Chapter 13 or Chapter 7?
This is the bankruptcy case study for Ms. L who resides in Waukegan, Illinois. She has never filed a bankruptcy case before and is wondering whether or not chapter 7 or chapter 13 would be in her best interest. She has a single-family home which is worth $160,000. The debt on the property is nearly $160,000 as well. Thus, she has no equity in the real estate and if she elected to file a chapter 7 bankruptcy case, she would be able to keep her house free from the trustee provided she continues to make her mortgage payments owed to Bank of America. She also has a 2013 Dodge Avenger vehicle which is worth approximately $17,000 and she owes $18,000. She pays Chrysler Capital and interest rate of 27%, she is current on her payment, and she pays $485 per month. She is still undetermined as to whether or not she would like to keep the vehicle and pay for it or surrender the vehicle and get out of the debt through her bankruptcy case.
What She Owns
In terms of personal property, she has a checking account and a savings account with an approximate balance on hand of $80. She has minor household goods worth $2000. She has minor clothing valued at $500. She has term life insurance which provides a death benefit only so there is no equity there. She has a 401(k), ERISA qualified valued at $12,000. She does not have the right to sue anybody for any reason, personal injury, workers compensation or otherwise. She does not expect to inherit any money in the next six months. She has not given away or sold anything for less than its fair market value in the last year.
Her Income Going Into A Bankruptcy
She is currently working as a dispatcher in Northbrook. She earns approximately $35,000 per year and she has been working in that capacity for the past 16 years. Her net take-home pay after ordinary tax deductions equal $1732. Let’s examine her monthly expenses. Her mortgage is $725 per month, electricity is $60 per month, home phone is $46 per month, food is $200 per month, laundry is $40 per month, medical is $50 per month, transportation is $350 per month, auto insurance is $87 per month, and her auto payment is $485. When we examine her income versus her expenses, there does not appear to be any money available for creditors if we were to elect to file a chapter 13.
She Also Owes The IRS..
In terms of financial affairs, she earns approximately $35,000-$30,000 per year and has done so for the past three years. She does not have any current lawsuits against her, she has not had any property repossessed or returned, she has not closed a bank account in the last year, she does not have a safety deposit box, she has not transferred any real estate in the last four years, and she has not owned a business in the last four years. She did have a prior address in the last three years when she was living in Zion. She does have one co-signer on her mortgage. She owes the federal government $10,000 for student loans. She also owes the IRS $10,000 for the tax years 2012 and 2013.
Keep The Car & Home, File Chapter 7 Bankruptcy
My recommendation to Ms. L would be a chapter 7 bankruptcy filing. Although we cannot eliminate the debt owed to the IRS and the student loans, we can eliminate almost $60,000 worth of unsecured credit card debt. She can also keep her home and her vehicle provided she continues to make timely payments on those items. Since her income does not exceed her expenses, the court would accept her chapter 7 fresh start bankruptcy. If circumstances were to change, then we can revisit the possibility of a chapter 13 repayment plan. However, as it stands right now, chapter 7 bankruptcy would be the best option for Ms. L.
