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Receiving Debt Relief as a Personal Guarantor

In 2008, the housing crisis changed a lot about how mortgages and other loans are handed out. Credit and income requirements are much higher, and many borrowers need another person or entity to sign as a personal guarantor in order to receive a loan.

 

Establishing a personal guarantee on a loan means you’ll be required to repay that debt in the event the primary borrower cannot. If you’re left to pay a debt and find yourself in a situation where you also cannot repay it, filing for bankruptcy may be the best solution depending on the type of debt involved and your additional financial circumstances. With the help of Behm Law Group, Ltd. you can file a successful bankruptcy case and receive long-term debt relief in Fairmont, MN.

 

Bankruptcy is a highly effective legal process that treats many types of debt. While there are some debts, such as child support, alimony and some tax debts, that are typically not included in a bankruptcy discharge, the majority of common individual consumer or business debts will be discharged. Some of the most prevalent debts for a typical person are mortgages, car loans, and credit card debts. All of these can be discharged through bankruptcy, and this is also true for personal guarantors that are responsible for another person’s or business’s mortgage, car loan, credit card debt, or any other debts.

 

When you sign as a personal guarantor, you’re accepting the fact that you could be asked to make payments on that debt if the primary borrower defaults by missing a payment. If the primary borrower defaults for an extended period of time, the continued debt payments owed could accumulate to an amount that you yourself are unable to pay. If you file for bankruptcy, this debt will be discharged in a Chapter 7 case or included in a repayment plan in a Chapter 13 case.

 

Many people or other parties could find themselves in this situation. Almost anyone can sign as a personal guarantor including friends and family, businesses, or other parties with good financial standings. Personal guarantors help borrowers receive loans, reduce interest rates, and get better financing options overall.

 

If you’ve been asked to sign as a personal guarantor, it’s important to take several things into account about the primary borrower’s and your current and future financial situations. Take into consideration if your credit score will be affected and how and why the bank is requiring a guarantor.  Also, consider if you have the funds to repay the debt if the primary borrower defaults, what might happen to your credit if the primary borrower defaults, and your relationship with the primary borrower.

 

If you feel comfortable signing as a personal guarantor after taking into account your options and situation, remember that you can most likely discharge that debt if needed through a bankruptcy proceeding. To learn more about personal guarantees and how to receive debt relief in Fairmont, MN through bankruptcy, contact Behm Law Group, Ltd. today at (507) 387-7200 or stephen@mankatobankruptcy.com

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Understanding Co-debtor Roles in Bankruptcy

When an individual is in a financial situation ripe to be resolved with a bankruptcy case, it’s likely they have a lot of debt they can’t repay and may even have one or more co-debtors. Debt accumulation over time usually shows a bread crumb trail of having to take on more debt to cover debts already owed. For instance, many debtors open new lines of credit to pay off an auto loan or a mortgage, and that tends to snowball into more credit card debt with interest rates quickly increasing the amount owed.

If your debt has become overwhelming, Behm Law Group, Ltd. can guide and protect you throughout the process of individual consumer bankruptcy in St. Peter, MN.

Bankruptcy can be a complex legal process, and it can be very different from case to case. The bankruptcy code has many specific rules that may or may not apply depending on individual financial circumstances. One example of this is the co-debtor role and the laws that apply to this in a bankruptcy case.

 

What Happens in Bankruptcy

There are two exactly opposite things that happen to a co-debtor depending on which chapter you file. In Chapter 7, you may have the debt discharged, but the co-debtor will still be responsible for repaying the full debt. However, in Chapter 13, you assume responsibility for the debt in a three- to five-year repayment plan, and thus your co-debtor may only be partially obligated on it.   For instance, if you have a $5,000.00 Discover credit card debt and only $3,000.00 of it is paid through your chapter 13 plan, the co-debtor would be liable to pay the remaining $2,000.00.

 

Who Is a Co-debtor?

Any person that has legally agreed to pay the debt owed in the event that you can’t repay it is a co-debtor. Co-debtors include:

    • Spouse: Even if your spouse is not filing for joint bankruptcy with you, they can be responsible for the debt if they signed the lending paperwork. Common examples of this are mortgages, credit cards, and car loans.

 

    • Co-signer: If your relative, friend, or other individual co-signs a loan, rental, or other borrowed value with you, they become your co-debtor if you default on repaying that debt. This commonly happens if you don’t have sufficient credit or a lengthy borrowing history to take out a loan, rent a property, or open an account.

 

    • Personal Guarantor: If you provided a personal guarantee to a lender on behalf of a small business or a start-up, you are considered a co-debtor for the loan that the business receives. If the business files for bankruptcy, you may still be liable for that debt.

