The first option is to reaffirm the car loan. This means the debtor will keep the car and continue to make the regular payments on the loan. Creditors must agree to a reaffirmation, and they generally will if the loan is worth more than the car. The court must also approve a reaffirmation, and it must make the determination that reaffirming the loan will not present an undue hardship for the debtor and that payment is reasonable.

The second option is to redeem the car. This differs from reaffirmation as it involves paying the original lender with a lump-sum payment equal to the car’s retail value instead of installments to keep the car. If the debtor does not have enough cash laying around for redemption (few Chapter 7 debtors do), there are loan companies that offer “Section 722 redemption loans.” The benefit of redemption if a debtor can pull it off is that the redeeming amount will often be less than the amount of the original loan. If the creditor agrees to redemption, the amount owed over the retail amount will be discharged as an unsecured loan.

The last option is surrender of the vehicle. This is a good option for debtors who have a car that is more expensive than they can afford or if the loan amount greatly exceeds its value. Without bankruptcy, debtors cannot just surrender a car to the dealer and wipe clean the debt. Even if the car dealer repossesses the car, the debtor would still be liable for the amount owed above the car’s value. Bankruptcy allows for a fresh start for debtors who choose to surrender the car without liability.

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The family courts are prevented by statute from considering marital misconduct for property division, spousal support or child custody. Practically, this means that a spouse will not be entitled to a larger share of marital assets or a larger amount of spousal support because the other cheated.  Adultery is not considered in awarding child custody; however, judges do not look kindly upon spouses who have a new live-in boyfriend or girlfriend if they are seeking custody or visitation of children. In fact, even for visitation, many judges will agree if one parent wishes to disallow the other from having a boyfriend or girlfriend stay overnight with the children present.

There is one avenue of relief for people whose spouses cheated and spent marital money on an affair. Illinois law calls this “dissipation,” and it means the spouse wasted marital assets on a non-marital purpose. If a spouse can prove dissipation, the money will be added back to the marital assets to be divided between the spouses. This means that the innocent spouse can re-coup a fair share of the marital money spent on the other’s paramour.

The best thing innocent spouses can do is to take care of themselves and seek comfort and help from family and friends, or perhaps a professional therapist or support group. Living well is truly the best revenge.

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In a Chapter 7 proceeding, to be eligible to file you must first pass the means test. The Chapter 7 means test first compares your income to others in your state with the same size family. Ms. Suleman no doubt easily qualifies as her monthly expenses for those children must be incredible. Since she does not have regular income, she is unlikely to be able to reaffirm debts like a mortgage or a car. Reaffirmation is only allowed if it would not present an undue hardship on the debtor. What is ironic is that after the debts are wiped
clean, she will likely be swarmed with credit card offers as lenders know she will not be able to re-file for eight years.

This case illustrates that bankruptcy is available to everyone in need. Her case may seem especially scandalous due to the media attention, but it is not that different from many
others.  Our public policy dictates that it is more important for her to feed her children rather than pay unsecured creditors. One thing that she should seek out is credit counseling, which will be required. She must learn to not borrow more than she can pay back as her income is sporadic and her expenses are sky-high. This is not a woman to
vilify, and her 14 innocent children desperately need shelter, clothing and food at a minimum. Personal judgment of her life choices aside, bankruptcy is going to give her the fresh start she desperately needs. After that, she will be on her own again.

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• Running up the credit cards or credit lines. Always stay within a frugal budget after bankruptcy, and save any extra income rather than spend it.
• Taking on a loan from the sub-prime market. There are many lenders out there that are willing to offer credit to people post-bankruptcy, but most are in the sub-prime market with high interest rates and large fees for late payments. Not all sub-prime lenders are bad, but some prey on low-income people and some engage in fraudulent activity. Always fully investigate companies and lenders offering these loans.
• Purchasing or leasing a new vehicle. Put off getting a new car or purchase a good-quality used vehicle within your budget. Save the nice, new car for when your credit score and financial situation improves.
• Buy a house without a down payment. Some people may be swayed by lenders offering mortgages with little to no money down. These loans will require purchase money insurance (PMI), have high interest rates and significant closing costs. Continue to rent until you can afford about 20 percent of the purchase price as a down payment. If we learned anything from the real estate bubble bursting, it is that real estate is not always a sure thing and people get into trouble when they overextend themselves to pay a mortgage.
• Staying “off the grid” for credit. Although it is a bad idea to overextend yourself, it is also not a good idea to only use cash post-bankruptcy because using credit is what builds credit. Take out small loans or secured credit cards, and never purchase more than you can afford to pay back.

