Submitted by Kevin Linder, Attorney at Law.
Our office constantly receives phone calls about families facing financial crises. The numbers are staggering – 2 million homes projected to be in foreclosure; 2-3 million jobs lost; home values plummeting 13% in one month. How should families deal with the current crises?
- Try and make a financial plan and prioritize your obligations. Food, shelter, court obligations and taxes have to be your first priority. Some debts, like luxury expenses (eating out; a new car) can be put off.
- Negotiate with your creditors. Many credit cards will lower interest rates or skip payments if a person asks. Remember to pay down your higher interest loan first.
- Always keep a cash cushion for unexpected events – typically 3 to 6 months take home pay is recommended. Individuals are eight times more likely to become disabled than to die.
If all else fails, here are some important things to remember: Foreclosure: Foreclosure is a legal proceeding brought in state court where an individual falls behind in their mortgage. Typically a bank does this after 3 months of missed payments. In Illinois, individuals have rights to "reinstate" or "redeem" a mortgage under state law (in certain circumstances). A mortgage is the first debt which should be paid. If you fall behind, contact your creditor (and an experienced attorney).
Chapter 7 Bankruptcy: This type of bankruptcy is the most common. In 2005, 2 million people filed for bankruptcy. Unsecured debt like credit card and medical bill judgments are discharged in this type of bankruptcy. Certain debts like taxes, student loans or child support are not discharged. What can you keep in a Chapter 7 bankruptcy? Illinois allows individuals to keep certain "equity" or "exemptions" in bankruptcy. These include: $15,000 equity in a home $2400 equity in a motor vehicle $1500 equity in tools of the trade Unlimited amounts in retirement plans Unlimited amounts in life insurance cash values (so long as a dependent is the beneficiary.) $4000 equity in miscellaneous property like furniture; or this can be applied to excess value in a car. These values are doubled for married couples filing joint bankruptcy.
Chapter 13 Bankruptcy: If you are behind on your mortgage and you don't have enough money to "catch up" the mortgage, you can file a bankruptcy plan under "Chapter 13" often called a "wage earner" plan. Many individuals owe more on vehicles than what they are worth – or are sometimes paying exorbitant interest rates. A Chapter 13 plan can, in certain circumstances, allow the debtor to only pay what the car is worth (not the exaggerated price a dealer has sold it for). A Chapter 13 plan can also reduce the interest rate charged on the loan – we have had individuals being charged 28% interest on a car loan, and we have reduced the interest to 6%. If like many people, you are having financial difficulties right now, the important thing to realize is you are not alone and there are answers. Prioritize your debts and figure out what exactly is your income. Consult with knowledgeable competent people – tax accountants, financial planners and attorneys when you need advice. Many do not charge for initial consultations. 
Kevin Linder founded Linder Law Offices in 1995. His firm provides legal representation for the Rights of Disabled Individuals and specializes in Family Law, Social Security, Bankruptcy and Tax Law.
