What You Can Learn from the Papyrus Bankruptcy as a Small Business Owner

The technological advances we are continually making in many different industries are amazing, but they come with sometimes very unforeseen impacts on other areas of the commercial world. When it comes to paper products like books, legal documents, paychecks, receipts, and even greeting cards, digital replacements for these items have largely taken over.

 

This has severely affected creators and sellers of paper media, including, recently, the greeting card and stationary company Papyrus. The Papyrus bankruptcy, in particular, could give small business owners important information. If you are considering filing for bankruptcy in Owatonna, MN as a small business owner or an individual, Behm Law Group, Ltd. can help you decide which chapter to file and guide you through it.

 

The Papyrus brand, owned by Schurman Fine Papers, is closing all 254 of their stores after filing for Chapter 11 bankruptcy in January of 2020. In addition to the Papyrus brand, the Schurman Fine Paper company owns American Greetings and Carleton Card. The stores that provide all of these paper greeting cards are shutting down because of the oversaturation of digital and e-card media. Papyrus and other Schurman cards will still be sold through department stores, supermarkets, and other companies.

What does this tell you?

Simply put, the replacement of paper cards with digital media dramatically decreased the demand for Papyrus products. If you’re supplying a product that’s losing demand due to the increase of digital versions of that product, you’re looking at a market that may become obsolete. However, you may still be able to maintain a market if you’re able to work through other retailers or transition your product into a digital format.

 

Ideally, if possible, your product should be available in a digital and physical format. Papyrus’s choice of filing Chapter 11 bankruptcy means their income is still high enough to make monthly debt payments pursuant to a Chapter 11 reorganized plan. In the future, if they’re able to successfully pay their debts pursuant to the modified payment terms of this plan, Papyrus may be able to reopen stores or create a whole new product line of digital greeting cards. All of this means there’s still hope for companies making products that are slowly being replaced by digital versions.

 

If you’re a sole proprietor or partner of your business in Owatonna, MN, Behm Law Group, Ltd. can help you file for Chapter 13 bankruptcy and reorganize your debts, or Chapter 7 bankruptcy and work through the liquidation process. Give us a call today at (507) 387-7200 or contact stephen@mankatobankruptcy.com for more information.

Part 1: Costs of Filing and Hiring Bankruptcy Assistance

If you’re having difficulty making your debt payments from month to month, it might be time to consider seeking effective methods of debt relief. While there are many other unreliable forms of debt relief available, bankruptcy is the most efficient and reliable for long-term stability and actual, long-term debt relief.  Bankruptcy is also a system that is based in law, so you can rest easy with the knowledge that you won’t be exposing yourself to predatory debt relief agencies.

 

If you’re having financial difficulties, you may have already looked into what the process of bankruptcy looks like and what fees are involved. To file a successful case, you can find the bankruptcy assistance in Worthington, MN, you need with the expert attorneys at Behm Law Group, Ltd.

 

Filing for bankruptcy without the guidance of a lawyer is possible, but is not recommended. Bankruptcy is a highly nuanced process, and bankruptcy assistance is often key in filing a strong and effective case. This is especially true for those filing a reorganization type of bankruptcy, like Chapter 13. Looking at the numbers for the fees involved bankruptcy and the costs of an attorney may be daunting, but breaking down that information to understand it a little better can help you make the decision on whether to file or not.

 

Bankruptcy/Court Fees

 

There are a few fees that cover different aspects of your petition and other parties involved. These fees are often lumped together, but taken apart they look like this:

 

  • Chapter 7 filing fee: $335
  • Chapter 13 filing fee: $310
  • Credit counseling fees: Prior to filing your petition, you must complete credit counseling within 180 days of when you will submit your paperwork. This will typically be around $50 depending on what organization you work with. This is also a fee that can be waived with proof that you’re unable to pay.
  • Debtor education course fees: After filing for bankruptcy relief, you must complete a debtor education course in order to receive a discharge. Again, this varies depending on the organization you choose. The cost can vary quite a bit, ranging from $10 to $50 according to Federal Trade Commission data. This is another fee that may be waived with proof of inability to pay.
  • Miscellaneous fees: Certain cases may have other fees to pay, depending on miscellaneous circumstances. All miscellaneous fees are listed in the Bankruptcy Court database.

