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Emerging from Bankruptcy

Posted on in Bankruptcy

Stockton and Detroit have succeeded in emerging from bankruptcy filings, but other cities could have similar issues in the near future. These medium-sized cities in California and Michigan struggled with, among other things, an underfunded pension system. There was simply not enough tax revenue to pay these obligations. One observer called Illinois the “basket case” of pension cases. For a number of decades, The Land of Lincoln has relied on generous retirement plans to attract and retain workers at otherwise lower-paying jobs. When money started to get tight a few years ago, the state began borrowing against the retirement fund in order to pay for services. That action has resulted in a $111 billion pension deficit.

One out of every five dollars in the state budget goes to the pension fund. Even worse, 80 percent of that money goes to debt servicing.

Bankruptcy and Unsecured Debt

Illinois is not the only entity that has been living on credit cards, at least in part, for the past several years. The average cardholder in the Land of Lincoln carries $5,166 in credit card debt, a figure which is substantially above the national average. A rule of thumb is that if there is more than about $8,000 of unsecured debt in a household, Chapter 7 Bankruptcy is probably a good option, because that amount is simply too much for most families to repay.

The moment you file your voluntary petition, you are protected and assisted by a number of federal laws.

  • Automatic Stay: Letters and phone calls stop immediately. If they continue, the lender faces stiff legal penalties. The automatic stay also applies to lawsuits and other collection activities.
  • Cutoff: If you have been meaning to cut up your cards, but cannot quite bring yourself to do it, the credit card company will probably cancel the account. The lender does the work for you.
  • Discharge: In most cases, your unsecured debts are forgiven after only a few months. In addition to credit cards, unsecured debts also include payday loans and medical bills.

Once the case is over, most people are eligible for another credit card right away, because the banks know that you cannot file another Chapter 7 for several years. You can then use this credit to raise your FICO score.

With four office locations in Greater Chicago, the experienced Arlington Heights bankruptcy attorneys at Newland & Newland, LLP are well-positioned to help you get the fresh financial start you deserve. Call today for a free phone consultation.

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