A skilled Illinois bankruptcy lawyer will be able to advice on debts that are dischargeable and those that are not dischargeable. A Chapter 7 bankruptcy attorney must know that student loans are the king of non-dischargeable debt. Under 11 U.S.C. 523(a) (8)(A) and (B), student loan is not dischargeable unless the debt would impose an undue hardship on the debtors and the debtors’ dependents. The specifics of what constitute an “undue hardship” are fleshed out by Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987) and In re Cox, 338 F.3d 1238 (11th Cir. 2003). Under the Brunner standard, a student loan can be discharged when: (1) that the debtor, given his or her current financial circumstances, could not maintain a minimal standard of living if the debt was non-dischargeable; (2) that the state of affairs creating the debtor’s current circumstances would be likely to persist for a significant portion of the loan repayment period; and (3) that the debtor had made a good-faith effort to repay the loans. Id. As a practical manner, student loan lenders including the federal government defend these actions tooth and claw; the cases will always go to trial, and the debts are very difficult to discharge. Make sure that you are getting the proper bankruptcy advice before attempting to eliminate student loans.
Another highlight of bankruptcy basics is that of exemptions. Exemptions are what allow a debtor to keep property in a bankruptcy. Exemptions are like highlighters – anything highlighted with an exemption is protected to the extent of the exemption. Whether the exemptions are provided by state law or federal law is determined by the jurisdiction the case is filed in and the state where the property is located. In Illinois, the exemptions are determined under state law.
To determine if an asset is vulnerable to liquidation, one takes the fair market value and subtracts the lien amounts, if any, and the exemption value. For real property, the standard is to deduct 4 to 8 percent for cost of sale in determining the equity. The difference is the amount vulnerable to seizure. Depending on the amount of exposed value, the nature of the asset, thejurisdiction, the aggressiveness of a particular bankruptcy trustee and the overall situation in the case, an unprotected asset may still not be worth pursuing.
If an asset that the debtors have asserted their exemptions against is sold, the bankruptcy trustee will have to pay to the debtors the value of their exemption. In the event that the trustee cannot pay out the full exemption value, the sale of the asset will not be confirmed by the court.
Debtors or co-owners of assets also have the option to “buy out” the trustee’s interest in any given piece of property. The buyout option typically involves the use of exempt funds, such as a withdrawal from a 401(k) or other retirement account, or funds provided by other sources or accumulated post-filing. If you are going to attempt a buyout, make sure that you have consulted with your Chicago bankruptcy lawyer or other lawyer within your local jurisdiction. The best advice can lead to a much better case scenario.