"Filing for bankruptcy seems like an overwhelming and scary task. Michael Sheridan made the process as simple and stress free as humanly possible. He keeps..."Tara
Filing for bankruptcy in Minnesota can help you in several different ways. A bankruptcy lawyer can help you obtain debt relief and at the free consultation, the bankruptcy attorney will also help you understand the process of filing for bankruptcy.
Mike is a bankruptcy lawyer who founded Atlas Law Firm in 2012. Atlas Law Firm is a bankruptcy law firm where Mike focuses his practice on chapter 7 bankruptcy, chapter 13 bankruptcy and debt settlement. Prior to Atlas Law Firm, Mike clerked for two Chapter 7 Trustees and also represented clients at one of the largest bankruptcy law firms in MN. He has years of experience assisting individuals and businesses with debt resolution. Mike was able to work with a Chapter 7 Trustee to allow his client to keep a Cesna personal airplane through bankruptcy. Mike counsels clients in real estate transactions including foreclosures, short sales and deeds in lieu with an eye towards eliminating liability and minimizing effect on credit. He also represents plaintiffs in consumer protection litigation including the fair debt collection practices act, the fair credit reporting act and foreclosure avoidance.
Many misconceptions regarding bankruptcy persist in the public perception: For example, it’s common to think that one will lose their car, home, and their livelihood as a result of filing – this is a falsehood. In this article, we will break down the various types of bankruptcy, how to file in Minnesota (and what happens when you do), and answer more than a few commonly asked questions along the way to help you understand whether this is the best option for you.
First, we’ll discuss exactly what it is: The bankruptcy laws in the United States – called the bankruptcy code – come from a federal law passed by Congress in 1978, and your right to file for bankruptcy is protected by constitution. There are multiple types of bankruptcy, categorized as chapters, to address various situations for filing:
The most common forms of bankruptcy for the individual and small business are Chapter 7 and Chapter 13. We will first discuss these two most-common types.
To file for Chapter 7, you must disclose all of your assets. As a result, it is common to think that your assets are at risk of being seized. This is not inherently true. The majority of, and often all of, your assets can be protected in this situation. Anecdotally, we have been able to protect all assets for 98% of our clients who filed for Chapter 7 bankruptcy.
This is how it works: Protections for assets are called “exemptions” and each of these exemptions is categorized. The exemptions specify what types of assets can be protected and the maximum value of those assets. The exemptions allow one to protect equity in their home, equity in their vehicle, home goods, clothes, jewelry, tools of trade, life insurance policies, tax-qualified retirement accounts, personal injury claims, etc. Each category then has a value limit. In the bankruptcy code created by Congress we described above, there are set exemptions, and these are known as federal exemptions. In the interest of states’ rights, however, Congress too allows each state to “opt out” of these federal exemptions and create their own, i.e. each state may create its own exemptions as well.
Some states have opted out of the federal exemptions entirely. A resident of that state who files for bankruptcy protection then only follows the state’s exemption laws, as opposed to the federal exemption laws. States that follow the federal code allow their residents to choose between the two – Minnesota, for example, allows for a choice between federal or state exemptions, while Iowa, conversely, permits only state exemptions. It is important to note the differences between federal exemptions and MN exemptions, and to determine how best to protect your assets and yourself, it is best to consult with a bankruptcy attorney.
Get in touch with Atlas Law Firm for a free consultation today!
Once you have taken the time to consider all possibilities and have decided that bankruptcy is the right course of action, you must determine whether they qualify for Chapter 7 protection: Two standards must be met in order to determine qualification, and both have to do with income.
First, a means test will be conducted. This is conducted by calculating the previous six months of gross income from any sources for the household. From these calculations, the test then projects your annual gross income and weighs it against the median income for a similar household. Median income data is revised every six-months, and differs from state-to-state. If the annual gross income for your household ranks below the average income, you pass the means test. If it is greater than the median income, then you must complete the second half of the means test. The second half of the means test is designed to allow you to deduct monthly expenses from your income to conclude exactly what the disposable income for your household is each month. The means test lets you add some of your actual expenses such as mortgage payment, taxes, health insurance, though many of the expenses are standard numbers from the IRS’s standard data for living expenses. Expenses, including cost of food, clothing, and transportation costs, are standard numbers based on your geographic location.
If it is determined by the end of this second half of the means test that you don’t have disposable income, or that your disposable income is not enough to pay either 25% of your nonpriority unsecured claims or $6,575 ($10,950 when multiplied by 60), then you pass the means test.
