Where’s My Money?

It happens to all of us. You provide exceptional service to a client but when it comes to getting paid, the check never arrives. After making several demands for payment to no avail, what are your options? You can either let it go or take the legal route to try to collect what is owed to you.

The process of collecting money is a fairly complicated. It can take as little as 30 days or as long as several years to collect. There are numerous factors to consider before filing a suit, such as:

  • The amount of debt
  • The type of debt
  • The location of the debtor
  • The likelihood of collectability

Before any suit is filed, it advisable to mail the debtor a simple demand letter. The letter should states the amount due, what the payment is for and if payment is not received within a certain amount of time, a lawsuit may be filed. There are several reasons for this letter. First, the debtor may pay right after receipt of the letter to avoid litigation. Second, the letter verifies the correct mailing address of the debtor. The correct address is necessary to properly serve the complaint if a lawsuit is filed.

If the demand letter fails, it is necessary to determine whether it makes financial sense to file a lawsuit. The cost to file a lawsuit in Cook County is around $340, plus a service fee for the Sheriff. Attorneys usually take collection cases under contingency basis, meaning that the attorney will not get paid until he or she recovers. The contingency varies but it is around 30% of the amount owed. So if the debt amount is fairly low, it may not make financial sense to litigate.

Once the complaint is filed, it has be served on the debtor. This may sound like a simple step but often times the debtor cannot be located and multiple attempts may be needed to obtain service. Sometimes the debtor is nowhere to be found and the case is dismissed for lack of service.

Once the debtor is served the case is set for trial. If the debtor does not show up a default judgment is entered in favor of the creditor. If the debtor shows up or hires an attorney, the case is litigated until trial. Either way, the goal is to get a judgment against the debtor.

So you have a judgment? Great! Now what? The attorney has to enforce or collect on the judgment. The first thing that the attorney should do is file a citation to discover assets. This “fishing expedition” allow the attorney to search for any assets of the debtor which include bank accounts, real estate property or collectibles of value that can be sold at an auction. If the debtor is employed, a wage garnishment can be issued. If the debtor has real estate property, a judgment lien can be attached to the property that can be satisfied from the proceeds once the property is sold.

What happens if the debtor has no assets and does not work? The judgment is then uncollectible. The creditor may try to issue another citation to discover assets in a couple of years to see if the debtor’s financial situation has improved that would allow recovery.

It is also possible to settle the case with the debtor by agreeing to take a lesser amount then is owed or enter into a payment plan.

This was a short overview of the collections process. For more information please contact Attorney Artur Zadrozny at 312-375-1704 or artur@bzlaw-firm.com

 

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Myth 2: I’ll Never Be Able To Get Credit Again

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It is a misconception that obtaining credit after filing for bankruptcy is next to impossible. Before we get into the details, your credit score should be one of the last things to worry about when making the decision to file for bankruptcy. This decision should be a sound one, taking the totality of circumstances into consideration, including your income, the amount you pay to your creditors each month, and the psychological toll of having a large amount of debt with little likelihood of paying it off. 

Credit card companies are really good about marketing. They make you believe that a you have to have a good credit score in order to live a happy and successful life. You see it everywhere: television commercials, radio ads and whenever you apply for any kind of loan. They drill the idea into your head that only a good credit score will allow you to purchase that dream car or dream home and that the number one reason why your credit score will go down is bankruptcy. The credit companies force the idea that it is infinitely better for you to pay that minimum payment each month for the debt that will take you decades to pay off just to preserve that good score rather than to file for bankruptcy. The truth is, however, that if you file for bankruptcy, the credit card companies will, in most cases, get paid cents on the dollar or nothing at all.

There is no doubt that filing for bankruptcy will damage your credit score and that bankruptcy may stay on your record for up to 10 years, but the impact bankruptcy will have on the score depends in large part on what your score was before filing. If your score was low already, bankruptcy will not have much of an impact on the score. In fact, over time, it will most likely increase it. Why? Because bankruptcy gets rid of the toxic debt that prevents you from paying your bills on time, and thereby damaging your credit as a result. With a clean slate, you are more likely to pay your bills on time.

But can I get a loan or a credit card after bankruptcy? Yes, you can. It may be tougher and the rate may be higher, but banks do offer loans post-bankruptcy. In fact, many report that they start seeing credit card offers in their mailboxes shortly after obtaining their bankruptcy discharge.  Many financial institutions offer secured credit cards where you can put down a couple hundred dollars, something like a deposit, and then you are able to use it as a regular card. If you make your payments on time each month, those payments will be reported to the credit agencies, raising your score. If you are planning on getting a car loan, you may consider having someone to co-sign on the loan. Again, the payments will get reported to the agencies which will have a positive impact on your score.

Again, filing for bankruptcy is not an easy decision to make. But the notion that you will not be able to get credit again after bankruptcy is simply false. Please contact our office if you are struggling with debt in order to obtain a competent evaluation of your financial situation. 

Myth 1: People Filing for Bankruptcy Have No Money

A popular question a bankruptcy attorney often gets is: “If your client is filing for bankruptcy, how can they pay you?” This question assumes two things. First, that bankruptcy takes everything that a person owns and leaves him with nothing, and second, that the person filing for bankruptcy is completely penniless. Both assumptions are incorrect.