 

After adding up all these fees, bankruptcy cases will have fees ranging broadly from $1,000 to as high as $6,000 or more. It all depends on your situation and how complicated your case is. Generally speaking, it’s more expensive to file for Chapter 13 bankruptcy ($2,500 to $6,000) than Chapter 7 bankruptcy ($1,000 to $3,500).

 

Attorney costs vary from law firm to law firm, and there are some lawyers that reserve time to work pro-bono with clients that can’t afford bankruptcy assistance. We’ll cover more information about hiring bankruptcy assistance in Worthington, MN, in part two of this blog.

 

Contact Behm Law Group, Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com for more information today.

 

Filing for Bankruptcy After Moving to a New State

Moving anywhere is a big ordeal and a lot of hassle, even if it’s just down the street from your old home. Moving to a new state, however, requires even more work due to the logistics of the physical move plus all the paperwork you need to update. Not only does moving to a new state require changes in licenses, registration, addresses on all legal documents, bank accounts, PO boxes, and much more, it can also affect more unusual circumstances, such as bankruptcy filings.

 

If you are considering filing for bankruptcy in Marshall, MN and Minnesota is a new state for you, Behm Law Group, Ltd. can help you build a strong case for Chapter 7 or Chapter 13 bankruptcy and receive long-term debt relief.

 

A move to a new state affects bankruptcy so much because each state has its own specifications for bankruptcy exemptions.

 

What are bankruptcy exemptions?

 

Exemptions are allotted amounts provided under the laws of each state that allow you to protect your property from being surrendered in bankruptcy and sold by the trustee administering your case.  The United States Bankruptcy Code has its own exemptions, too.  Some states allow you to use either a particular state’s exemption allowances or the exemptions provided by the bankruptcy code, depending on which set of exemptions best works with your particular circumstances.  Some states, however, require you to use only a particular state’s exemption allowances and those states prohibit you from using the exemptions provided by the bankruptcy code.  The exemption amounts and the property items that can be protected with the exemptions vary from state to state but most large items, like your home or car, will be protected from liquidation.   However, what you can protect with your bankruptcy exemptions might be affected by a move to another state.

 

In Minnesota, you can exempt your homestead with a value of up to either $420,000, if it is located in a city and is non-agricultural in nature, or $1,050,000, if it is rural and agricultural in nature, and you can exempt the value in your car up to $4,800. In Minnesota, you can also use the federal bankruptcy exemptions in place of the Minnesota exemptions. As indicated above, this is true for many states, though not all. States that currently allow you to use the federal exemptions include Alaska, Arkansas, Connecticut, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin.

 

How do I know what state I file under?

 

You will be required to file under the state you are currently the resident of.  In order to establish residency for purposes of filing a bankruptcy case in a particular state, you must actually reside in that state for at least ninety-one (91) days of the preceding one hundred eighty (180) days before the date your case is filed.  For example, if you resided in Wisconsin for all of 2019 and then moved to Minnesota on January 1, 2020 and you wanted to file for bankruptcy in Minnesota you would not be able to do so because you would have resided in Wisconsin for the majority of the one hundred eighty (180) day period preceding January 1, 2020.  Rather, you would have to wait until April 1, 2020 in order to file bankruptcy in Minnesota because by that time you would have resided in Minnesota for at least ninety-one (91) days of the preceding one hundred eighty (180) day period.

 

Generally, in order to use a particular state’s bankruptcy exemptions one must reside in that state for two years (730 days).  If one hasn’t lived in a state that long, one would have to use the exemptions of the state that one lived in for the two (2) years before moving to one’s current state.   For example, if you lived in Alaska for four years, then moved to Minnesota a year ago, you would have to use the exemptions provided under the laws of Alaska.  However, because Alaska allows people to use the federal bankruptcy exemptions, you could opt to use those exemptions instead of the Alaska bankruptcy exemptions.  Even if one may have resided in a particular state for two (2) years before relocating to a different state, they may not be able to use the original state’s exemption laws.  Indeed, some states prohibit non-residents from using their exemption laws.   South Dakota is a good example of this.   If you had lived in South Dakota for all of 2018 and all of 2019 and then moved to Minnesota on January 1, 2020, you would not be able to file for bankruptcy relief in Minnesota until April 1, 2020, as indicated above.  When you would file your bankruptcy case on April 1, 2020, you would not be able to use the exemption laws of either the South Dakota or Minnesota because you would no longer be a resident of South Dakota and you would not have resided in Minnesota for the preceding two (2) years (730 days).  In this case, however, you would be able to use the federal bankruptcy exemptions.

