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David M Siegel & Associates
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When I do Chapter 7, fresh start, is there any property that I can keep?

Interviewer: You talked about the Corvette that didn’t make it or the property in Wisconsin.  When I do Chapter 7, fresh start, is there any property that I can keep?

David Siegel: Yes.  You can keep a lot of property in a Chapter 7, which is why it’s a good idea to disclose everything to your attorney.  For example, real estate; an individual can protect up to $15,000 worth of equity in real estate.  If it’s a joint case, husband and wife, they can protect up to $30,000 worth of equity.  They can protect all of their 401(k), they can protect their pension, they can protect injury proceeds.  

Interviewer: So like a worker’s compensation?

David Siegel: Worker’s compensation is 100 percent protected as long as there’s not a third party claim against a machinery manufacturer or another individual.

Interviewer: How about a garden variety auto accident case?

David Siegel: Any kind of minor auto injury is not going to bring a return high enough for the trustee to take.  There’s a $7500 exemption; so the first $7500 that an individual recovers in his pocket would be protected.

Interviewer: Excluding any attorney’s fees that he’s paid or costs.

David Siegel: That’s right.  I’m talking about the net, the final amount that the individual gets.  Also, vehicles are protected up to $2400 in equity each, and there’s a $4000 miscellaneous – what they call wild card exemption which can be sprinkled over any kind of personal property.  So you can use the auto exemption for $2400, and whatever is left of the $4000 wild card to protect the vehicle as well. So you can technical have more than $2400 equity in a vehicle, and most debtors in a bankruptcy are not in a positive equity situation with their vehicles anyway.

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What’s The Meeting of Creditors?

Let me ask you this.  We did the pre-requirements, we filed the petition, and I’m going to go to a meeting.  What’s the meeting of creditors?

David Siegel: The meeting of creditors is required under the bankruptcy code.  It’s an opportunity for a trustee to examine you under oath; to make sure that you’re entitled to a bankruptcy, and to make sure that there are no assets which can be taken, administered and paid towards the creditors.  Of course, the creditors have an opportunity to show up at this meeting, and witness it, ask a few questions, possibly tell the trustee about something that they may know about the debtor.  For example, if there’s property in Wisconsin that was not disclosed or an old Corvette that miraculously didn’t make the schedules.  It’s an opportunity for the trustee as well as creditors to examine the debtor under oath.  Creditors can also set up their own meetings.  That’s called a 2004 examination. In some cases the trustee does not have enough time to let the creditor ask questions forever, and the trustee will say bring your own motion, have a 2004 exam, you can examine the debtor on your own.  I’m convinced that the debtor has no assets in my opinion.

Interviewer: I’ve actually been on either side of that.  I’ve represented a debtor in that situation, I’ve asked questions. It hasn’t gone on for a long time; just a few basic things there.

David Siegel: I think it’s important to note too on this topic that bankruptcy is for the honest debtor.  So as long as the debtor is being honest, and has made a full disclosure, and is not hiding anything, and hasn’t committed any kind of fraud that debtor should not worry about any of these procedures.  It’s the dishonest debtor, the one that has done something possibly shady or a nondisclosure or something of that nature.  Maybe taken advantage of a creditor, taken a loan out on false pretenses.  That’s the debtor that should worry that either the trustee – the U.S. trustee, or a creditor can bring a motion objecting to the bankruptcy either in part or that death sentence in its entirety.  

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What Other Kinds of Debts Survive a Chapter 7?

What other kinds of debts other than the student loan and things that you talked about survive a Chapter 7?

David Siegel: In a Chapter 7 any kind of parking tickets are going to survive, a recent tax debt, child support.

Interviewer: Recent tax debt; what do you mean by – so are you saying that there’s a possibility of getting some old taxes discharged?

David Siegel: Right.  Taxes is a tricky area under the bankruptcy laws.  But basically in a nutshell if a tax is more than there years old, if you filed a return on time or within the last two years, and if the tax was assessed more than $240 days ago it may be eliminated in a Chapter 7 bankruptcy.  So typically an old tax that’s more than three years ago we have a good chance that debt will be eliminated.  One caveat though, the return must be filed by the debtor, not by the government.  The government actually does file returns on behalf of individuals. If that happens that tax debt can never be eliminated because the tax return was filed by the government.  

Interviewer: What if I go back and file a return from a few years ago?

David Siegel: You can do that, but then you must wait an additional two years from the time you filed that return before it can be eligible for discharge. So the time with Chapter 7 bankruptcy on a number of different issues; the use of credit cards and tax returns,t here’s a lot of time areas that you want to make sure that you don’t pull the trigger on a filing prematurely.  You want to time it properly, and that’s not fraudulent, that’s zealous representation, that’s being smart.  That’s taking full advantage of the federal laws that are there for you.  If waiting an extra week or two means the difference between dischargeability and non-dischargeability by all means your attorney better wait. Otherwise you have an issue with your attorney there.  