The intent of bankruptcy is to give a person a “fresh start”. The bankruptcy code allows for certain exemptions that determine whether you can keep certain property or not. For example, in a Chapter 7 case, if  you own a car that is worth $2,000 and the exemption is $2,500, you can keep the car after the bankruptcy. What if the car you is worth $10,000 and is paid off? In that situation, the trustee will most likely sell the vehicle, pay you the exemption amount and pay the rest to your creditors. Keep in mind that it will cost the trustee to sell the vehicle so if the value of the vehicle is slightly above the exemption amount, it may not be worthwhile for the trustee to go ahead with the sale. In a Chapter 13, a person can keep all their possessions while making a monthly payment to the trustee that will pay off a certain percentage of their unsecured debt. (Generally, all secured creditors have to be paid in full).

So how can debtors pay their bankruptcy attorney? In a large majority of bankruptcy cases, debtors have steady jobs and regular income. What they also have is large debt. Remember that the idea behind bankruptcy is “debt relief”. Because of the large debt, the monthly expenses of individuals who struggle financially exceed the monthly income and they have trouble making their monthly bills.  Imagine a person that has to pay $500 in credit card bills each month. Once a bankruptcy case is filed, the debtor no longer has to pay those bills and has additional income of $500 per month.

In short, most of people who file for bankruptcy are employed. The reason they file is because their debt becomes unmanageable and it makes financial sense to consolidate the debt either through a Chapter 7 or Chapter 13 case.

Bankrupty Filing Fee Increase

As of June 1, 2014 the filing fees for bankruptcy cases will go up in the Northern District of Illinois. For Chapter 7 cases, the fee will increase from $304 to $335. For Chapter 13 cases, from $281 to $310. For Chapter 11 cases, from $1,213 to $1,717. Please contact our office if you have questions about these fee changes.

Lien Stripping

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The previous article touched upon the process of removing a second mortgage from a home in a Chapter 13 case. This process is called “lien stripping” and works as follows. If a debtor has a second mortgage and the house is underwater (meaning that the value of the home is LESS than the amount of the first mortgage), the Chapter 13 plan allows that mortgage to be “stripped” from the home. That debt is then placed into a general unsecured pot and is paid cents on a dollar over the next three or five years. After the debtor successfully completes all the payments on the plan, the remaining balance on the second mortgage is discharged, along with the other unsecured debt, and the lien on the home is extinguished.

For example, the Smiths’ home is valued at $150,000 and the balance remaining on the first mortgage is $175,000. The Smiths’ also have a home equity line of credit with a balance of $40,000. Since the balance on the first mortgage is more than what the home is worth, the Smiths can propose a plan to strip the second mortgage. If successful, the second mortgage is turned into an unsecured debt and will be lumped together with other unsecured debt, such as credit cards. That whole unsecured debt will then be paid on a percentage basis. The percentage paid to the unsecured debts will depend on numerous factors but it basically boils down to how much “disposable income” the debtor has left each month after paying expenses, multiplied by 36 or 60 months. That percentage is determined on a case by case basis.

After successfully completing a Chapter 13 plan, the second mortgage lien will be removed from the Debtor’s home. Not everyone will qualify for “lien stripping”. That’s why it is very important to have your situation looked at by a competent attorney. Give attorney Artur Zadrozny a call at 312-375-1704 to set up an appointment.

Chapter 7 v Chapter 13

Once individuals decide they need bankruptcy relief, the next question usually is: what kind of bankruptcy is the best option for me? People know about Chapter 7 or Chapter 13 but they are not clear what the difference between the two options is. First of all, the names Chapter 7 and Chapter 13 are simply the chapters found in Title 11 of the United States Code. Title 11 contains all the laws related to bankruptcy law. Think of Chapter 7 as the process of liquidation and Chapter 13 as the process of reorganization.

Chapter 7 – Once filed, the trustee appointed by the bankruptcy court takes the Debtor’s non-exempt assets, sells them, and payoffs of the unsecured creditors. In majority of Chapter 7 cases, the Debtors do not have any assets of value, their major debt is unsecured debt: such as credit cards, medical bills, or court judgments. Within three to four months of the filing, any qualified Debtor receives a discharge and all his or her debt is wiped out.

What if I have a house? Can I still keep it if I file for Chapter 7? That depends whether you have equity in the house or not. If your house is underwater and is secured by mortgages, the trustee will generally not bother with selling the house because there won’t be any funds left over after the sale. If there is equity, the trustee will sell the property, payoff the creditors, and if there are any funds left over, they will be turned over to the Debtor.

What if the house is underwater and I am late with my mortgage payments? In this situation you will have to continue to make mortgage payments if you want to stay in your home. Otherwise, there is nothing to stop the bank from filing a foreclosure action against you. If a foreclosure action was already filed before filing of the Chapter 7 case, the filing will only temporarily stop the foreclosure.

Chapter 13 – This is a reorganization form of bankruptcy where you reorganize your debts by paying the unsecured creditors a percentage of what you owe. The Debtor proposes a repayment plan that lasts three or five years during which time the Debtor makes monthly payments to the bankruptcy trustee. The trustee in turn disburses those funds to the creditors. If the Debtor is behind mortgage payments, Chapter 13 allows the debtor to become currents on the mortgage payments by including the mortgage arrears in the plan. The Chapter 13 plan also allows for the removing of a second mortgage if certain conditions are met. This process of “lien stripping” will be discussed in greater detail in the next article.

This was just a short overview of the differences between a Chapter 7 and Chapter 13. Each bankruptcy case is unique, with its different set of circumstances. Call attorney Artur Zadrozny today at 312-375-1704 to discuss your situation to see if bankruptcy is the answer for you.