All of our clients who have filed for chapter 13 budget must live on that budget for between 3 and 5 years. A budget has to be created that is accurate and will allow you to make your regular payments and a chapter 13 plan payment. I sometimes suggest to clients that they take out the cash for food and other basic expenses and only use that cash per month, once the cash is gone you cannot spend any more money, otherwise you will be over budget, and will not be able to afford your chapter 13 plan payment. In some cases this type of budgeting will be something that has never been done before by our clients, but it is important in order to end up debt free at the end of the bankruptcy plan. Once you are in your bankruptcy plan you must stay current on your plan payments, or else the trustee can send a request that your case be dismissed. If your case is dismissed you need to start over again with payments.
Chapter 13 Bankruptcy In Minneapolis
If you are thinking about filing for chapter 13 bankruptcy in the Twin Cities of Minneapolis and St Paul, your 341 meeting will most likely be held in downtown Minneapolis in the Plymouth Building. When you attend this meeting it is important to bring the following documents with you to make sure your case can be heard by the bankruptcy trustee: 1. most recent pay stub; 2. bank statements from the date of your bankruptcy filing; 3. Social Security card or W-2 from employment; 4. picture identification. If you bring these items to the meeting and show up a few minutes early to consult with your attorney the meeting should go well.
If the meeting goes as planned it should take around 10 minutes and the bankruptcy trustee will ask you questions regarding your budget and proposed payment plan. Once the 341 meeting has concluded your case should get confirmed in the next couple of months provided everything was working out with your plan. Once the payments start you must keep the monthly payments current or the trustee can kick you out of the payment plan.
Undue Hardship Standard and Student Loans in Bankruptcy
I recently ran across an interesting article online at http://www.fastweb.com/financial-aid/articles/2259-congress-proposes-allowing-private-student-loans-to-be-discharged-in-bankruptcy. The author presents some pretty startling statistics about the number of cases where student loans are actually discharged. The article writes that of approximately 72,000.00 student loan borrowers who filed for bankruptcy protection only .4 sought a discharge of their student loans, and of those only 29 of the 72,000 actually received a discharge of their student loans. The reason for this is the difficulty in getting those loans discharged in bankruptcy. As I blogged about in a previous post the obstacles to getting a discharge of student loans can be overwhelming. It seems that the best chance for some student loan relief is congress passing a measure allowing for the discharge of student loans in bankruptcy.
The Problem With Student Loan Debt
I am seeing an increasing problem with student loan debt in my bankruptcy practice. I have run across individuals with over $100,000.00 in student loan debt, and the payments can be upwards of $1,000.00 per month. This leads a lot of people to ask me if bankruptcy can help with the student loan debt, and unfortunately in most cases bankruptcy does not help. The law is skewed against individuals being able to discharge their student loan debt in bankruptcy. A common standard th courts employ when determining whether to discharge student loan debt is an “undue hardship” standard.
The problem is not just the standard the courts employ to determine if you can get rid of student loan debt, you also need to consider the cost of legal representation to get rid of the debt. In some cases the student loan lenders force the debtor into a trial in bankruptcy court, then appeal any adverse rulings to higher courts. In most cases people who have student loan debt cannot afford the legal representation necessary to get rid of student loan debt.
Congress should pass common sense reform allowing people to discharge at least some of their private and government subsidized student loans. A system should be set up that allows people who have paid on their student loan debts for a certain amount of time to discharge those debts in bankruptcy, so they are truly able to get a fresh start out of bankruptcy. It would be a shame if people did not pursue an education out of fear of student loans that never go away.
Reasons Why People File For Bankruptcy In Minnesota
I have helped a lot of Minnesota residents file for bankruptcy protection. In many cases my clients do not want to file for bankruptcy but have been forced into bankruptcy by circumstances beyond their control. I talk to clients every day who have lost their jobs, had major medical issues (without adequate medical coverage), recently were divorced, or a small business has failed. In most cases the things that have happened to my clients could happen to anybody in Minnesota myself included. That is why when I meet with clients I try to understand all the things that have happened in their life to bring them to talk to me and do not judge the clients for having to talk to a bankruptcy lawyer.
It is important to remember for all the people who judge others for filing for bankruptcy protection, that they have not walked in their shoes and should attempt to put themselves in that position to see how they would feel. I have seen so many different reasons for a bankruptcy filing, that I realize that most clients only file for bankruptcy protection after they have no other options.
Most clients have exhausted all of their personal savings, retirement, home equity and once all of that is gone do they consider bankruptcy. In many cases these clients would have been better off talking to me earlier to see if I could help them save a few assets for retirement, by filing for bankruptcy protection earlier. I am sure you could find similar stories from the clients who attend 341 meetings in Minneapolis and St Paul every day. If you are thinking having financial difficulties in Minnesota you need to talk to a bankruptcy lawyer before you run through all your savings and still have a mountain of debt.
