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As a bankruptcy attorney I hear this all the time. The statement is made in order to regain what the client mistakenly perceives as the respect I have lost for him because he fell behind in his bills. The next statement of mitigation is usually, “I waited as long as I could.” This usually means that for several years the client has made minimal payments on a number of bills, and has developed a great dislike for macaroni and cheese. Meanwhile the creditors who know the client will never be able to get out of debt by paying the minimum on all their debts, benefits by each new month the client suffers.

If you see that you might have to file bankruptcy, talk to a bankruptcy attorney as soon as you consider the possibility. Bankruptcy planning, like tax planning, is a legitimate method of protecting your financial estate. Just because you visit a bankruptcy attorney does not mean you will be advised to file bankruptcy. And most bankruptcy attorneys will be glad to give you a free consultation.

England once had debtors’ prisons – but not today in America. In the U.S. financial speculation has made our economy as powerful as it is, and regardless of its ups and downs, it is still the envy of the world. In order to promote speculation, the risking of money to make more, we have bankruptcy. It allows us to do the best we can to survive economically, but if we can’t, we have a fair legal option for a fresh start using the bankruptcy laws.

“But isn’t filing bankruptcy admitting failure?” When asked this question, I like to provide my clients a list of a few famous successful Americans who have filed bankruptcy, and rebuilt their financial estates, including: Walt Disney, Mark Twain, Thomas Jefferson, Henry Ford, Charles Goodyear (of Goodyear tires), Henry John Heinz (catsup manufacturer), Milton Snavely Hershey (the Hershey bar), Mickey Rooney, Willie Nelson, Merle Haggard, Wayne Newton, Jerry Lee Lewis, Larry King, P.T. Barnum, and Donald Trump. Without bankruptcy these contributors to America would have been stopped dead in their tracks.

And to those clients who are not comforted by the above arguments, one can refer to the Bible. I can’t explain it better than this:

“At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD’s release” (Deuteronomy 15:1-2).
“…the borrower is a slave to the lender” (Proverbs 22:7).
“…in the seventh year you shall let [your Hebrew slave] go free from you. And when you send him away free from you, you shall not let him go away empty-handed; but you shall supply him liberally from your flock…” (Deuteronomy 15:12-14).



You have neglected to file state or federal taxes, or have filed, and can’t afford to pay what you owe. Can bankruptcy help? Like the answer to all legal questions – yes and no.

You cannot avoid paying employment trust fund taxes (payroll taxes and social security withholdings) you owe for employees that you have failed to pay the government over the years, but there are some circumstances that can result in a bankruptcy discharge for back federal and state income taxes. The first requirement is that you must be able to prove to the taxing authority and/or the bankruptcy court that either you have filed all back tax returns for any year you want a tax debt discharged, or that you have not been required to file returns during intervening years because your income was too low.

If you file a late return for that few years that you didn’t file your federal return, you must wait two years from the date the taxes were due (usually April 15 of a particular year) before that tax obligation is dischargeable. If you filed timely, your tax debt must be more than three years old before it can be discharged. If for some reason you filed the tax return more than three years ago, but the tax was not assessed more than 240 days before the bankruptcy is filed, that debt cannot be discharged. Tax debts that are the result of fraudulent tax returns will probably not be dischargeable.

The calculation of the above time limits may be affected by your filing an offer in compromise, by a previous bankruptcy; or by a stay of collections due to a bankruptcy or appeal of a tax liability.

Precise dates and proof of filing must be obtained by the debtor. Federal information (your tax transcript) is available through your local IRS office, or can be obtained by calling the IRS at 800-908-9946.



After a filed or threatened foreclosure, if you have decided to surrender your house, talk to the bank and see if they will just take the house without requiring you to pay any more toward your mortgage. Even if they agree to such an arrangement you would be wise to consult an attorney to be sure the deal you’re making is the one you are signing. Such an agreement by the bank will basically be a mathematical analysis of market value versus the amount you owe on your loan. If the bank can sell the house to someone new, now, and get as much as they would get from you if they sued you, the bank might cooperate with you and let you surrender it. Remember that you can always surrender a home to a bank; the real question is whether they will sue you for the money remaining due on the mortgage.

The days of driving downtown to the bank to have a cigar with “George Bailey” to decide if he will let you miss a few more payments while you are off work from a back injury, are about over. Most banks or local loan institutions sell your mortgage to a new company maybe several times in the course of the first few years of the mortgage. You will know who you are making your payments to (the loan servicer), but you won’t know anyone at that organization.

