New Illinois Supreme Court Rules on Foreclosure

On May 1, 2013 new Illinois Supreme Court Rules go into affect that are designed to stop some of the abuses of the foreclosure process by the mortgage industry, which will hopefully prove a great benefit to individuals attempting to save their homes.

The new rules require that banks and mortgage companies seeking to foreclose on homes file additional disclosures with the court in order to obtain a judgment. The rules for example require that the lender attest that they have complied with the any applicable loss mitigation programs and to provide greater disclosure of the actual records the mortgage company has used in making their allegations of how much the homeowner owes under the mortgage.

The new rules should make it harder for homeowners willing to defend themselves in court to lose their property based on the boiler plate statements in the standard foreclosure complaint filed with the court. In the past these generic documents have made it difficult for the defendant in the court case to know, if the statements the mortgage company in making are accurate or not, and the supplemental disclosures required by the new rules should prove a relief to those attempting to save their homes.

Should Bankruptcy Be Filed Before Or After Divorce

As the old saying reminds us "When it rains it pours," and this principal is sometimes demonstrated by people ,who need to file bankruptcy, while they are also going through a divorce. Whether the financial problems contributed to the marital difficulties or the marital breakup aggravated their inability to balance the family budget, the couple often face the practical question of whether they should file for bankruptcy before or after they complete the divorce.

There are several factors to take into consideration in making this decision.

By filing bankruptcy first a couple can often eliminate most of their debts, and since the parties no longer have to argue about which spouse will be responsible for which debt this can simplify the divorce process. Also as long as they are still married a couple can file a joint bankruptcy rather than two individual bankruptcies, which can cut their bankruptcy court costs and attorney fees in half. This fee reduction can result in a significant savings for people under financial stress.


On the other hand the law requires that individuals with larger incomes file a Chapter 13 Bankruptcy rather than a Chapter 7 Bankruptcy which can prove far more expensive for the Debtor.
This determination is made by a mathematical formula known as the "means test".  Since the means test is calculated based on the income of the household, the result will be different before and after a couple separates, and the Debtors can sometimes avoid the Chapter 13 by waiting

Is Exempt Property Always Safe In Bankruptcy


One thing a bankruptcy lawyer will always point out to his or her clients is that a certain amount of property is exempt from creditor claims.  Under Illinois law probably the most commonly used exemptions are the $15,000.00 of equity in one’s home, the $2,400.00 exemption for a vehicle, the $4,000.00 general
personal property exemption, and the exemption for qualified retirement savings such as IRAs and
401Ks.

However, some courts have allowed the bankruptcy trustee to take exempt assets away from
debtors under certain circumstances.  One situation that has appeared in several reported cases is
when debtors have improperly failed to disclose certain assets on their bankruptcy petitions.
Although not all bankruptcy courts have agreed with the treatment, some of these decisions have
allowed the trustee to take the debtor’s exempt assets to pay for the damages caused by the
omission.

One should note that omitting assets is generally considered fraud and the courts have
justified this treatment under provisions of the Bankruptcy Code designed to punish misconduct.
Thus hopefully the honest debtor does not need to fear this could happen to him.  

Will IRA Withdrawals Disqualify A Chapter 7 Bankruptcy

As a bankruptcy lawyer  one of the biggest concerns I hear from my clients is the possibility that they will not qualify for a Chapter 7 bankruptcy and will have to file under Chapter 13 instead.

Since 2005 the bankruptcy law has contained a mathematical formula, calls the means test, which generally determines, if debtors will have enough income to pay back part of their debts and will thus have to file a Chapter 13 and make monthly payments.

The means tests takes a household’s average income for six months and subtracts out what the law considers reasonable expenses to determine whether the debtors can still afford to pay some debt.

Unfortunately, many individuals in financial difficulty end up liquidating their retirement accounts, such as 401Ks or IRAs in an attempt to avoid bankruptcy, and if they end up having to file anyway, the question is whether the withdrawals they made within six months prior to filing will be treated as income in the means test and thus force them to file under Chapter 13.

Fortunately, when the issue has been raised the courts have tended to take the position that the Debtor’s action was more like the withdrawal from a savings account, and that it should not be counted as income for this purpose.

Special Use Valuation In Estate Taxes

For estate tax purposes property is taxed at fair market value, which means that the value is set based on the mostprofitable use for the property.  For example if your vacation cottage on a serene lake in Minnesota
is worth $50,000.00 to someone who wants to continue taking fishing trips to the cottage like you
did, but an oil company wanting to strip the earth for tar sands is willing to pay $250.000 for the
land, the value for estate tax purposes will be $250,000.

There is an exception however that principally applies to family farms but can also be used for
other real estate used in a business. The exception allows the property used in the farm or business
to be valued at its current use with a reduction of up to $1,070,000 from what the real estate would
sell for, if it was put to its highest and best use.

For the exception to apply the real estate must be located in the United States and the decedent
must leave it to qualified heirs, which would be a spouse, direct descendants, or the spouse of a
direct descendant.  Both the decedent and the qualified heirs must materially participate in the
operation of the business, or in other words they must be out working the farm rather than merely
renting out the farm land.

Student Loan Discharge In Bankruptcy

As a bankruptcy lawyer I frequently run into a dead end when I try to help people with large student loans . The law says that student loans cannot be discharged in bankruptcy unless the student loan will create an undue hardship, and even though there are countless individuals, who have graduated with degrees that offer them little hope of ever repaying the huge student loans that were necessary to complete their education, bankruptcy courts have been very tough in recognizing that any debtor ever meets this standard.

However, a decision that came down from the Seventh Circuit Court of Appeals in Chicago on April 10, 2013 seems to offer some hope for those needing more reasonable treatment. In the case of Educational Credit Management Corp. v. Krieger the court allowed the discharge of $25,000.00 in student loans for a paralegal in her fifties, who had been making every effort to repay the loan in the eleven years since she has taken out the loans and had no hope of repaying it based on her income.

In doing so the appellate court rejected the concept that the lower court had embraced, that this was not enough for a discharge, unless the debtor could also prove that she had no reasonable prospects of improving her income in the future, a standard that just about anyone would find impossible to meet.