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.
Who are the Minnesota Panel Bankruptcy Trustees, and What Do They Do?
A common question from debtors filing bankruptcy is who are the Minnesota Trustees and what do they do?
There are two types of trustees. The first is a employee of the federal government working for the Department of Justice and are know as a United States Trustee. The second are private individuals called a Panel Trustee. Typically panel trustees in Minnesota are attorneys who practice or practiced bankruptcy law. When an opening presents itself attorneys will apply and be appointed (hired) by the Department of Justice. The U.S. Trustee is tasked with oversight of the panel trustee and the bankruptcy case. The Panel Trustee is the representative of the estate and is charged with the task of ensuring that the creditors receive fair repayment.
In most cases creditors receive no payment, this is also known as a zero asset bankruptcy cased. In zero asset cases the panel trustee is paid a flat fee of approximately $65.00 per case. Obviously that is not enough to pay their bills. In those cases with assets: greater than the exemptions; or which are not disclosed; or which are transferred to a insider (friend or family member) the trustee is also paid on a sliding fee scale. The typical scale is 25% for the first $5000.00 recovered, 10 % for the $5000.01 not to exceed $50,000.00, 5% for the $50,000.01 not to exceed $1,000,000.00. This creates an incentive for the trustee to investigate the case thoroughly. Because trustees are very adept at finding assets the worst thing you can do is transfer funds to an insider (friends or family) or try to hide assets. Doing either of these things converts a potential exempt asset to a nonexempt asset. If you are contacted by a Minnesota Trustee for any reason contact an attorney.
The U.S and Panel trustees in the twin cities and the rest of MN are:Jazmine Keller, Kyle Carlson, Bridget Brine, Paul Bucher, Julia Christians, Michael Dietz, Gene Doeling, John Hedback, Michael Iannacone, Mary Jo Jensen-Carter, Robert Kanuit, Dorraine Larison, Brian Leonard, Dwight Lindquist, Nauni Manty, Timothy Moratzka, Charles Ries, Randall Seaver, Joseph Stermer, John Stoebner, Patti Sullivan, David Velde
Bankruptcy for Minnesota Contractors
As most are aware the building trades have been hit especially hard by the economic downturn. Prior to the downturn building trade professionals in Minnesota were having some of the best year in terms of income. What went up came down. The question is what to do about it. Homes are not being built, homeowners are holding back on improvements and even commercial properties are not immune in Minnesota. The end result is framers, finishers, contractors, painters, plumbers, drywallers, painters and landscapers are in trouble. For most in the building trades further credit is not an option. Banks and credit card companies that were friends during the boom years are now enemies; loans are being called in, credit limits are reduced and interest rates are increased.
For those in the building trades facing collections, judgements and garnishments one option is bankruptcy. By filing bankruptcy the debt that is causing stress and the inability to turn any profit can be reduced. The end result is when the economy improves individuals in the building trades will have good financial footing without the debt. Failure to take care of the debt will often mean years (10 or more) working to pay down debt while many creditors collect through judgments and garnishment. Imagine when the economy improves the fruit of labor going into your pocket rather than to satisfy creditors. Taking care of the problem now will create a better future.
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.
Mortgage Modification or Bankruptcy First?
For individual looking to modify a mortgage and also considering a bankruptcy a common worry is that bankruptcy will disqualify them for the modification. The first and most important factor with the disqualification of a modification is whether a modification will be granted in the first place. In most instances the chance at modification of home mortgage are remote. Banks will review the information provided by individuals and often conclude that the same issues that caused late payments on the mortgage still exist. Those issues usually revolve around lack of income to afford the house and too much debt.
Often the best advise I can offer is to prioritize which is more important and do that first. If creditors have taken judgment and are going to garnish a bank account or wages you should file the bankruptcy first. If you are late on house payments and no unsecured creditor has judgment work on the modification.
If a bankruptcy is filed, one option is to file a chapter 13 bankruptcy. Individuals who are behind on house payments can both catch up on house payments and satisfy credit cards and medical debt. A second option in bankruptcy is to file a chapter 7. Many find it much easier to catch up on house payments and remain current when not burdened by unsecured debt. Contact me today to discuss how to keep your house.
Feeling Bad About Filing Bankruptcy
Similar to many problems the first step for bankruptcy is the hardest one, admitting that you may need a bankruptcy. Never once in all my years practicing bankruptcy have I met with a client who wanted to file. In most cases my clients have exhausted all available resources including borrowing from other credit cards, borrowing from family and friends, borrowing from savings and retirement and borrowing from their emotional health prior to resigning themselves that they should consider bankruptcy. I have asked clients why they are reluctant to even consider bankruptcy and the top answers are:
1. I have been told that I will never obtain credit again. This is not true, credit card companies will often reissue credit immediately after discharge because the creditors know you can’t file another bankruptcy for 8 years.
2. I have been told that I will loose everything. Also, not true, bankruptcy in Minnesota includes generous allowances for personal possessions including house, cars, retirement and savings.
3. I feel like a failure. I hope you don’t. Many famous people have been in financial problems and have obtain a fresh start and have went on to great wealth. Some famous bankruptcy filings include: Tom Petty, Donald Trump, Willie Nelson, Larry King, and Thomas Jefferson just to name a few. In Minnesota we have average annual filings of around 15,000 per year. Chances are you know someone who filed and they just don’t talk about it.
4. My friends and neighbors will find out. Most likely they won’t unless you tell them. MN bankruptcy is a public record, however to search for bankruptcy filings a party would need to sign up for a special account administered through the federal court system.
The biggest problem I see is waiting too long before even considering a bankruptcy. At Bolinske & Bolinske we offer a free consultation. No one at our office will ever make you feel bad about filing. Also no one will ever pressure to file. I am happy to give you information to help you make an informed decision.
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.
BANKRUPTCY OR DEBT SETTLEMENT, WHICH IS BETTER FOR YOUR CREDIT?
A common worry that individuals have when thinking about bankruptcy is how will it affect their credit score. Many individuals considering bankruptcy will also consider debt settlement or debt consolidation as a way out of debt. The question is which is better or worse for your credit score?
Chapter 7 bankruptcy takes on average 95 days from filing to discharge. Immediately after discharge individuals can begin to rebuild credit. Think about drawing a line in the sand. Prior to filing most individuals have credit scores of 500 to 600, which is low. Filing bankruptcy will not lower the score much more although it will be listed on a credit score. Once a discharge is received individuals will often receive credit card offers and extensions of credit. The reason is individual with income suddenly become debt free, therefore their debt to income ratio looks better. Creditors also know that an individual can not file another chapter 7 for eight years, their chance of being paid is high. Through responsible credit use, including charging only what you can afford and paying the balance in full and on time every month, as well as paying mortgage and car payments timely, credit scores will climb.
Debt consolidation or debt settlement will often take years to complete. The lengthy process will mean that the low credit scores of 500 to 600 will remain low until the debt is satisfied. Beyond the length many creditors will report settled in full or compromise in full as a designation on the credit report. Such designation are viewed as a negative.
The best thing to do when considering the affect that any process will have on your credit score is to know your options.