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In Chapter 7 What Kind of Debts Can I Expect to be Eliminated?

David Siegel: Any kind of credit card, medical bill, personal loan, past due utility, auto repossession deficiency, money that was lent to you by a family member or a friend or a payday loan store.  Those are the typical debts that get eliminated in the Chapter 7 without much of a problem.  A problem could come in a case where someone runs up their credit cards in anticipation of filing.  They run up charges, they buy electronics, TV, furniture, electronics, cash advances within 60 days of filing are a no-no.  Because it just looks to the court like an abuse, you know you were going to be filing so you tapped out all your available credit.  The credit card companies about this, they when you filed, then when you charged, and if they feel it was fraudulent they can object, and in that case any of those recent charges would still remain due and owing.

Interviewer: How about, and I get asked this a bunch of times; how about a student loan?

David Siegel: A student loan is non-dischargeable per se.  There are some exceptions; undue hardship, but those are very, very hard to prove.
 
Interviewer: My understanding is you have to be in very sad, sad shape, and that you’re not able to work at all, really.  I’m not talking about a bad back here, I’m talking about being completely disabled.

David Siegel: Right.  The student loan situation is just what you said.  If you have the ability to repay it to any extent at all then you’re going to have to repay it.

Interviewer: What happens if I have the student loan and I use my credit card to pay back the student loan; so now the debt that I have on the credit card is really what I used to pay back the student loan?

David Siegel: The credit card company could object, because that debt that you incurred was used to pay a non-dischargeable debt.  The same thing would be if you paid for non-dischargeable taxes with a cash advance that you took out on a credit card.  You can’t abuse the credit cards.  If in any ordinary course of life if you ran up a debt that’s one thing, but if you abuse it, run it up at the last minute, take out a huge cash advance, do something that tantamount to fraud, plan on that sticking around.  If you do enough fraud they can deny your whole bankruptcy, which is basically the death sentence.  That means you could never eliminate those debts through a bankruptcy ever for as long as you live.

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What happens if I’ve got a garnishment or a threat of garnishment or a creditor is suing me?

Interviewer: So what happens if I’ve got, for example, let’s say even a garnishment or a threat of garnishment or maybe a creditor is suing me and I have to go to court in two weeks for the small claims case or whatever for the credit card.  What is filing a Chapter 7 going to do for me initially?

David Siegel: Chapter 7, once a case is filed, there’s something called an automatic stay which is created.  It basically states that the case is filed, there’s a case number, there’s a data filing, and the creditors typically – most creditors are prohibited from taking any kind of collection action against you.

Interviewer: What if there’s already one pending?

David Siegel: Again, depending on the type of case, but a typical credit card or other debt collector situation that lawsuit must stop immediately in its tracks.  However, if there’s some kind of contempt hearing I always advise my clients to show up at court, advise the court that you’ve filed a bankruptcy, and typically there’ll be no contempt charges against you.

Interviewer: If it’s based upon the repayment of whatever debt that we’re talking about there.

David Siegel: Right.  The difference between owing money and having to appear in court for failure to show up in court are two different things. So the bankruptcy will stop the debt, but if there is a contempt hearing I want the client to show up and advise the court that a bankruptcy case has been filed; so there’s no intentional disregard for the law in missing so many prior court dates.

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Before you file a bankruptcy is there anything that a person – debtor needs to do?

David Siegel: Yes.  Things have changed.  There are some requirements that one has to go through before there’s eligibility to file.  The biggest one is a credit counseling session.

Interviewer: So I’m in the situation I’m in because I didn’t have credit counseling?

David Siegel: The government feels you need to go through credit counseling, because maybe there’s a non-bankruptcy alternative that you mgith choose.
 
Interviewer: Suicide?

David Siegel: No, that’ll get you out of debt, but it won’t do good for your heirs or your family.

Interviewer: No.

David Siegel: So no, you want to go through the credit counseling, which is a means to an end.  In addition to that you’d have to provide your more recent federal tax return if you are required to file, and if you have paycheck stubs your most recent two months of those.

Interviewer: You have to submit that to…?

David Siegel: You have to give that to your attorney who’s going to then submit it to the trustee in your case just to verify the information and make sure that you are eligible, and that the information in your bankruptcy petition, which is prepared by your attorney, is accurate and truthful.  So they want to cut down on the very little amount of fraud that exist out there for people who really have the ability to repay, but are choosing not to anyway.
 
Interviewer: Do you have any sense of what the percentage is?  Obviously, I was kidding about that before, but it just seems that people are backed up against the wall, and now you want me to jump through this hoop to demonstrate what everybody already knows.

