FILING CHAPTER 13 IN MINNESOTA
AT A GLANCE:
- Introduction
- Who needs a Chapter 13?
- New restrictions
- Qualifying for Chapter 13 in Minnesota
- Chapter 13 Discharge
Kelly
Law Office
1013 Ford Road
Minnetonka, MN 55305
Phone: (952) 544-6356
Fax: (952) 546-3690
Mobile: (612) 735-3797
dave@kelly-law.com
Serving St. Louis
Park, Golden Valley, Hopkins, Plymouth, Wayzata, Minneapolis-St.
Paul
INTRODUCTION
The purpose of Chapter 13 Bankruptcy is the rehabilitation of the debtor. The debtor is given an opportunity to repay some or all of his or her debts, but usually under better terms - lower or no interest. The concept is to use future income to pay off creditors without any requirement to liquidate assets. It is basically an adjustment or reduction of debts for a debtor with regular income.
The debtor is given an opportunity, under the United States Bankruptcy Code, to pay off creditors over a period of up to five years. Under the new reform legislation, most will in fact be required to pay for five years. The court supervises the entire process. Beginning 30 to 45 days after filing, the debtor begins to make payments to the Chapter 13 Trustee, who will then distribute the money to the various creditors. The debtor deals only with the Trustee, since a court order prevents any further collection efforts by the creditors.
The debtor works with his or her attorney to develop a payment plan which is then proposed to the court and must be approved by the court. Once the plan is approved, the creditors are required to strictly follow the terms of the repayment plan. The debtor has to follow the plan too, and if he or she is unable which seems to happen most of the time, the court will dismiss the case. This explains the popularity of Chapter 13 with the lobbyists for the credit industry.
RESTRICTIONS IMPOSED BY THE NEW LAW
Under the new reform legislation which went into effect last October, Chapter 13 is not as beneficial in some circumstances as it used to be. Here's a short summary of some of the new restrictions:
-
Debtors whose gross income exceeds the median for their state (which probably means almost all debtors in Chapter 13), will be required to remain in Chapter 13 for five years.
-
Under the old law, secured debts such as car loans could be reduced to the present value of the collateral. Now this "strip down" or cram down" of the lien is not allowed for an automobile loan where the vehicle has been purchased within 910 days of the filing.
-
Under the old law, "disposable income" was based on actual living expenses, provided the trustee found them to be reasonable. The calculation of "disposable income" now for purposes of determining how much of the pre-filing debt must be repaid is determined by using IRS collection standards. Your expenses better be what the IRS says is reasonble.
-
A Chapter 13 discharge is not available within 4 years of a Chapter 7 discharge.
-
As with Chapter 7, credit counseling is mandatory.
WHY YOU MIGHT NEED A CHAPTER 13
If you are in dire financial difficulty and you don't qualify for Chapter 7, your best option could be a Chapter 13. Instead of just washing away debts, this Chapter requires that you pay something on them; then for the most part, after the payment plan is over, what's left is washed away. The question which is usually asked is: How much of your income are you able to earmark for payment of debt over the next three years? A Chapter 13 is particularly helpful in the following situations:
-
You are in big trouble with debt but your income is too high for you to qualify for a Chapter 7.
-
You have assets which are not exempt and which you would loose if you filed Chapter 7. In a Chapter 13 the focus is on your cash flow, not on your assets.
-
You have lots of gambling debt or other debt which you got into by questionable means. In a Chapter 7 the creditors can object; but in Chapter 13 there are fewer grounds for objection.
-
You are way behind in your mortgage or car loan and still want to keep the house or car.
-
You are behind in your taxes, but don't have much other unsecured debt.
HOW DO I QUALIFY?
You qualify for a Chapter 13 by showing that:
-
You are employed or have some other regular source of income.
-
You have income in excess of your legitimate living expenses from which you are able to pay a significant portion of your debts.
THE CHAPTER 13 BANKRUPTCY DISCHARGE
If you successfully complete the payment plan under your Chapter 13, at the end of the program you are issued a "discharge." In many cases this means that the rest of the debt in question is gone, and creditors are ordered to leave the debtor alone.
Certain debts, however, such as taxes are non-dischargeable, in which case you still owe the debt minus whatever you paid under the plan. If you were behind in a mortgage or car loan and listed the arrears on your plan, the rest of the mortgage or car loan goes on unaffected. While you pay the arrears on the loan under the plan, you may have to continue paying the regular payments outside the plan.
We caution our clients to do whatever they have to do to make sure that they will never be back in the same financial difficulties again. They should get counseling or join a support group if necessary.
Kelly Law Office represents bankruptcy clients throughout the Twin Cities - Minneapolis, Minnesota area including Champlin, Crystal Bay, Dayton, Eden Prairie, Excelsior, Hamel, Hopkins, Howard Lake, Long Lake, Loretto, Maple Plain, Minneapolis, Minnetonka Beach, Minnetonka, Mound, Navarre, Osseo, Rogers, Saint Bonifacius, Saint Paul, Spring Park, Wayzata, Young America, Bloomington, Edina, St. Louis Park, Wayzata, Plymouth, Maple Grove, Brooklyn Park, Anoka, Shakopee, Hastings, Eagan, Burnsville, Buffalo, Waverly, Montrose, Hennepin County, Anoka County, Carver County, Scott County, Ramsey County, Dakota County, and Wright County.
The information you obtain at this site is for general information purposes on and is not legal advice. You should consult the attorney of your choice for individual advice regarding your own situation. The use of the Internet for communications with the firm will not establish an attorney-client relationship and messages containing confidential or time-sensitive information should not be sent.