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Qualifications for Using Bankruptcy for Permanent Debt Relief in Marshall, MN

People struggling with making monthly payments on any of their debts have likely looked into ways to resolve those debts in alternative ways. Bankruptcy is one of the ways that thousands of individuals use to find permanent relief from debts they would otherwise never be able to resolve each year. Individual consumer bankruptcy can permanently resolve credit card debt, medical bills, mortgages, car loans, and many other common kinds of debt. While bankruptcy can be extremely effective for debt relief, it does have several requirements for filers to qualify. If you’re considering filing for bankruptcy to find permanent and lasting debt relief in Marshall, MN, or the surrounding area, Behm Law Group Ltd. can provide legal guidance and protection throughout your case. Our attorneys can first determine if you will qualify for Chapter 7 liquidation or Chapter 13 reorganization bankruptcy.

Chapter 7 Qualifications

Chapter 7 bankruptcy works to liquidate filers’ non-exempt assets in exchange for the permanent discharge of their debts.  In most cases, people can fully protect or exempt all of their assets.

  • Filers must pass the Means Test, which measures your debt-to-income ratio. If this ratio is lower than the state average or median for a similarly sized household, you can qualify for Chapter 7 bankruptcy. If you are married, you can measure you and your spouse’s income-to-debt ratio jointly.
  • Filers who previously filed a Chapter 7 case, but had their petition dismissed for any reason, can’t file again for 181 days.
  • Filers cannot have obtained a Chapter 7 bankruptcy discharge within the past eight years.
  • Filers cannot have obtained a Chapter 13 bankruptcy discharge within the past six years.
  • Filers must attend a court-approved credit counseling course within 180 days prior to the filing their case.
  • Filers must pay all bankruptcy fees and submit a factually accurate petition to the court listing all of their debts and all of their assets.

Chapter 13 Qualifications

Chapter 13 bankruptcy works to reorganize filers’ debts into a manageable repayment plan that considers their monthly reasonable and necessary living expenses and their level of monthly disposable income.

  • Filers who don’t pass the Chapter 7 Means Test can choose to file Chapter 13 instead.
  • Filers cannot have unsecured debts over $419,275, including debts like credit cards and medical bills.
  • Filers cannot have secured debts over $1,257,850, including debts like mortgages and car loans.
  • Filers need to have sufficient monthly income that exceeds their monthly reasonable and necessary living expenses to be able to make the monthly payments outlined in their chapter 13 repayment plan.
  • Filers must attend a court-approved credit counseling course within 180 days of filing their case.
  • Filers must prove that they have filed all federal and state income tax returns for the past four years.

Generally speaking, filers for Chapter 7 and Chapter 13 should not have engaged in any fraudulent behavior, such as maxing out credit cards immediately before filing or hiding assets.

Debt Relief

To learn more about finding permanent debt relief in Marshall, MN, and the local area by filing a bankruptcy case, contact Behm Law Group Ltd. by calling (507) 387-7200 or by emailing stephen@mankatobankruptcy.com.

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Farmer and Fisher Repayment Plans for Chapter 12 Bankruptcy in Mankato, MN

Many farming or fishing operations face difficulties year-round, often from the financial conditions that have worsened over the last few years. Low farming and fishing commodity prices and volatile weather conditions have become major challenges, especially for family-owned operations. Due to these problems and more, the rate of family farmer and fisher bankruptcies has gradually increased over the years, and in 2020, hit its highest peak since the Great Recession in 2007–2009. While some cases of farmer or fisher bankruptcies are liquidation bankruptcies that effectively end business operations, the majority of family farmer and fisher bankruptcies are reorganization cases that help filers get back on their feet financially and find permanent debt relief. If you are considering filing a Chapter 12 bankruptcy in Mankato, MN, or the surrounding area to resolve debts and stabilize your family’s farming or fishing operations, Behm Law Group Ltd. can provide legal support and guidance.

Chapter 12 Bankruptcy

Chapter 12 bankruptcy is similar to Chapter 13 wage-earner consumer bankruptcy. Both reorganize the filer’s debts into a manageable repayment plan lasting three (3) to five (5) years, both can provide for the repayment of secured loans under adjusted and more favorable terms, and both will provide for at least some minimal payment to unsecured creditors – usually 10% to 25% of what was originally owed to those unsecured creditors. Another factor they have in common is that filers will be required to dedicate all their available disposable income – income left over after reasonable and necessary living and business expenses are paid – to making payments in a chapter 12 or chapter 13 repayment plan.

Differences Between Chapter 12 and Chapter 13

Yet, there are several differences between Chapter 12 and 13, with the main one being repayment plans and the ways filers make payments. Chapter 13 plans require monthly payments to the bankruptcy trustee, but family farmers and fishers often have incomes that fluctuate with the seasons, so a monthly payment plan can be hard to maintain. Therefore, Chapter 12 plans can allow for seasonal payments or bi-annual payments or even one large yearly payment.

Also, Chapter 12 is different from Chapter 13 in that past production expenses and past incomes from previous years can be considered when a chapter 12 repayment plan is drafted and submitted to the bankruptcy court. This gives chapter 12 debtors more control over the repayment terms of their various debts in the repayment plan.

Repayment Period

During their Chapter 12 repayment period, family farmers or fishers can also sell property designated as “farmland or farm equipment” without negatively impacting their repayment plan and without necessitating higher plan payments to the chapter 12 trustee. This helps farmers and fishers in Chapter 12 bankruptcy pay down their debts and clear secured liens faster.

Farmers

For farmers selling assets/property during their repayment period, there are also some tax advantages. Taxes from the capital gains of the sales of equipment or real estate are treated as unsecured debts, like credit card debts or medical debts, in a chapter 12 case.   Presume a farmer purchased a combine for $100,000 and then sold it for $150,000 while in a chapter 12 bankruptcy.  Any income tax debt as to the $50,000 capital gain from the sale would not have to be paid to the Internal Revenue Service (IRS).   Rather, the tax debt from the sale would be treated and paid as an unsecured debt.

Cramdown

Through Chapter 12 bankruptcy, farmers and fishers also get the benefit of “cramdown”, which means they can cram down the amount of debt on a particular secured loan to the present value of the property item that serves as collateral for the loan.  For instance, presume that a farmer purchased a pickup truck two (2) years ago for $50,000.  Presume that the loan for the pickup truck had an interest rate of 15%.  Presume further that the farmer presently owes $45,000 and that the pickup truck is presently worth $30,000.  In a chapter 12 repayment plan, one can cram the $45,000 debt down to the present $30,000 value of the pickup truck and one can also cram down the accompanying interest rate from 15% to 5%.

To learn more about repayment plans and other aspects of Chapter 12 bankruptcy in Mankato, MN, contact Behm Law Group Ltd. by calling (507) 387-7200 or emailing stephen@mankatobankruptcy.com.