. It depends upon a number of factors: your assets, your liabilities, your income, and your expenses. All of these factors need to line up perfectly for you to qualify for a chapter 7 bankruptcy case. The mere fact that your business is failing or the mere fact that you cannot pay your landlord does not necessarily qualify you for chapter 7 bankruptcy relief. What you need to do is consult with a bankruptcy attorney regarding your case. The gentleman who came to see me who brought his account now has a greater understanding and awareness of how the different chapters of bankruptcy apply to certain scenarios. He was thinking chapter 7 originally. He now understands that chapter 13 is his real option. For more information about bankruptcy and the different chapters and how they can apply to your particular scenario, contact my office at 847-520-8100.
