The "BANKRUPTCY REFORM
ACT"
AT A GLANCE
Kelly
Law Office
10709 Wayzata Blvd. #205
Minnetonka, MN 55305
Phone: (952) 544-6356
Fax: (952) 525-7924
Mobile: (612) 735-3797
dave@mn-bankruptcy.com
Serving St. Louis Park, Golden Valley, Hopkins, Plymouth, Wayzata, Minneapolis-St. Paul, Long Lake, Orono, Minnesota.
YOU ARE PROBABLY STILL ELIGIBLE
When the "reforms" went into effect in late 2005, we had a bit of a scare. It looked as if hardly anyone would ever qualify for any kind of bankruptcy. That turned out to not be true. In fact at the time of this writing in fall of 2010, bankruptcy filings in Minnesota seem to be at record highs. The paperwork has become a lot more complicated, but most people who need to are still able to file. If you don't qualify for a Chapter 7, you should be able to qualify for a Chapter 13. For lots of people Chapter 13 is better than Chapter 7, because it can be used to get a mortgage up to date or to repay taxes on favorable terms.
Passing the means test, which is perhaps the most fearsome part of the law, is only required in consumer Chapter 7 bankruptcies; and it is only required for those who are above the median income for the state in which they live. The median income figures for Minnesota are on my Chapter 7 page. Most of my clients have income below these figures and are affected in only small ways by the provisions of the 2005 law.
Early on there was a lot said - much of it misleading - about a provision of the law which says that if the debts are not mostly consumer debts but are primarily business-related, the means test is not required. It turns out that for most people who seem to have primarily business debt, a means test still is required if their income is above median. This is because of the sad fact that in calculating whether a person's debts are primarily business related, the mortgages on one's home have to be included in the mix. So a person with $100,000 of business debt and a mortgage of $200,000 still has debts which are considered two-thirds personal. With that kind of analysis going on, this exception for business debt doesn't seem to really be helping very many people - or at least not anybody I know.
FEATURES OF THE 2005 LAW:
The features of the legislation most likely to affect my clients appear to be the following:
-
First, to be eligible for bankruptcy relief of any sort, an approved Financial Counseling course is required within six months prior to filing. Then before the discharge is granted, another course called the Financial Management course is required.
-
Secondly, there is a current monthly income requirement. If it is not more than the median income for the State of Minnesota, you can file a Chapter 7. If if is more, there is a complicated "means test" formula which is applied. The best way to figure out if you pass the means test is to arrange for a consultation at my office to go over the test. That means test is way too complicated for me to try and explain it here.
-
If your income is above the median - as measured by looking at your cash flow for the past six months - and if you can't pass the means test, then your only option is a Chapter 13; and under these circumstances - income above the median - the law requires that the Chapter 13 provide for a five year payment plan.
-
The court is allowed to convert a Chapter 7 case to a Chapter 13 based on income and other factors. It is possible to file a Chapter 7 and wind up with a Chapter 13 involuntarily.
-
The homestead exemption is capped at $136,875.00 if the home was acquired during the four year period preceding the filing of the bankruptcy. For most of my clients this is not a problem, since they have little or no equity in their home anyway - if they still have a home. If you have lived in your home more than four years, the full $360,000 homestead exemption provided under Minnesota statutes would apply. People with that much equity in my experience tend to have options which don't include bankruptcy.
-
Before being given a discharge, be it in Chapter 7 or Chapter 13, another Financial Counseling Course is required. Yes, you have to do this twice. Probably, however, you can do this on line and over the phone - and it will only take a couple of hours. The requirement to take the second course seems very easy to forget, and I have found myself having to send out urgent reminders about it. Not taking the second course by the deadline means the case will be dismissed - in other words, thrown out. The dismissal means that you don't get the debts discharged. In the case of a Chapter 7, my understanding is that this kind of dismissal means the debtors can't file another Chapter 7 case for eight years. That's a pretty serious result for not complying with a seemingly fairly minor requirement.
Where to get the credit
counseling:
Prior to filing of either a Chapter 7 or a Chapter 13, a certificate of completion of an informational consumer credit counseling program is required. Here is a link to the list of the providers that have been approved for providing this program in Minnesota. Prior to being discharged, another course is required, for which the same agencies have also been approved. One good place to do this counseling is Family Means, which has an office across I-394 from my office. Another is Lutheran Social Services Financial Counseling, which has an office in Hopkins. Both Family Means and Lutheran Social Services are good places to explore alternatives to filing bankruptcy as well. Actually, I refer both of them quite a bit of non-bankruptcy business.
The easy way to complete the required programs is either on line or by phone, or a combination of phone and on line. If you want to do the counseling on line and by phone, my favorite resource is the Debt Education and Certification Foundation. Their initial program usually only takes about two hours for most of my clients. If you let me sign you up and get you a user name and password, the cost is only $40 per course. First you answer questions and fill out information on their web site, and then you chat with them by phone.
DEBT SETTLEMENT PROGRAM WARNING
Here's a recent youtube rant I posted after hearing an obviously deceptive TV ad for a debt settlement company. I suggest that unless they are on the approved Justice Department list, nonprofit, and in business since before 2005, you might be well advised to run the other way. And although I didn't say it in the video, if I were you I would avoid any agency that isn't local - located right here in Minnesota. If they are in California or Florida and you have a complaint against them, what are you going to do about it?
Kelly Law Office represents bankruptcy clients throughout the Twin Cities - Minneapolis, Minnesota area including Champlin, Crystal Bay, Dayton, Delano, 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.