Don’t turn your back on the situation, ignoring the past due notices, and forcing the bank to foreclose. With the current status of all the big financial institutions that have lied in foreclosure hearings, with the glut in the housing market, and with the political pressures for mortgage companies to work with mortgagors, the financial institutions do not want to foreclose!
If you want to keep your house, there is a step to pursue before foreclosure or bankruptcy – contact the mortgage company’s “loss mitigation department. After the recent recession, nearly all the big mortgage companies created “loss mitigation departments.” These new divisions of mortgage companies have the job of working with people in danger of foreclosure, to modify the terms of the mortgage so no foreclosure is necessary.



If you’re considering filing bankruptcy, there are few things you can do other than let time pass before filing, to correct improper financial moves you may have made that will adversely affect your bankruptcy. Illinois has a four year “look-back” period that permits the court to review financial transactions you may have made fraudulently to avoid bankruptcy responsibility, but it is more common for bankruptcies to self-destruct because of transactions in the last year or two.

Without a doubt, the number one mistake people make before filing bankruptcy is to use their tax refunds to pay off a friend or relative who loaned them money. You need to try to look at the big picture to understand why this is frowned upon by the court.

Bankruptcy is your opportunity to eliminate unsecured debts (credit cards, hospital bills, and personal loans from family members). To do so, you keep all your property that is protected by the Illinois exemption laws, and usually a Chapter 7 filer has no property that is not protected. If you have no big bank accounts, no expensive paid off cars, and don’t own an expensive home without a mortgage, you will probably keep everything if you file Chapter 7. If you do own property that is not protected by exemptions, you can file Chapter 13, to make at least partial payments to your unsecured creditors over time.

The court will expect you to treat all unsecured creditors in the same way. You will treat credit card companies, and hospitals, the same way you treat Mom when you file Chapter 7. You can no more decide to pay off your department store credit card so you can keep getting those sale coupons in the mail, than you can pay off Mom before filing – to the exclusion of other creditors.

Before filing bankruptcy, it is common for one to get a personal loan from Mom or Dad, with the promise to pay-off the loan from the filer’s upcoming tax refund. The tax refund is received, the debt is paid, and a bankruptcy is filed. Mom is happy, the bankruptcy filer is happy, but the credit card or hospital remains hungry for their payment.

As you prepare to file your bankruptcy, one of the questions you must answer, under oath, and at the penalty of perjury, is: “List payments to family members who were creditors in the last year.” That payment to Mom fits the category of the question, so you must answer, “Yes.”

Before your bankruptcy is closed, you will be questioned by the trustee. In a Chapter 7, the trustee is the lawyer for all the unsecured creditors who virtually never send their own lawyers to get involved in the bankruptcy process, because they know in 99% of the cases, they will get no money. The trustee will question the debtor, and when the trustee finds out that one creditor has been given preferential treatment (and usually it’s a family member), the trustee has the right to take back that preferential payment from Mom, and to divide it up among the unsecured creditors.

The first response by the prospective bankruptcy filer, to the bankruptcy lawyer confronted with this sort of a problem is – “Well, I’ll just get that money back from, Mom.” But the horse is already out of the barn. Saying that you reacquired the money does not negate the fact that you made a preferential payment. Either Mom gives the money to the trustee, or you can give an equal amount of money to the trustee for payment to the unsecured creditors.

Remember that you are not the first person to file a bankruptcy. You can bet that nearly any sort of method to skirt the law, has been tried, and the law changed to eliminate loop holes. Before you try self-help to fix pre-filing financial transactions in your bankruptcy – talk to a lawyer.

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A foreclosure occurs when you fall behind on your residential real estate house mortgage payments, (rules may be different for a contract for deed) and your lender goes to court to begin the process for him to take the house from you. If you are at the address your lender has, you will receive a summons, informing you that the lender intends to foreclose, and telling you when and where to go to court for the hearing.

It will usually take about a month for a mortgage company to set a foreclosure hearing. But if you wish to reinstate your mortgage, the clock begins running on the day you receive your summons. To reinstate you have 90 days from the service of the summons, to pay all attorney fees accrued from the foreclosure attempt, to pay all delinquent mortgage payments, and pay all arrearage fees. Your mortgage company will have those amounts, and will make them available.

