Across Minnesota, K-12 school budgets are dropping, and funding for private colleges is also suffering in several departments. This trend has had a marked effect on students, teachers, and administrators alike. For teachers and professors, the effect can be immediate or gradual. Specifically, those employed as educators at all levels have experienced an overall reduction in salaries, meaning their finances have changed for the worse. This shift has been a large part of why we’ve seen increased cases of educators filing for Chapter 13 bankruptcy in Fairmont, MN, and across the state. If you are an educator struggling to meet debt payments, Behm Law Group Ltd. can provide the guidance and assistance you need to file a successful case and find long-term debt relief.
Chapter 13 Bankruptcy for Educators
If you have made the decision to file for bankruptcy as an employed educator, you are most likely restricted to filing for Chapter 13 bankruptcy. While lowered salaries may be what brought you to the point of filing for bankruptcy, the fact remains that you still have an income. This means you won’t qualify for Chapter 7 liquidation bankruptcy unless your debts significantly outweigh your income.
On the bright side, Chapter 13 bankruptcy is often more desirable for those who want to keep their home and other possessions. Instead of liquidating your non-exempt assets in exchange for debt discharge like Chapter 7, Chapter 13 works to reorganize your debts into a reasonable monthly payment that you make to a chapter 13 trustee.
The reorganization process structures your debts into a repayment plan that lasts three to five years, depending on your income. If your income is lower than the median Minnesota income for a household of your size, your plan will last only three years. If your income is higher than the state median income for a household of your size, your plan is must last five years. In our experience, educator incomes do not typically exceed the median, even when filing jointly with their spouses. This means you can typically expect to have a three year repayment plan and pay a lower percentage of many types of debt.
How Chapter 13 Handles Debt
A Chapter 13 reorganization plan handles debt in several ways. First, you generally will continue to make your monthly payments to most of your secured debts, such as mortgage loans and vehicle loans, directly to those creditors. Sometimes, however, if you have become delinquent with your mortgage payments or vehicle payments, any pre-petition or pre-bankruptcy filing delinquencies can be paid or “cured” through your chapter 13 plan. For instance, if you have become $5,000.00 delinquent with your mortgage payments, this amount can be paid to the creditor by the chapter 13 trustee through your chapter 13 plan over the duration (36 to 60 months) of your plan. You must, however, be able to make the ongoing, regular post-petition mortgage payments that come due after your case has been filed. Second, priority debts such as certain tax debts, alimony and child support arrearages or even criminal fines, must be paid in full. Third, general unsecured creditors, such as credit card debts, medical debts, etc., do not receive interest, late charges or service fees. Any amounts that are paid to those creditors go against the principal that you owed those creditors when your bankruptcy case was filed. Typically, unsecured creditors are only paid a percentage of the total you owed them when your case was filed.
When the debt amounts are calculated and structured into your plan, you’ll be able to see the amount required to be paid monthly to your bankruptcy trustee. You can rest assured this amount will fit your income, though keep in mind your discretionary income will depend on a budget relating to your reasonable and necessary living expenses and your disposable income (income over and above what is necessary to cover your monthly reasonable and necessary living expenses) must be paid to unsecured creditors through your plan. This monthly payment may change if your monthly income and monthly reasonable and necessary living expenses change.
To learn more about filing for Chapter 13 bankruptcy in Fairmont, MN, as an educator, contact Behm Law Group Ltd. at (507) 387-7200 today.