 

  • Community Property State Resident: If you and your spouse lived in a community property state in the eight years prior to filing for bankruptcy, your spouse is your co-debtor even if they don’t file a joint petition. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

 

To learn more about your co-debtor’s roles or to start filing for bankruptcy in St. Peter, MN, contact Behm Law Group, Ltd. today at (507) 387-7200 or stephen@mankatobankruptcy.com.

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How a Bankruptcy Insider Affects Debt Relief

Bankruptcy is a legal process that provides debt relief to thousands of individuals and businesses across the United States. If you’re struggling to meet debt payments each month and you feel like your quality of life is significantly affected by this, it may be beneficial for you to consider filing for bankruptcy. Not only does bankruptcy discharge common debts like credit cards and medical bills, it also addresses debts that are tied to properties, including mortgages and car loans. This means some of the most common debt types in America are resolved with a bankruptcy case. If you want to receive debt relief in Redwood Falls, MN, through bankruptcy, Behm Law Group Ltd. can guide you through the system, help you build a strong case, and protect you in the nuanced system of bankruptcy.

 

For the typical individual consumer, there are two types of bankruptcy that can provide debt relief in different ways: Chapter 7 or Chapter 13.

 

Chapter 7 is more suited to people with low incomes who will not be able to repay their debts. It works to liquidate non-exempt assets in exchange for discharge of one’s debts. For example, the trustee administering your case may sell a snowmobile that you may not be able to protect with your bankruptcy exemptions and pay that value to your unsecured creditors.  This is the exception, however, rather than the rule.  However, the bankruptcy exemptions are quite generous.  In the vast majority of chapter 7 cases, one’s bankruptcy exemptions will be sufficient to protect all of one’s assets.

 

Chapter 13 is best for those who don’t want non-exempt assets liquidated and have a steady, stable income. This filing works to restructure or reorganize the filer’s debts into a three- to five-year long repayment plan. Secured debts (debts tied to a property) will be repaid over that time but they are usually repaid under adjusted terms that are more favorable than the original loan terms.  Unsecured debts will be paid only a percentage of what they were owed before the bankruptcy case was filed.

 

When you file for bankruptcy, people and agencies considered “bankruptcy insiders” are taken into account and may affect your case. Bankruptcy insiders include relatives, friends, partners, partner’s relatives, or a company in which the filer has some control/involvement, or business individuals such as directors, business partners, or other business individuals who have a special or close relationship the filer in some way.

 

The court considers bankruptcy insiders in the determination of preferential payments and fraud. For example, if the debtor owed his or her mother $1,000.00 and paid the mother off within one year before he or she filed for bankruptcy relief, the bankruptcy trustee administering the bankruptcy case could demand that the mother pay the $1,000.00 back to the trustee.  The trustee would then divide that $1,000.00 among all of the debtor’s unsecured creditors.  Additionally, if the filer sold some property at below market value to the insider before filing, the entire transaction could be undone or reversed by the bankruptcy trustee.  For instance, if a filer sold a vehicle that was worth $10,000.00 to his or her mother for $1,000.00, the bankruptcy trustee could undo or reverse the transaction because fair value was not given for the vehicle.  The trustee could demand that the vehicle be turned over.  The trustee could then sell the vehicle for fair market value.  The trustee would then divide up the sale proceeds among the filer’s unsecured creditors.

 

To start your bankruptcy process today and receive debt relief in Redwood Falls, MN, or to learn more about bankruptcy insiders, contact Behm Law Group Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com.

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What Happens to Your Car in Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a common type of individual consumer debt relief that allows filers to restructure their debts into a three to five-year repayment plan suited to their income. Unlike Chapter 7 liquidation bankruptcy, Chapter 13 is often a better fit for filers with a steady income who want to keep the properties they have a secured debt on. If you’re considering filing to receive debt relief, Behm Law Group, Ltd. can help you put together a strong petition for Chapter 7 or Chapter 13 bankruptcy in Mankato, MN.

 

When you file for Chapter 13 bankruptcy, several different things will happen to your debts depending on the type of debt, the amount owed, and other circumstances. For example, your unsecured debts will be only partially paid through your repayment plan. While your secured debts can be included in your chapter 13 plan to be paid in full, they can oftentimes be paid under adjusted terms that are very favorable to you.  A secured debt is a debt tied to a property or other asset that serves as collateral/guarantee.  In other words, if you don’t pay the debt, the creditor can take/repossess the asset that serves as security or collateral for the debt.

 

If you own a car you haven’t paid off the loan for yet, several things can happen to that vehicle when you file for Chapter 13:

 

  1. Keep It: If you’re caught up or current on your car loan, you can specify in your repayment plan that you intend to continue making the regular payments directly to the creditor rather than making your payments to the chapter 13 trustee and then having the chapter 13 trustee make the payments to the creditor. To do this, you must meet the Best Efforts requirement by demonstrating not only that the value of the vehicle is at least as much as the amount of the debt against it but also that interest rate on the loan is reasonable (in the 5% to 7% range) and not unduly high (in the 8% to 20% range).