If you are unable to reinstate, the mortgage company will get a foreclosure judgment, and you will have at least 7 months from the date of the service of summons, to redeem your mortgage. To redeem, you will have to pay the entire mortgage, plus interest, plus filing fees, plus attorney fees. If you cannot redeem, the house will be scheduled for a sheriff’s sale (an auction of the property to all interested bidders). You will have at least 3 weeks’ notice before the sale. After the sale, you have no further rights to your home, and will have 30 days to vacate the premises.

So as you can see, unless your mortgage contract says different, you may have about 9 months from the filing of the foreclosure, till you have to leave the premises. Should you file bankruptcy, and stop the clock running on the 9 months, and later have the bankruptcy dismissed, the clock restarts where it was.

If you live in a mobile home, and your home loan is on the home, and not the property upon which it sets, the lender does not have to foreclose. He acquires repossession of the home, like any other lender who wants the return of property you have posted as collateral. He files a replevin case in court, you will be given a summons, and the whole process from summons to your being thrown out of the house, can take as little as 3 weeks.

Even if you can avoid the process server, and the lender convinces the court that he has tried to serve you a summons, and can’t do so, either a replevin, or foreclosure case can proceed without you.



If your home is financed through any of the above mortgage companies, you will soon receive a letter, either from the mortgage company, or from your state’s Attorney General, telling you that money may be available from the “National Bank Foreclosure Settlement.” DON’T THROW THE LETTER AWAY – THIS IS A GENUINE, LEGITIMATE OFFER THAT MAY HELP YOU AVOID FORECLOSURE. The banks are refinancing homes by reducing the principal, or the interest rates, or simply sending the home buyers money.

You have heard on the news for the last few years about “robo-filing.” This term refers to many mortgage companies failing to follow the law when they filed foreclosures. The attorneys general of at least 48 states have worked out a settlement, so that the mortgage companies can make offers to home buyers to amend for breaking the law.
I worry that we all receive so much junk mail — especially when we are falling behind on payments — that some home buyers will just throw this settlement information away, like they do all the other bogus offers, but don’t! This offer is real, and unlike some offers in the past, should benefit thousands of home-buyers in Illinois alone.

Here are the categories of borrowers who can benefit from the settlement:

1) If you lost your home between Jan. 1, 2008 and Dec. 31, 2011, and one of the above banks handled your mortgage payments.
2) You owe more on your home than it is worth, or are 30 days or more behind on your payments, or you are at risk of falling behind to one of the above five.
3) You owe more on your home than it is worth, are current on your mortgage to one of the five, and would like to refinance.
Illinois homebuyers are expected to receive around ONE BILLION DOLLARS from the settlement.

To learn more about the settlement, and for more specific directions from the Illinois Attorney General’s Office, call 1-866-544-7151, or email the office at:


Be Careful With Credit Card Partial Payments in Full

“Have I got a deal for you,” the credit card representative says. You have been making just a little more than the minimum monthly payment for years now, and you seem to be getting farther and farther behind. And that is not the only credit card. You have five others, from when you were off work and had to get cash advances, and used the money to pay the electric bill, or car payment, or to help the kids. You feel the noose tightening around your financial neck, but you refuse to give up and scream, “Bankruptcy!”

When your credit rating is falling, there are no good deals from creditors. They have access to your credit report and know, even before you do, that you will be filing bankruptcy soon, so they are trying for whatever they can squeeze out of you. They know that as soon as you file your bankruptcy, you may owe them NOTHING! They are not making you an offer to settle your debt because they are good guys. They are trying to use you, before you talk to a lawyer, and understand the truth.

“Let’s see, it says here that you owe us $10,999. My boss is out of the room so I can make you an offer that will save you $10,000. Can you believe it? If you can send me $999 now, by giving me your debit card number, we will wipe the slate clean and your account will be paid in full.”

No, this is not a debit card scam, but I will call it a scam.

When you have the $10,000 discharged from your account, the government will look at it as income to you. You will receive a 1099 form that will show
$10,000 income from the transaction, and if you are at the 20% income tax bracket, you will owe an extra $2,000 on next year’s federal income taxes.

Bankruptcy does not work that way. In bankruptcy, there are no taxes on discharged amounts, and instead of dealing with each of the creditors individually, all creditors get the same deal, which is usually nothing to unsecured (hospitals and credit card companies) creditors.

