This is the bankruptcy case study for Jay. M. who resides in Hoffman Estates, Illinois. He is a single individual and is seeking a possible repayment plan under chapter 13, federal bankruptcy law. He has never filed a bankruptcy case before, however he has done significant research on both chapter 7 and chapter 13. The facts are as follows:
He is the owner of a single-family home located in Hoffman Estates with a market value of anywhere from $195,000-$200,000. He has one mortgage in which he owes $180,000 total and he is up to date on his payments. However, he does have a judgment lien against the property from a creditor in the amount of $22,000. He is not renting any property from anyone and nobody is renting from him.
He owns a 2009 Honda CRV which is financed by Honda acceptance. The vehicle is worth approximately $10,000 and he owes a little bit over $10,000 to pay it off. His monthly payment is $343 and he is current. He also owns a 2000 Hyundai Elantra which is paid in full. That vehicle is worth about $500 as it has 187,000 miles on it. In terms of personal property he has a checking account at PNC bank, household goods valued at $400, clothing valued at $300, term life insurance with a death benefit only, a Roth IRA with $40,000 on account and a traditional 401(k) with $50,000 on account.
He is currently working and he is earning approximately $49,000 per year. He has been at his job for the last seven years so he has very steady employment. When we look at his monthly income versus his monthly expenses he is running a deficit. Thus, he does not have money available to fund a chapter 13 plan. Thus, I will start shifting my focus as it relates to chapter 7 and a possible fresh start. To do so, we need to look at his debt situation.
Luckily he does not owe any non-dischargeable debt such as student loans or taxes. He does owe $20,000 in miscellaneous credit card debt, $30,000 regarding a prior foreclosure deficiency, and medical debt totaling $8000. Chapter 7 is going to provide some relief to this client. He truly wanted to reorganize the debt and repay a portion of it over time. However, since his monthly income did not provide a surplus, he’s going to have to accept the fact that chapter 13 is not possible and that the only bankruptcy option for him is a chapter 7 fresh start. That would be my recommendation in this particular case at this particular time. If his income were to increase, he may have the ability to file under Chapter 13 in the future.