 

If you’re considering filing for bankruptcy in Marshall, MN and want to learn more about your exemption options, contact Behm Law Group, Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com today.

When A Trustee Might Abandon a Nonexempt Property in Chapter 7 Bankruptcy

Choosing to file for bankruptcy is a difficult decision that requires important consideration of all factors of your current financial circumstances. If you choose to file for individual consumer bankruptcy, you likely have no other effective or truly productive way of working out your debts and keeping your quality of life stable. People considering filing for Chapter 13 or Chapter 7 bankruptcy in Pipestone, MN can find legal guidance and protection with the help of an expert Behm Law Group, Ltd. attorney.

 

When you choose to file for bankruptcy as an individual consumer, you have two primary options available: Chapter 13 or Chapter 7 bankruptcy. Chapter 13 is a debt reorganization bankruptcy procedure that is highly effective for filers with steady, stable incomes and for those people who may own property that would have more value than their available bankruptcy exemptions would be able to protect and could be liquidated in a Chapter 7 proceeding. On the other hand, Chapter 7 liquidation bankruptcy is a better option for filers without steady incomes or with properties that have values that are within the limitations of their available bankruptcy exemptions.

 

While Chapter 7 bankruptcy will liquidate (sell off) some of your non-exempt properties and possessions (properties that have values exceeding the limitations of your available bankruptcy exemptions), there are ways to exempt important items, like your home and primary vehicle. While you’re allotted exemption amounts for properties that will be removed from the liquidation process, there are sometimes nonexempt properties that will still be removed from the bankruptcy process.

 

Trustee Abandonment of Property

The primary, and for the most part, only reason a trustee will abandon the liquidation of an asset in Chapter 7 bankruptcy is because of its worth. If your property’s current market value is less than the debt you owe on it, it’s not worth the time spent for the trustee administering your case to sell it and return what little value was received to your creditors. This can happen if you continue to default on a debt and the accumulation of interest and late fees increases the debt over time. For example, if you haven’t paid your mortgage in some time, the amount of the mortgage may have increased to well over the market value of your home.

 

Instead of selling the property, the trustee will allow you to keep it. If you own the property outright (as is often the case with jewelry and other luxury goods that would otherwise be liquidated), you get to keep it without any conditions. If your creditor has secured that property with a loan, you can keep it if you continue making payments on the debt to that creditor. Otherwise, the creditor can choose to employ collection agencies, file lawsuits, foreclose, or seize the property from you.

 

One other reason a creditor or a bankruptcy trustee might abandon your property is if it will be too difficult to sell due to an obscure market or an oversaturated market.

 

If you’re considering filing for Chapter 7 bankruptcy in Pipestone, MN, and want to learn more about the process or how your properties will be handled, contact Behm Law Group, Ltd. today at (507) 387-7200 or stephen@mankatobankruptcy.com.

Importance of Bankruptcy Attorneys Even with the Automatic Stay

As with any other legal process, it can be difficult and complicated to navigate the bankruptcy court system, including correctly filling out the right forms and paperwork, and understanding which dates and stipulations mean what. Unlike most other types of legal processes, bankruptcy is one that can be handled without the assistance of an attorney. However, bankruptcy is a highly nuanced system that can change in an instant with the introduction of a new form, different financial circumstances, or the decision of an attorney or trustee. Because of this, it’s strongly recommended that filers take advantage of the resources and protection a bankruptcy lawyer can provide. When you work with Behm Law Group Ltd. expert bankruptcy attorneys in Luverne, MN, you are ensured a neatly compiled case that offers long-term effective debt relief.

