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Minnesota Chapter 13 Bankruptcy Lawyer

Bankruptcy Attorneys

St. Paul Bankruptcy Attorney

Serving Minneapolis • St. Paul • Edina • Bloomington • Roseville and all of Minnesota

Chapter 13 Bankruptcy Considerations

Consumers who feel severe financial pressure often express interest in declaring bankruptcy. There is however, more than one type of bankruptcy. Debtors need to understand the different types of bankruptcy. Some consumers automatically assume that they should do a Chapter 7 bankruptcy. It is not unusual for debtors to misunderstand the positive aspects for relief afforded by a Chapter 13 plan. Before assuming they want to file a Chapter 7 bankruptcy, it would be a sound idea for debtors to fully explore the advantages afforded by a Chapter 13. Just wanting to do a bankruptcy is not enough. A debtor needs to qualify to do so under the law. Not every person who wants to clear up his or her debt problems may be eligible to do a bankruptcy and even then they may not qualify to do what is called a Chapter 7 bankruptcy, which is known as a straight bankruptcy. It is called a straight bankruptcy because it generally discharges dischargeable outstanding unsecured debt. A Chapter 7 or even a Chapter 13 bankruptcy may allow for the discharge of secured debt provided the property (whether real or personal) securing the debt is surrendered to the creditor. For instance, if a debtor decided to surrender a home or a car for which he or she owed more than the property was worth, the debtor may be able to receive a discharge of the secured debt, provided the real property securing the mortgage or the car securing the car loan was given back to the lender. This can be particularly helpful in today's economy where people often have more than one mortgage on a piece or property or are significantly upside down on a car loan and want to avoid being hit with a deficiency-the amount owed over and above what the property is actually worth.

Bankruptcy Evaluation

Consumers who desire bankruptcy relief must have an evaluation of their financial situation to determine whether they meet the standards under the law to file a bankruptcy. There is a legal standard often referred to as a bankruptcy means test, which acts as an instrument for the determination of the ability to file a bankruptcy. Some consumers may find that after a bankruptcy evaluation they do not qualify for a Chapter 7 bankruptcy. That does not, however, mean that they may not qualify for a Chapter 13 bankruptcy. Other consumers may not desire to file a Chapter 7 bankruptcy in the first place and may instead desire a plan that would allow them to pay off creditors over time, which is more consistent with a Chapter 13 bankruptcy. There are however, certain considerations that the consumer must understand before moving ahead with a Chapter 13 bankruptcy. Some of the salient considerations related to Chapter 13 are as follows:

Consumers must qualify to file a Chapter 13

No matter whether a consumer wants to file a Chapter 7 or Chapter 13 bankruptcy they must meet the qualifications set forth under the bankruptcy code. This will require debtors interested in relief through bankruptcy to undergo a bankruptcy evaluation that would include the means test.

Consumers must repay debts under supervision of the bankruptcy court.

Consumers desiring a Chapter 13 must be willing to set up a payment plan that is approved by the court and follow that plan under the supervision of the bankruptcy court. The debtor must strictly follow the Chapter 13 plan. Failure to do so may result in the bankruptcy case being dismissed and the debtor remaining obligated to pay his or her creditors. A Chapter 13 plan requires the debtor to make regular payments of all of his or her disposable income to the Chapter 13 bankruptcy trustee who in turn disburses those payments to creditors pursuant to the plan. When the plan's payments are completed, the debtor receives a discharge of any remaining dischargeable debt by the court.

A consumer may not be able to keep all of his or her property and still maintain a viable Chapter 13 plan.

Some debtors may prefer a Chapter 13 bankruptcy because it may not only allow them to repay debts, but may also allow the debtor to keep some or all of his or her otherwise non-exempt property, which would otherwise be lost (liquidated for the benefit of creditors) in a Chapter 7 case. This is not always possible for everyone. If a consumer has non-exempt property that is not necessary for the re-organization of the debtor's financial situation, such as items considered to be luxury goods for which the debtor is still making payments, i.e., boats, motorcycles, recreational real property or personal property, or property for which the maintenance or the required loan payments are a drain on the debtor's resources, then the debtor may not be able to qualify for a Chapter 13. In such cases, if the debtor is willing to surrender the non-exempt property that is impeding a Chapter 13 bankruptcy, then he or she may still qualify for a Chapter 13.

To keep non-exempt property in a Chapter 13 setting, the debtor must be prepared to pay to the general unsecured creditors more than they would receive if the non-exempt property were sold and the proceeds divided among the unsecured creditors.

Generally, in order to retain non-exempt property in a Chapter 13 setting, a debtor must pay to the general unsecured creditors more through the Chapter 13 plan than such creditors would receive if the non-exempt assets were liquidated through a Chapter 7 bankruptcy and the proceeds distributed amongst the general unsecured creditors. Depending on the value of the non-exempt assets and the amount owed to the general unsecured creditors, this may require the debtor to pay all of the debt owed to his or her creditors. In other cases, where the value of the non-exempt asset(s) is considerably less than the total debt owed to the general unsecured creditors, it may result in the debtor repaying only a portion of the general unsecured debt. In either situation it is important to note that all of the Chapter 13 debtor's disposable income must be paid to his or her creditors. This means that in situations where the value of the non-exempt asset(s) is less than the amount owed to the general unsecured creditors, but the debtor has the ability to pay a greater amount to the unsecured creditors than would otherwise be required to protect a non-exempt asset, then he or she must do so to have his or her Chapter 13 plan approved by the bankruptcy court.

A Chapter 13 plan would not necessarily discharge all debts.

Some of the debts that would not be discharged upon completion of a Chapter 13 plan are those debts that are generally outside of the plan, such as home mortgages, installment debts whose last payment was after the completion of the plan, student loans generally, criminal fines, restitution, on-going alimony/spousal maintenance or on-going child support as well as past due domestic support obligations that were being paid outside of the plan.

Not everyone will qualify for a Chapter 13 plan.

In some circumstances that amount of debt and the type of debt that a debtor has may preclude him or her from filing a Chapter 13 bankruptcy. If a debtor has too much secured debt and/or too much unsecured debt, then he or she may not qualify for a Chapter 13 bankruptcy.

The foregoing are only some of the considerations that need to be reviewed by a consumer desiring a Chapter 13 bankruptcy. A debtor wishing to avail himself or herself of debt relief under Chapter 13 will need to fully evaluate his or her financial situation and determine qualification for bankruptcy. This requires not only a full review of the debtor's financial picture but also an understanding of prevailing bankruptcy law. An experienced bankruptcy law firm can be of great assistance in conducting this type of evaluation. A bankruptcy attorney can review the consumer's overall financial picture and provide valuable legal assistance.

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