David Siegel: I would say over the course of the year throughout the country that there’s approximately 800,000 or 900,000 bankruptcy cases filed.  You may have 100 or 200 total that can be determined to be abusive to the point where they have to dismiss those cases.  So it’s very, very small segment, it’s not anything what the credit card lobby back in 2005 said it was. There is not massive abuse going on.  Nobody sets out really to file a bankruptcy.  People don’t run up debt just to tarnish their credit and file a bankruptcy, and have that trail them around for the next 10 years or in some cases forever.  Because it has to be disclosed on certain credit applications, apartment leases, job applications.  So, no, there is not widespread fraud, but the government thought that there may have been some fraud.  So they passed this legislation back in 2005 to try and curb it, but it really doesn’t exist to any great extent.  People need help out there and that’s obvious.

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Questions About Payday Loan Services and Bankruptcy

Dave, you mentioned payday loans, and that’s maybe unfortunate that’s very, very popular.  We get a lot of people that come in and they’re essentially being garnished, there hasn’t been a lawsuit that’s been filed, but they borrow whatever amount of money, and that is coming out of their paycheck voluntarily.  So is there – do you have to wait to file the bankruptcy to take care of that or what can you do?

David Siegel: Unfortunately, when someone visits a payday loan store or a title loan store they’re in a situation where they’ve exhausted – typically exhausted all other forms of credit.  So there’s no more room on the credit card, they can’t a traditional loan from a bank, they can’t get an equity line; there is no more money.  They can’t borrow from family or friends, they’re at the last resort.  They go to these stores that will give them money in exchange for repayment of that money at a premium.

Interviewer: Huge premium.

David Siegel: Anywhere from 100 percent to 500 percent or anywhere in between. What happens is the people typically can’t make that loan repayment back, and they’ll roll the payday loan over to another week to another cycle and increase the fees.

Interviewer: It continues to build up.

David Siegel: So when you get into that situation as a consumer one or two things is going to happen.  You’re either going to come into some money and be able to pay it off or more likely than not you’re going to fall deeper into debt and eventually have to file a bankruptcy to just wipe the slate clean.  But you want to file that as soon as possible once you’re in that terrible situation of owing payday loans.  At that point you’re already at the panic mode; so you really need help.  You need to talk to a professional to find out what your rights are at that point.

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When and Why Would Somebody Want to File a Chapter 7?

Interviewer: I know I’m going to ask you this just to – a general – the blanket question, but when would – when and why would somebody want to file a Chapter 7?  

David Siegel: Let’s say someone who has just lost their job or had an illness or gone through a divorce, some kind of drastic financial situation that all of a sudden took money out of their pocket or took income away.

Interviewer: Would that discharge attorney’s fees, Dave?

David Siegel: You can discharge your own attorney’s fees.

Interviewer: That’s right.

David Siegel: You’ve got to be careful with court orders on other peoples, but basically someone who’s been living credit cards, maybe they took out cash advances, maybe they went and got a payday loan or a title loan, and just they’re not able to make ends meet.  They’ve been making minimum payments on the credit cards maybe, and now it’s to the point where they can’t even make the minimum.  So you’re going to have a late fee, over the limit fee, and of course creditors when they don’t get paid they have collection mechanisms.  That’s harassing phone calls, lawsuits, garnishments, bank citations, they have a way of not only getting a judgement against you and harassing you, but actually taking whatever little you do have on account or wages.

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Chicago Bankruptcy, Chapter 7 & Chapter 13

Legal Action with Chicago area Attorneys David Siegel - Topic: Bankruptcy, Chapter 7 & Chapter 13

David Siegel: Jessie, one constant in this country right now is unemployment figures.  It’s rough, people are having a hard time finding work.  Some people have walked away from work.  Taxes are going up, the cost of living is going up for the most part, and there’s some tough economic times that are causing a lot of stress in people’s lives.  Thankfully, the federal government has bankruptcy laws which give people an opportunity to either get out of debt in certain circumstances or a repayment plan if they’re trying to save property and keep what they have, and repay some of their creditors.  So, thankfully, there are laws out there to protect people in these tough economic times.

There’s nothing as certain as death and taxes...
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What is a Chapter 7 Bankruptcy?

People refer to it in many different ways, like complete discharge, fresh start, etc. What is a chapter 7 bankruptcy?

Let’s just start off.  People refer to this a couple of different ways.  Fresh start, complete discharge.  What’s a Chapter 7?  

David Siegel: Chapter 7 is the most common form of bankruptcy.  About 75 percent of the cases that are filed are of the Chapter 7 variety, and that’s known as the fresh start bankruptcy.  Chapter 7 is where someone has very little in the way of assets, and a lot of debt. Whether it be credit cards, medical bills, personal loans, past due utilities, auto repossessions, foreclosures. Whatever it might be Chapter 7 is a way to eliminate the majority of one’s debt, move forward and get a fresh start.  Some exceptions, not every debts eliminated, but Chapter 7 would allow in most cases, either a fresh start completely or the majority of the debt being eliminated, and life goes on.  You’re able to wipe the debt away and start fresh.

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