Jail For Not Paying Debts In Minnesota.
The general answer to this that you cannot go to jail for not paying debts in the State of Minnesota, debtors prisons are not allowed in America. The issue is that a part of the legal process in Minnesota allows creditors to get bench warrants issued if a debtor fails to appear for collection related hearings after not answering the financial disclosure form sent by the creditor. If a bench warrant is issued and you get pulled over for a routine traffic stop, you could be spending the night in lock up.
In most cases you can get out of jail by completing the form that was neglected that lead to the bench warrant in the first place. The other option is pay the bill that caused the bench warrant. In either case you are best off attending court or filling out the creditors forms if they are sent to you, if you fail to do this you could end up in jail. The problem with this procedure is that in some cases debtors have not received any of this information if the mail was not delivered. It also creates a situation where taxpayers will pay for jail for people who have failed to pay medical or credit card debts. If you want to avoid having a bench warrant issued for your arrest, you must fill out the financial disclosure form, or attend the court hearing if you do not fill out the disclosure.
Does Bankruptcy Get Rid Of Home Loans.
The answer to this depends. If you file for bankruptcy protection in Minnesota and receive your bankruptcy discharge you will no longer be personally liable for any secured loans including home loans, car loans, boat loans, etc. The bankruptcy discharge gets rid of your personal obligation to pay on the loan. If you decide to stop making payments on the secured loan the lender cannot pursue you on the loan (provided you did not reaffirm the debt).
The lenders can still take the property back because that liability does not go away with a basic bankruptcy filing, so the lender can still foreclose on your home if you stop making payments after the bankruptcy. Lenders can also take back cars, boats, motorcycles, etc if you stop making the payments since those loans were secured by that vehicle as collateral. If lenders could not repossess property after bankruptcy they would be much less likely to lend, given the large liability if their customer files for bankruptcy protection. In some instances it is possible to strip off junior liens on homes, but that is not a given in every case, so you need to contact an attorney to determine if this is possible is your case.
Principal Payment Plan Proposed by NACBA
This proposal by the National Association of Consumer Bankruptcy Attorneys (NACBA) would allow homeowners who enter a chapter 13 bankruptcy to reduce their interest rate to zero for the term of their plan. This would allow the payments to be applied directly to principal and help the homeowner dig out from a possible negative equity situation. This would encourage many people in a chapter 13 bankruptcy to stay in their homes, instead of letting their home go through short sale or foreclosure. If people are allowed to stay in their homes, it would help the housing market recover by decreasing the number of short sales or foreclosures for sale. It would also reduce foreclosure related costs by the banks holding the notes. If this was coupled with the ability of homeowners to strip off wholly unsecured junior loan, it would encourage many of my clients to keep their homes. Instead many of my clients choose to let homes go, due to no equity for the foreseeable future, or inability to make the mortgage payments.
Americans Paying Off Debt According to the Federal Reserve Bank
A recent article on Yahoo that was based on data from the Federal Reserve Bank shows that American consumers are slowly paying off debt (http://finance.yahoo.com/blogs/daniel-gross/big-dig-fed-data-shows-households-attack-mountain-170636810.html). It also shows that bankruptcy filings are down by around 17% so far in 2011. This seems to indicate that people are either attempting to settle their outstanding debt, or a number of people may not have sufficient assets to protect to benefit from filing for bankruptcy protection.
In some cases you may not need to file for bankruptcy protection if you are “judgement proof”. This means that you do not have any assets that creditors can take after they get a judgement against you. If you are on some sort of government assistance with little or no assets, the creditors can not collect from you, and you would probably not need a bankruptcy filing. This is primarily true if you do not see a future without the government benefits due to a disability. If you are simply out of work but have some job prospects or other assets to protect filing a bankruptcy is one option to consider.
Divorce and Bankruptcy In Minnesota
This is a common situation facing our bankruptcy clients. The client is separated from their spouse and they always wonder should we file bankruptcy together. The answer to this depends upon each situation but in general people getting divorced with a large amount of debt should file a chapter 7 bankruptcy before divorce, and should file a chapter 13 bankruptcy separately, after the terms of the divorce have been finalized. The reason is that if all our clients are fighting about is debt, then filing a chapter 7 bankruptcy wipes out the debt, making the divorce an easier process. If the client does not qualify for a chapter 7 bankruptcy, then they should file a separate chapter 13 bankruptcy, the reason for this is simple, after a divorce you do not ties that bind the couple together. If you file a joint chapter 13 bankruptcy, you will have to rely on another party to continue to make the plan payment for 3-5 years.