If you might have to file bankruptcy in the future, all your well-meaning payments of just the interest on those credit cards will be wasted money. If you make several years of those payments, instead of filing bankruptcy, you will be paying money that the bankruptcy would determine the credit card company is no longer owed. Those payments could go toward food, rent, electricity, and the kids.


Diploma Mills and Bankruptcy

In a bankruptcy, your federally guaranteed college loans cannot be discharged. Buy a lemon of a car, and you can file to get rid of the debt, but buy a lemon of an education and you are stuck with paying the debt. In a few unusual situations you can get the debt discharged, but I usually describe those as times like when a music major who plays piano, loses her hands in an accident, she may be able to get her school loans discharged.

More and more we are hearing about diploma mills that trick students into enrolling by making promises of easy schooling and guaranteed jobs, only to leave the student in debt, broke, and unemployed after the education. Primarily these educational institutions have been on-line colleges, but believe it or not, there are lawsuits directed at LAW SCHOOLS that lied about their placement rates in their solicitation of new students. I have seen many truck driving school loans listed as creditors in a lot of bankrupties, and those loans too, are not dischargeable if they are federal.

Recently there has been news coverage of the fact that many diploma mills are simply machines to trick desperate victims of unemployment to get federal loans to benefit the schools, not the students. At some point in time there will be a bankruptcy discharge of such a scam, but to my knowledge it has not happened yet. Have you or someone you know been vicitimized by such an “educational institution?”


Harrisburg Tornado Victims, Free Chapter 7 Bankruptcy

In light of the fact that I have just started my practice, and have some free time, if you know of someone who might need a free Chapter 7 Bankruptcy because of damage or loss of employment due to the tornado, reply below with your email address and I will get in touch with you, or send me an email. You do not need to be the victim, if you want to simply recommend someone, let me know. We can keep the name of the victim confidential if it is not posted in your reply on the blog. At this point I can only commit to one free Chapter 7. See “About Me” above for contact information.


Stopping Foreclosure through Loss Mitigation Departments

Shortly after the recession hit and it came to light that mortgage companies had taken advantage of the American public by providing them mortgages that they could not afford and that destined them to foreclosure. The lenders danced quickly to offer the appearance that they wanted to “fix” what was broken. A few years later the news disclosed that in their haste to foreclose on properties, the mortgage companies had taken a few illegal shortcuts to simplify the foreclosure process. By this time those lenders and their contractors became highly motivated to garner some positive press, and touted what they thought was the perfect solution – “loss mitigation departments.”

It was never too clear to me exactly whose loss they sought to mitigate, but let’s give them the benefit of the doubt, and assume that they sought to help people avoid foreclosure. I can’t say whether they had loss-mitigation departments before the economic meltdown, but after, they sure bragged that these departments were the solution to debtors who wanted to try to save their homes from foreclosure.

I have had too many dealings with these departments, and my conclusions are as follows: The departments had little motivation to succeed in stopping foreclosures. They were staffed by unqualified insufficiently trained, phone consultants. The consultants worked from a flow chart that tried to anticipate questions, and any questions not on that flow chart of answers, were not answered. They tried desperately not to put you through to a supervisor. They were unprofessional, lost documents, had inadequate databases and one consultant had no idea what the other consultant was doing.

It soon became clear to me that the golden rule of dealing with loss mitigation departments, was to find a consultant that seemed to know what she was doing, and to refuse to talk to anyone else. Get her phone extension, her work schedule, and ask what she has posted as notes in your case. Often-times you might have to go through several consultants before you find a good one, but when you do, she is golden, the best hope you have to working out a deal to keep your house. Treat her with respect, patience, and ask questions – take notes of conversations, dates, and times.

Keep in mind the positions of those involved: you have had your home for years, have been making regular payments until recently, and no one wants your home more than you; the mortgage company does not want a home owned by a person who can’t make payments because the home has probably fallen into disrepair recently, the company has too many homes they can’t sell now (and has for years), and they know that no one wants your home more than you. To keep it you will have to prove that you can keep up with your payments if given another chance by changing the terms of the mortgage. When you apply to keep your house be prepared for your papers to be lost, for you to send them in over and over again, and for each new presentation you will have to update your application with new income and expense information.

In short, you are in a weak bargaining position, because the mortgage company has the legal right to foreclose, so cooperate fully and graciously with your consultant, expect the worst, but don’t give up and you have a chance to avoid foreclosure, and bankruptcy.


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