If you pass the means test, you must then meet the second set of qualifications. This is referred to as the real time budget. The real time budget looks forward at take-home income and monthly expenses. Essentially, what the court is looking for, is whether at the end of the month after paying your bills and living expenses you have a sufficient amount remaining to afford to pay some amount to your creditors. If you do, the trustee may object to you filing for Chapter 7 protection and make a motion to dismiss your case or convert it to a Chapter 13.
If you pass these two qualifications, you’re ready to move on. Everyone who thinks that bankruptcy is a necessary step needs to complete a brief online credit counseling course – this required course, which takes approximately one hour, is in place to make sure you don’t have any other options to try before filing. After the course, if you still believe bankruptcy is the best option, it is time to move forward with plans to file.
Just like any part of the legal system, you can complete all of the steps of your bankruptcy filing on your own. The laws are complicated as bankruptcy is federal law and is supplemented by the state laws, however, and the process is further complicated by the fact that different federal district courts interpret the bankruptcy laws differently. Failure to adequately outline your case can result in potentially exempt items being taken away or in having your request denied altogether.
The following steps are crucial to the success of your filing, and it is important to have legal advice from good bankruptcy Chapter 7 attorneys.
Chapter 13 is also a common type of bankruptcy, used for individuals and owners of small businesses. It works much differently than Chapter 7, as Chapter 13 operates as a repayment plan. It takes place over a period of three to five years, and unlike a plan through a Debt Consolidation company, it does not necessarily mean that you have to pay back 100% of the debt. Your bankruptcy attorney will assist you in creating and proposing a payment plan to offer the court based upon income and expenses.
The court will then consolidate all of your unsecured debt under this plan. You will agree to pay one payment each month to the trustee, and the trustee will then distribute your payment among your creditors. At the end of the plan, whatever is left due and owing on your unsecured debt is discharged.
Filing for chapter 13 will also allow you to bring your back-mortgage payments current, make payments on cars, student loans, and tax debt. You will also be allowed to “cramdown” on assets that are worth less than the debt owed against them, subject to some limitations. Like a Chapter 7, a Chapter 13 petition also triggers the automatic stay.
We will discuss this further as follows.
Both chapter 7 and chapter 13 bankruptcies discharge your debts. Under a chapter 13 however, you propose a payment plan to the court to pay a portion of your debt. There is no required percentage of the debt that you must pay, instead the payment plan is based on your budget. There are a number of reasons to file a chapter 13 bankruptcy instead of a chapter 7 bankruptcy:
Qualification: As discussed above, to file chapter 7 bankruptcy, a means test must be passed (or specific extenuating circumstances met). If this means test is not passed, only chapter 13 will be available.
Non-dischargeable taxes: If you have a large amount of non-dischargeable taxes, the chapter 13 will stay interest and penalties from accruing on your tax debt and give you up to 5 years to pay the tax debts.
Cramdowns and lien stripping: Under certain circumstances, you can do what is called a “cramdown” (i.e. you separate the secured non-dischargeable debt from the unsecured dischargeable debt) the amount you pay on your auto loan to the value of the vehicle and treat the remaining balance as unsecured debt which does not have to be paid in full in a chapter 13. Similarly, if you have a second or third mortgage on your home and the value of your home is less than the balance of your first mortgage, you can strip the second (or third) mortgage and treat it as unsecured debt. When your chapter 13 plan is finished, the mortgage is removed from your home.
Stop foreclosure and bring your mortgage current: If you’re behind on your mortgage and are nearing foreclosure, your last line of defense to keep your home is filing for Chapter 13 bankruptcy in Minnesota. Chapter 13 is designed for debtors who have a steady income and can support additional payments on top of a regular mortgage payment. Make sure you contact a bankruptcy attorney when filing bankruptcy Chapter 13 in Minnesota. Atlas Law Firm has offices in Anoka, MN, Bloomington, MN, Minneapolis, MN, St. Louis Park, MN, Edina, MN and Minnetonka, MN, and we have been helping people file Chapter 13 as well as Chapter 7 for years.
Using the Chapter 13 Bankruptcy Procedures to Stop Foreclosure: When we file Chapter 13, the court will issue what is called an “automatic stay”. This will then temporarily prevent the lenders from continuing their efforts to foreclose your mortgage, and the automatic stay will continue in effect as your petition goes through the Chapter 13 bankruptcy process.
A common question regarding Chapter 13 bankruptcy questions has to do with whether Chapter 13 keeps you from the need to make mortgage payments – it will not. The court instead permits negotiation of a payment plan in addition to your regular mortgage that will get you to pay back a piece of your missed payments over a certain amount of time.