    2.  

  2. Repossession: Filing for Chapter 13 will stop the repossession of your car with the power of automatic stay. The automatic stay legally halts any creditors’ attempts to collect debt payments or repossess properties. The stay applies throughout your bankruptcy case, and if you include your loan in your repayment plan, your creditors will no longer be able to repossess your car.

    3.  

  3. Surrendering: If you don’t want to include your loan in your repayment plan, you can surrender your car to the bank you received the auto loan from. This typically occurs if the filer cannot afford to repay the loan or the car is unreliable.  The creditor will be able to take the vehicle, sell it, retain the sale proceeds and apply the sale proceeds against the debt but the creditor will not be able to demand further payment from you.  Whatever debt or claim is left following the sale of the vehicle will be paid by the chapter 13 trustee as a general unsecured claim like credit card debt, medical debt, etc.

    4.  

  4. Arrearage: If you are behind on payments on your car loan, you can include the past due payments you owe in your repayment plan and continue making the regular payments.   For example, if you’re $2,000.00 behind on your vehicle loan and your regular monthly vehicle payment is $400.00, you would be five (5) months in arrears with your vehicle loan payments.  You could include the $2,000.00 arrearage in your chapter 13 plan and the trustee would pay it back.  However, you would be required to continue making your regular, monthly vehicle payments of $400.00 directly to the creditor going forward and you would be required to remain current or up to date with your ongoing vehicle payments.

    5.  

  5. Loan Reduction: If the value of your car is less than the amount you owe on your loan or if the interest rate on the vehicle loan is unduly high, you might be able to reduce the amount you owe and reduce the interest rate and pay off the loan through your chapter 13 plan. This process, called cramdown, is common when it comes to car loans because car values quickly depreciate. You still owe the amount that is reduced, but it is paid under adjusted terms that are favorable to you.  In order to cramdown the amount of the debt to the present value of the vehicle, the subject vehicle loan must be more than 910 days old.  In other words, you must have incurred that debt more than 910 days before you filed for bankruptcy relief.  For these kinds of loans, you will be able to cramdown both the amount of debt down to the present value of the vehicle and the subject interest rate.  For example, presume that you have a vehicle that you owe $10,000.00 on and that the vehicle is presently worth $5,000.00 and further presume that you took out the loan on December 1, 2015.  Further, presume that the interest rate on the loan is 18%.  Presume even further that you filed for bankruptcy relief on December 1, 2019.  This loan would have been incurred or taken out more than 910 days before your bankruptcy case was filed.  With this sort of loan, you would be able to cramdown the debt from $10,000.00 to $5,000.00 and you would be able to cramdown the interest rate from 18% to 5% or 6% in your chapter 13 plan.  Instead of making your vehicle payments directly to the creditor, you would make them to the chapter 13 trustee and the chapter 13 trustee would pay the creditor the $5,000.00 at 5% or 6% interest.  The other $5,000.00 worth of debt that exceeded the value of the vehicle and was crammed down would be paid by the trustee as a general unsecured claim like a credit card debt or a medical debt.

 

With regard to vehicle loans that were incurred or taken out less than 910 days before you filed for bankruptcy relief, you would not be able to cramdown the amount of the debt to the present value of the vehicle.  However, you would still be able to cramdown the interest rate if the interest rate were unduly high.  For example, presume that you purchased a vehicle on December 1, 2018 and that you filed for bankruptcy relief on December 1, 2019.  Presume further that you owe $10,000.00 on the vehicle but that it is presently worth only $5,000.00.  Presume further that the interest rate on the vehicle loan is 18%.  This type of vehicle loan can still be included in your chapter 13 bankruptcy plan but you would not be able to cramdown the $10,000.00 debt to the $5,000.00 value of the vehicle.  However, you would still be able to cramdown the interest rate from 18% to 5% or 6%.  It may still be quite advantageous for you to have the vehicle loan paid by the chapter 13 trustee through your chapter 13 plan because the interest rate could be significantly reduced.

 

If you’re planning on filing for Chapter 13 bankruptcy in Mankato, MN and want to know more about how your debts and properties will be handled, contact Behm Law Group, Ltd. today at (507) 387-7200 or via email at stephen@mankatobankruptcy.com.

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Why the 180-Day Inheritance Rule in Chapter 7 Bankruptcy Exists

One common misconception about bankruptcy is the idea that it will leave the filer with little to their name and damage their credit beyond repair. In reality, bankruptcy is an extremely helpful process for ridding individuals and businesses of debts they would otherwise not be able to repay.