 

Individual consumer filers can use Chapter 7 bankruptcy to liquidate their non-exempt assets in exchange for debt relief or they can use Chapter 13 bankruptcy to reorganize their debts into a three- to five- year repayment plan suited to their unique financial circumstances. No matter which chapter you file for, however, you will immediately receive the benefits of the automatic stay.

 

The automatic stay is a routine procedural rule for bankruptcy cases. It goes into effect the moment a bankruptcy petition is filed. The implementation of the automatic stay prevents creditors from collecting debt payments from you, stops them from filing claims or lawsuits against you, keeps them from enforcing liens on any of your assets, and establishes a formal reconciliation or balance between them and you for the duration of your bankruptcy case. This legal reconciliation or balance prevents creditors from contacting/harassing you or sending other collections agencies after you.

 

The automatic stay protects you from your creditors while your bankruptcy case is being worked out, but it is still important to have the protection, guidance, and expertise of a trained and certified professional bankruptcy attorney. Aside from the valuable work of organizing your case, filling out the correct paperwork, establishing communications with the court, and overall guiding you throughout your case, a bankruptcy attorney can protect you against your creditors if uncommon events should occur. For example, the court could lift the automatic stay if one or more creditors file a motion to lift it. Additionally, creditors can ask the trustee administering your case to take action against you if they believe you have engaged in fraudulent behavior, object to the discharge of a particular debt, protest your paperwork, and take many other actions that can damage your case or leave you unprotected.

 

The helping hand of bankruptcy attorneys is often the key in forming a strong case that will produce successful results, and it is also critical for protecting you against any actions your creditors might take that compromise the automatic stay or introduce new legal proceedings.

 

To learn more about the help bankruptcy attorneys in Luverne, MN, can offer, contact Behm Law Group Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com today.

Making Chapter 13 Bankruptcy Work for Your Small Business

Owning a small business is a difficult endeavor with hundreds of obstacles to overcome in order to turn a profit. Because it’s so difficult to maintain a successful business, many business owners find themselves in poor financial circumstances. If you are struggling to keep making payments on your business and/or personal debts, it may be time to consider taking action for debt relief. For many businesses and individuals, filing for bankruptcy is an effective way to receive long-term debt relief for many common debts. If you are considering filing for bankruptcy, but want to keep your business running, you may be able to use Chapter 13 bankruptcy in Mankato, MN, to find debt relief with the help of Behm Law Group Ltd.

 

Chapter 13 bankruptcy is a reorganization/repayment type of bankruptcy that is typically only reserved for individuals. However, there are circumstances that may allow for a business owner to file Chapter 13 and include business debts along with personal debts in the case.

 

Specifically, your business debts can be included in a Chapter 13 bankruptcy if you own the business as a sole proprietor or a partnership. If this is your situation, you can include business debts in your repayment plan as personal debts including business tax debts.

 

Including your business debts into your Chapter 13 repayment plan means they will be rolled into your personal debts and repaid within a three- to five-year period. Secured and unsecured business debts are handled in the same ways your personal secured and unsecured debts might be. This means your secured business and personal debts will be repaid in full, often under adjusted contractual terms that are more favorable to you and your business, and your business and personal unsecured debts will be repaid in amounts between 0% and 100%, depending on the value of your assets. The percentage is determined, in part, by the amount that your unsecured creditors (creditors without security or collateral) would receive if you had filed for a Chapter 7, liquidation type bankruptcy.

 

If you own a business in a partnership, you may not be able to file for Chapter 13 bankruptcy if the trustee determines that your creditors will receive more back on their claims if you file for a Chapter 7 bankruptcy instead and close down your business. Some cases of one partner filing for Chapter 13 bankruptcy and repaying the business debts without the help of the other partner, however, have occurred.

 

In a Chapter 13 bankruptcy, you can generally keep your business assets and keep your business operating as long as you continue to meet your Chapter 13 plan payment obligations each month.

 

If you are considering filing for Chapter 13 bankruptcy in Mankato, MN, as a business owner or as an individual, Behm Law Group Ltd. can guide you through the process and help you understand your case options. To learn more about bankruptcy, contact Behm Law Group Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com.

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

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.

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.

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).
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  3. 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.
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  5. 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.
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  7. 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.
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  9. 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.