Another common question regarding bankruptcy is the effect it might have on your credit score. While there is no set formula for how bankruptcy affects credit, there are two specific factors to keep in mind:
Also, the law does not pertain to credit after bankruptcy – except in a few specific situations:
There will be a note on your credit report that you filed Chapter 7 (or Chapter 13) bankruptcy on the specific date you filed. This note will remain on your report for 10 years. There is no reason to panic, however: This will not prevent you from getting credit. You will still be able to get credit and begin rebuilding.
The key to rebuilding credit is paying debt obligations on time after filing your case. This requires having a debt obligation. If you do not keep a mortgage or a car loan after your bankruptcy, then this would require you to open a new credit card after your case is filed. Because the credit cards you will be offered after filing your case will be high interest rates, you want to make sure you only charge a small amount each month that you can pay off in full, so that the interest rate doesn’t cause the debt to snowball on you. Each month as you pay your bill on time your credit score increases.
Ultimately, bankruptcy stops the bleeding by keeping creditors from negatively affecting your credit score. It removes the over burdensome debt and allows you to begin rebuilding your credit right away instead of spending years getting out from under burdensome debt.
No one wants to declare bankruptcy. There is a sense of failure attached to it. We believe that this is erroneous and should not be the case.
Here’s a little history: Credit became available in the 1950s and 60s, and was seen as an accomplishment – not everyone could get credit, and a good income, and well-controlled expenses were required in order to earn it. This changed in the 1970s, when a bank named Providian discovered they could make a lot of money by extending credit to more than just the wealthy.
Here’s how it happened: Providian found that the traditional model of making money on interest was a reliable revenue stream, but penalties and late fees would net them considerably higher profits. Thus, they expanded their business model and began extending credit to those at a higher risk of defaulting, and then charge penalties and late fees. Needless to say, it was a widely successful business model, and, as a result, the model was picked up by other companies, including Wells Fargo, US Bank and Bank of America.
As a result, consumer credit was everywhere by the 1990s. In fact, credit became so widely available that almost anyone who wanted to make a purchase that they otherwise could not afford would be given a line of credit. It has become a major part of our economy and society, so much so that the average American family with credit card debt owes around $16,000. When income is no issue when making monthly payments, this is sustainable. However, when tragedy strikes, a job is lost, a medical emergency occurs, monthly payments are no longer an option, and that is where bankruptcy comes in to play and can help you get your life back on track.
When unemployment, a natural disaster, or an unforeseen medical expense occurs, i.e. if you can no longer work due to injury or illness, or some other barrier that makes you unable to go to work – it becomes harder and harder, and at times impossible, to carry the payments on your debt, and bankruptcy filings begin to rise. As a result, we see an increasing number of banks attempting to restrict bankruptcy laws and trying to get the bankruptcy laws changed in order to make it more difficult for people to file. In 2005, they accomplished their goal. The banks authorized a change to the bankruptcy laws and lobbied Congress to pass it through and so the Congress did pass the Bankruptcy Abuse Prevention and Consumer Protection Act (shortened to “BAPCPA”). The BAPCPA added the means test onto Chapter 7 bankruptcy, which acts as something like a wall to keep people from filing for Chapter 7.
What we do is ensure that if you average a certain income that we are either going to keep you from filing for bankruptcy or we are going to put you into a chapter of bankruptcy where you make payment plans and pay at least something to your creditors. The myths are still out there that people are reckless if they need bankruptcy and restraints need to be in place. The myths persist, but as stated before, the main reasons for bankruptcy are unemployment, medical bills, and divorce – things that cannot be planned for. And, when the economy dips, and unemployment rises, we see that bankruptcy filings go up
There is endless data to support the notion that people who file bankruptcy do not file because they are reckless, or taking advantage of the system. People who file bankruptcy do so because they simply have no other choice. This is where we can help.
Another example: When the economy crashed in 2008, a large percentage of people were out of work, and the real estate market was on the fritz. Many self-employed real estate agents were unable to make the money they had been making before, and those people did not have the income that their previous financial budget was predicated on – including the debt load that they were carrying. It’s easy to run out of other options – and bankruptcy is a completely viable one.
By addressing the problem immediately, the solution is straightforward and easy to complete. If you allow the problem to fester, it will only become more complicated. Learn more about bankruptcy myths and get a free consultation with Atlas Law Firm. We’re here to offer you free consultation, and help you understand that you are not alone. Get in touch with us today.