 

Bankruptcy is a legal process administered through the bankruptcy court system. While bankruptcy does affect the filer’s credit and some could lose certain non-exempt properties in liquidation-type bankruptcies, the overall benefits can greatly outweigh the negatives. If you are considering filing for Chapter 13 or Chapter 7 bankruptcy in Jackson, MN, Behm Law Group, Ltd. can help you build a strong, successful case.

 

If you qualify for Chapter 7 bankruptcy by passing the Minnesota Means Test, you will have the majority of your debts discharged. The majority of common debts like credit card debt, medical bills, mortgages, and car loans are discharged in Chapter 7. When it comes to unsecured debts (debts not tied to a property/collateral), the discharge has no side effects. On the other hand, the discharge of secured debts may mean you’ll lose the property tied to that debt in the liquidation process if there is no equity or value in excess of the debt against the property that you can assert an exemption claim to. Exemptions protect important properties like your home, vehicle, furniture, etc.

 

Some properties that are only established as a money value, such as your retirement fund, trust fund, or an inheritance, may also be subject to the liquidation process, though there are generous exemptions for tax qualified retirement accounts such as an IRA, 401(k), 403(b), etc.  For inheritances in particular, such as those received through a will or a life insurance policy, there are special rules in place to prevent bankruptcy abuse and maximize the potential benefit/return to one’s creditors:

 

  • If your relative is still alive, your inheritance is safe from the liquidation process because you don’t own it yet.
  • If you received your inheritance more than 180 days after the date you filed your petition – meaning your relative passed away more than 180 days after the date you filed your case – it’s not considered part of your estate and it will be safe from liquidation.
  • If you receive your inheritance within 180 days of filing for bankruptcy (specifically, your relative passed away within 180 days after you filed your bankruptcy case), your case may be amended, and any inheritance could be at risk of being liquidated.  If you cannot use your available bankruptcy exemptions to protect some of the inheritance, whatever amount is not exempted will be liquidated by the bankruptcy trustee and paid over to your creditors.

 

This 180-day inheritance rule was established to prevent debtors from filing for bankruptcy to rid themselves of debt with the knowledge that they will soon receive a large sum from the death of a family member. Filing for Chapter 7 bankruptcy with that knowledge shows that you wanted a way around repaying your debts honestly with the money gained from your inheritance.

 

To learn more about inheritances or other assets and what happens to them when you file for Chapter 7 bankruptcy in Jackson, MN, contact Behm Law Group, Ltd. today at (507) 387-7200 or via email at stephen@mankatobankruptcy.com.

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Understanding Proof of Claim in Bankruptcy as a Filer or Creditor

Whether you’re a debtor filing a bankruptcy petition or a lender involved in a bankruptcy case as a creditor, you have certain responsibilities. Bankruptcy is a highly complex legal process that requires comprehensive paperwork from all parties involved. If you’re considering filing for bankruptcy relief, Behm Law Group, Ltd. can help you put together a strong petition that provides long-term debt relief from Chapter 7, 13, or 12.

 

As a debtor, bankruptcy can be key in resolving debts in an effective way, and as a creditor, it means you’ll see a return of what’s owed when that might not otherwise be the case. Creditors involved in a bankruptcy in New Ulm, MN are responsible for filing a proof of claim if they want to receive any return on the debt the filer owes.

 

A proof of claim is a key part of the bankruptcy process. All creditors, unsecured or secured, must file the correct paperwork that shows proof of their claim on the debt in order to be paid from the bankruptcy case. Creditors are paid from the liquidation of the filer’s non-exempt assets in a Chapter 7 case, and in both Chapter 13 and 12 cases, that money comes from the filer through payments made pursuant to a repayment plan.

 

Occasionally, creditors won’t be required to fill out a proof of claim form if the filer has a no-asset Chapter 7 case. This means there’s no money in the bankruptcy estate, and none of the creditors involved will receive a return on the debts owed.

 

Proofs of claim must be filed within 70 days of the date the petition was filed for non-government creditors. Government creditors have 180 days to file their proof of claim paperwork.

 

Formal proofs of claim include the name and case number of the filer, creditor information and mailing address, amount owed to the creditor, the basis of the claim, and whether the debt is secured or unsecured. Supporting documentation from the creditor’s records is also required.

 

In some cases, another party of interest (person or entity that might gain or lose from the case) can object to a creditor’s proof of claim. Reasons a claim may be objected to include inaccuracies such as an incorrect amount listing, the wrong type of debt is listed, the supporting documents were not included, or the interest is listed incorrectly.

 

If you’re considering filing for bankruptcy in New Ulm, MN, Behm Law Group, Ltd. can help. Contact us today at (507) 387-7200 or via email at stephen@mankatobankruptcy.com for more information.