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Should Illinois Cities be Permitted to File for Bankruptcy?

Many Illinois cities are facing financial difficulties that can potentially be resolved through bankruptcy. According to the policy nonprofit Manhattan Institute, this is exactly what needs to happen. When a municipality is unable to pay back its debt, it may file for Chapter 9 bankruptcy, which allows certain contracts to be broken so the intervening trustee can reallocate money to help the municipality repay its debt. Illinois is not a stranger to this type of bankruptcy; since 1988, three cities in the state have filed for Chapter 9 bankruptcy. This number could have been higher if the Illinois Financially Distressed City Law, an act that created a system that allows financially struggling cities to seek loans, bonds, and financial oversight from a state board in order to avoid bankruptcy, had not been passed in 1990.

How Can a City File for Bankruptcy?

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Posted on in Bankruptcy

In order to protect spouses and children left behind when the provider of shelter has died, some states have enacted a homestead exemption. If a homeowner dies and leaves behind a dependent spouse or dependent children, this exemption protects their home from taxes, creditors and other situations which could put that property in jeopardy.

Typically, homestead exemptions can fulfill one to three of basic functions. First, they can stop a forced sale of a primary property to meet the demands of creditors in a bankruptcy. Second, they can offer a surviving spouse with shelter. Third, a homestead exemption can alleviate some property taxes that are levied on homes.

In Illinois only a certain dollar amount of home equity is protected when filing for a homestead exemption. For a single person, you can claim up to $15,000 of their home or property. If you are married and filing jointly, you can have double the amount protected. If your home is sold to pay off creditors you are entitled to a check for the equity you own in the home for up to the exemption amount. Proceeds from the sale of the home are also protected for one year. To understand the benefits of filing for bankruptcy jointly, contact a trusted bankruptcy attorney.

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Bankruptcy can help most Cook County residents who have fallen on hard times financially because of unexpected and excessive medical bills or loss of income due to sudden unemployment. However, some debts cannot be eliminated through bankruptcy and must be paid regardless of the circumstances affecting the individual needing relief from crushing bills. Referred to as “non-dischargeable debts”, these debts include any child support or alimony arrearages, home mortgages, certain taxes, financial aid loans, debts incurred due to damages caused by driving under the influence of drugs and/or alcohol and debts for any criminal fines.

Other non-dischargeable debts may also be applied to someone filing for Chapter 7 or 11 bankruptcies. In addition, courts have the power to revoke debts that are considered dischargeable under specific conditions. An example of this condition could involve a creditor who asks the bankruptcy court to revoke a person's discharge by alleging that the debtor engaged in fraudulent activities regarding the discharge. A creditor may also report to the court that the individual filing bankruptcy committed “acts of impropriety”, which are described in section 727(a) (6) of the Bankruptcy Code. If such allegations are made, the judge overseeing the bankruptcy case will decided whether such accusations are warranted and either uphold the request or allow the debt to be discharged.

In rare cases involving extreme hardship, student loans may be discharged in a bankruptcy. Some taxes may also be discharged, depending on how old they are and circumstances surrounding the delinquency. However, intentional torts, or money owed to a person or company due to a malicious and willful act is considered a non-dischargeable debt. Intentional torts include assaults, batteries, false imprisonment and defamation of character. Another non-dischargeable debt might be any debts acquired through credit card use within 90 days of filing bankruptcy.

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Since the 2005 changes to federal bankruptcy laws, filing for bankruptcy has become a more tedious, time-consuming task. Among the changes made were income specifications that affect which type of bankruptcy claim an individual can file.

Chapter 7 Bankruptcy (Liquidation)

Under a Chapter 7 bankruptcy, a debtor's non-exempt assets are liquidated and sold to pay creditors. Debtors may be allowed to keep property with “exempt” status, which is determined by the state where the claim is filed. In many states, a percentage of your home's value can be exempted.

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