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.
Reasons Why People File For Bankruptcy In Minnesota
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.
Can I Strip Off A Second Mortgage In A Minnesota Chapter 13 Bankruptcy?
The answer to this depends upon several factors including how the 8th Circuit Court of Appeals rules on a pending appeal in the case of In Re Fissette, 11-6012 (B.A.P., 8th Circuit, August 29, 2011). Currently a majority of decisions have found that a debtor should be allowed to strip off a wholly unsecured 2nd, 3rd, 4th, or 5th (junior liens) mortgages in a chapter 13 bankruptcy. This has significant ramifications for the debtor, it may make it feasible for him or her to stay in their home, if they are able to remove those mortgages. In most cases this allows the 2nd mortgage payment to be included as part of the chapter 13 plan to be distributed equally to all of a debtors unsecured creditors. At the end of the plan the debtor will no longer have the 2nd mortgage on the property, since it was discharged as part of the bankruptcy.
As of the writing of this biog. the 8th Circuit Court of Appeals has not decided this issue for Minnesota, if they allow debtors to strip off the 2nd mortgages it will be a huge victory for people looking to keep their homes and in a chapter 13 bankruptcy. I can tell that from first hand experience that allowing debtors to strip off junior liens would allow many of my clients to stay in their homes, instead of facing foreclosure. I am hopeful that the 8th Circuit will allow debtors the option to save their homes by stripping off junior lien holders in a bankruptcy. The bankruptcy courts in Minnesota have determined on a number of occasions that a debtor may not strip off junior liens. This could all change with the 8th Circuits ruling. We will just have to wait for the decision regarding this issue of junior lien holders and chapter 13 bankruptcy.
Preference Lawsuit in Minnesota
If you have been sued by a Minnesota bankruptcy trustee you are not alone. It is common for trustees to send out demand letters and lawsuits regarding bankruptcy preference actions. These types of actions are fairly common and mean the trustee thinks that you have received money from an insolvent debtor before a bankruptcy was filed. You may have defenses available to you and you should consult with our office before you decide how to proceed. If you have been sued it is important to remember that you have a limited amount of time to answer the complaint. In some cases settling with the bankruptcy trustee may be your best option, but in other cases you may have a valid defense to the preference suit, and may want to defend the action in front of the Minnesota Bankruptcy Court.
Bankruptcy Adversary Proceedings in Minnesota
If you filed for bankruptcy and the creditor does not agree with you getting rid of their debt, they have the option to file an adversary proceeding with the bankruptcy court. This basically starts a lawsuit in bankruptcy court to determine whether the debt is discharged, or stays with the debtor forever until paid off. The most common grounds for this type of proceeding are fraud. The creditor must show that but for the debtors fraudulent activity they would not have entered into an agreement with the debtor. This is a difficult standard to meet in bankruptcy court, since if the creditor wins the adversary proceeding the debt must be paid back and the creditor can get a judgement in state court.
If a creditor has filed an adversary proceeding against you in Minnesota give our office a call. We may be able to help you settle with the creditor or help you with the adversary proceeding in court. It is important to have representation in this type of proceeding since the creditor will probably be represented by an attorney.
Top Reasons for Filing A Chapter 13 Bankruptcy
1. The most common reason for filing a chapter 13 bankruptcy under the law change of 2005 is that the clients income exceeds the median income for where they live. This is in reference to the means test portion of the bankruptcy petition. This determines what type of bankruptcy you will be eligible for. The advantage of this type of bankruptcy is that it allows a repayment schedule with one monthly payment to take care of all of your unsecured debt, and can also include car payments.
2. Chapter 13 bankruptcy allows a person to discharge all of their remaining debt after they repay the debt for three or five years. This means that you make a set payment each month, and unless you are doing a 100% plan you will only pay back a portion of your debt. This amount is determined by your budget, and you are required to put all of your disposable income towards the plan.
3. Chapter 13 bankruptcy can allow an individual to keep their home from going into foreclosure. If you are behind on your house payments in Minnesota a chapter 13 may allow you to catch up on your past due house payments and prevent a sheriffs sale. The catch is that you need to be able to make your full mortgage payment, and pay something to catch up on the past due payments.
4. It may be possible to strip off 2nd mortgages that are totally unsecured. This never used to be the case in Minnesota, but a recent court decision makes this option a possibility for the many Minnesotans who have houses with a 2nd mortgage that they cannot afford. This decision was recent and could still be appealed to the 8th Circuit Court of Appeals.
5. If your car loan is over 910 days old you may be able to cram down the value of the car to what the vehicle is actually worth. This allows you to make a smaller car payment and have the vehicle paid off at the end of your chapter 13 plan. It also allows you to make a larger payments to your unsecured creditors.
6. You can schedule certain debts as priority. If you have certain debts that would not be dischargeable in a chapter 7 bankruptcy, you can make payments on those debts in a chapter 13 bankruptcy. This allows you to set up a fair payment plan and pay your priority debts, and at the end of the three or five your repayment term, also get rid of your unsecured debt. This is a huge advantage if you owned a business in Minnesota and owe sales or use taxes, or other priority government debt.
7. If you are working and can contribute to a 401k you are allowed to do this in a chapter 13 bankruptcy. This means that you are saving for your retirement and paying off your debt at the same time. This is a great option for clients, since they can exit bankruptcy with more money for their long term retirement needs.
8. The above list does not include all the possible benefits of filing a chapter 13 bankruptcy. If you have more questions you can give our office a call at 952-294-0144 and we would be happy to see if chapter 13 bankruptcy in Minnesota is a good option for you.