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• Reclassification of property. California is a community property state where each spouse is automatically entitled to one-half of all earnings during the marriage. (This is different from Illinois, a separate property state.) To avoid this, the couple might wish to “opt-out” of the community property rules via premarital agreement and each spouse would only be entitled to his and her own property and earnings in the event of divorce.
• Spousal support waiver. Although both have significant assets, spousal support may be an issue if one spouse chooses to put his or her career on the back burner to take care of the children. A waiver of spousal support in a premarital agreement would prevent either from asking for maintenance in the event of a divorce. Or, they could agree to a “vesting schedule” whereby the right to spousal support would accrue after a certain number of years married.
• Presumption of paternity. As it was reported the Jolie-Pitts jointly adopted four children, no additional steps would be necessary. However, as Pitt is an unmarried father of three biological children with Jolie, if he has not already, his paternity should be addressed in the premarital agreement. The couple could include other provisions regarding children, child custody and child support in the premarital agreement, but courts are not bound by any provision regarding a child in any contract. Children’s issues are always determined by the legal standard of “best interest of the child,” and parents cannot bargain away children’s rights in a premarital agreement.

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The most important way to successfully rebuild your credit is to continue the budgeting and living within your means that you learned throughout the bankruptcy case. If you completed a Chapter 13 bankruptcy, you had to follow a court-ordered payment plan for three to five years. After this is over, continue with your own budget and stick to it. The longer you are able to keep up with your bills and pay them on time, the better your credit score will become. If you are able, put away some money in a retirement fund, as even minimum monthly amounts will grow over time.

It is important to obtain new credit after bankruptcy if you want to rebuild your credit. Look for a bank or credit union that will issue you a secured credit card. This works similar to a debit card; the cardholder makes a deposit with the bank for the amount of credit line. If you use this card regularly and pay it on time each month, your credit score will increase and the bank will likely issue you an unsecured credit card over time. But you must first build trust and a solid relationship with the bank.

Monitor your FICA score with the major credit bureaus on a regular basis after bankruptcy. You may have to “clean up” some things on the report, including making sure discharged loans are no longer shown as outstanding balances. Stay posted for Friday’s blog, where we will discuss what not to do after bankruptcy to fix your credit.

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Unlike Chapter 13, there is no limit on the amount of debt to file and Chapter 11 is not bound by time limits of three to five years. This means that if a person is behind on the mortgage, and five years is not enough time to repay (or “cure”) the arrearage to save the home, Chapter 11 allows a debtor to draw out this repayment period.

Commonly understood to be the bankruptcy chapter dealing with corporate restructuring, Chapter 11 allows either a person who owns a family or closely-held business or the business itself to file. The debtor will draft a payment plan and commit future income to paying down creditors under the plan. If the business owes payroll taxes (and an owner may be individually liable for non-payment of payroll taxes,) filing bankruptcy will stop fees and penalties for unpaid taxes while the person works out repayment with the IRS. If the payment plan is followed and the bankruptcy is successfully completed, the person or business will receive a discharge of remaining unsecured debt.

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But why would anyone choose to air out their “dirty laundry” in the court system if it is not necessary to obtain a divorce and will not impact the property division? There are two main reasons. The first is for religious purposes. Some religious institutions do not allow for divorce among its members except in certain limited situations where adultery or abuse took place between the spouses. In those situations, the institution may require legal paperwork finding fault before allowing the divorce as recognized by religious authorities.

The other reason is that Illinois requires couples seeking a no fault divorce to live separate and apart for two years before the divorce is granted. Couples can shorten this waiting period to 6 months by agreement. However, fault divorce has no such requirement. If one spouse does not want a divorce or is unwilling to agree to shorten the waiting period, the other can file under a fault ground and not be bound bu the two-year separation period.

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Individuals can file either a Chapter 13 or a Chapter 11 bankruptcy to reorganize all of their debts, including but not limited to student loans. A Chapter 13 bankruptcy is available to individuals or married couples with regular and steady income, and it involves drafting a payment plan with a bankruptcy attorney that will pay outstanding debts over time. One of the biggest benefits to student loan debtors is during this period, the loans will be in forbearance, and no interest will accumulate for three to five years.

At the end of the successful completion of a Chapter 13 bankruptcy case, the court will issue a discharge of unsecured debt, which can include credit card debt, junior mortgage loans and medical bills. The discharge of unsecured debts will free up your future income so it will be much easier to manage any student loans that survived the Chapter 13 bankruptcy.

Stay posted for Friday’s blog, when we will answer the question of in what situation might an individual file a Chapter 11 bankruptcy.

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RESPA requires lenders to provide various disclosures to borrowers so they are fully informed of the settlement documents they are signing. It prohibits referral fees related to federally related loans, and prohibits receiving high fees for services not provided. For example, let’s say a mortgage lender charged a borrower $200 for recording a deed. The actual fee from the Recorder of Deeds office was only $32. While it might be reasonable to pay an amount slightly over the $32 cost because someone has to physically record the deed, was it worth $168? This may be a violation of RESPA.

Additionally, RESPA requires lenders to provide Good Faith Estimates (GFEs) to borrowers. This is because the law prohibits lenders from giving borrowers a low closing cost estimate and then swapping it out for a much higher amount at the closing date a few weeks later. This is a type of “bait and switch,” and many borrowers might think it was too late to object to the increase at the closing date. A GFE that is much lower than the actual closing costs is a violation of RESPA.

These are only two examples of behaviors prohibited by RESPA, and there are many more. Remedies for violations of RESPA include statutory damages and additional damages if there is a pattern of abuse by a lender. These violations can be asserted in a counter-suit against foreclosure.

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