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Leniencies with 401(k) and Other Retirement Funds in Chapter 13 Bankruptcy

Everyone wants to save money for the future, whether putting away $10 per paycheck, or contributing thousands of dollars to a 401(k) or other retirement plans. For many, however, those financial goals might be difficult to maintain. If you’re struggling to meet monthly bills and other debt payments, it might be time to consider filing for bankruptcy. The process of bankruptcy has benefited thousands during trying economic times. Despite the misconception that bankruptcy is a choice that will either leave you homeless or with crippling credit, it’s actually a highly effective long-term debt relief solution. At Behm Law Group Ltd., our expert attorneys are here to help. We provide guidance and legal protection for those filing for Chapter 7 or Chapter 12 or Chapter 13 bankruptcy in New Ulm, MN, and the surrounding region.

 

While Chapter 7 bankruptcy is an option for those with household incomes lower than the state median/average income for their household size, Chapter 13 bankruptcy is a process better suited for financial circumstances with steady incomes. Also called “wage-earner bankruptcy,” Chapter 13 bankruptcy reorganizes the filer’s debts into a three-year to five-year manageable repayment plan suited to his or her income. Only portions of unsecured debts (debts without collateral) are paid at no interest and secured debts (debts with collateral such as vehicle loans) are repaid under terms that are more favorable over a three- to five-year period. All disposable income (income not necessary for your reasonable and necessary monthly living expenses) is used to make monthly plan payments, and the filer’s remaining discretionary income is used for living expenses like food, gas, utilities, and home maintenance and many other things.

 

While the chapter 13 bankruptcy trustee is required to review your reasonable and necessary living expenses, there is also considerable flexibility that allows you to contribute some of your income towards certain items such as saving up to travel for the holidays and making monthly contributions to retirement plans.

 

Discretionary Income and Retirement

Strictly speaking, making contributions to retirement funds/plans does not constitute a reasonable and necessary living expense such as purchasing food, making vehicle or mortgage payments, etc.  However, provided someone has made contributions to a 401(k) or some other retirement account before filing for bankruptcy, the bankruptcy code allows one to continue making such contributions.  There is a sound public policy behind this.  Quite simply, the drafters of the bankruptcy code wanted to encourage people to save for themselves and build a financial reserve or “nest egg” that could be relied upon later and which would help prevent the need to file for bankruptcy relief again.  Indeed, for older filers near retirement age, such contributions can be considered necessary because they will soon be living off that income.  If you are currently enrolled in a voluntary or non-voluntary contribution plan through your employer or if you are repaying a retirement account loan, those obligations will be worked into your case and will continue normally.

 

Filing for Chapter 13 bankruptcy in New Ulm, MN, or the surrounding area doesn’t mean that you will lose the ability to save something for yourself during that three- to five-year repayment period. Contact Behm Law Group Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com to learn more details about Chapter 13 repayment bankruptcy.

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Why the Help of a Bankruptcy Attorney is Important for 2021 Bankruptcies

The difficulties of the coronavirus pandemic and a changing economy are still affecting all American citizens, and those effects come with significant financial struggles for many. The initial boost of stimulus checks, federal additions to state unemployment benefits, and room for accommodation on debt payments helped many stay out of bankruptcy throughout much of 2020. Without those benefits, pressure for unemployed households, business owners, and even those with steady incomes is projected to create a surge in bankruptcies in 2021.

 

While it’s possible to file for bankruptcy relief without legal protection and guidance, it’s always beneficial to take advantage of the skills and expertise of a bankruptcy attorney. With Behm Law Group, Ltd., you can expect comprehensive protection and expert advice with a Behm bankruptcy attorney in Worthington, MN and the surrounding areas.

 

Behm Law Group, Ltd. is the only law firm in south central and southwestern Minnesota practicing in bankruptcy cases exclusively. Behm bankruptcy attorneys will work with you from the start to the finish of your case, guiding you through the highly nuanced bankruptcy legal process. We work with individual consumers, business owners, and family farmers filing for Chapter 7, Chapter 13, or Chapter 12 bankruptcy.

 

Filing for bankruptcy, even when there isn’t a global pandemic going on, can be difficult. The bankruptcy code can be complicated and the process of filing is nuanced, requiring filers to meet strict specifications and requirements. If you’re thinking about filing for bankruptcy relief, it’s highly recommended that you seek out the advice of a trained bankruptcy attorney.

 

This coming year, however, might make the bankruptcy process even more difficult and intricate due to added laws regarding COVID-19 and care packages. The question of how different incomes are treated in any bankruptcy will involve additional income sources established in response to the coronavirus, such as potential future stimulus checks and additional state and federal unemployment income.

 

Household conditions directly impacted by the pandemic will also be taken into consideration when a bankruptcy case is filed. This may include how medical debts are treated or whether filers’ health conditions caused by COVID-19 infections could be handled as a disability or as an undue hardship.

 

With 2021 starting a new presidential term as well, it’s difficult to predict how bankruptcy law might change in the near future. The slightest changes could affect how a case is handled and may even prevent a filer from qualifying for bankruptcy relief. At Behm Law Group, Ltd., we expect 2021 to have extremely high bankruptcy rates and we expect that there may be many changes to the bankruptcy code, making it more crucial than ever to seek the help of an experienced bankruptcy attorney.

 

To learn more about our services as a law firm and to locate an experienced bankruptcy attorney in Worthington, MN, contact Behm Law Group, Ltd. today at (507) 387-7200 or stephen@mankatobankruptcy.com.

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Refinancing with Today’s Low Mortgage Rates Might Offer Debt Relief

In the midst of a global pandemic and a rocky political climate, there’s so much negative news that we are exposed to every day. However, one of the positives of the end of 2020 and the beginning of 2021 is that mortgage interest rates are extremely low, and the housing market is booming. If you’re a homeowner, you know how much pressure there is to meet monthly mortgage payments along with all of your other pressing financial obligations. For homeowners struggling to meet mortgage payments or other debt requirements, taking advantage of favorable current mortgage interest rates by refinancing your home mortgage may be the ticket to staying out of bankruptcy. If you are considering filing for bankruptcy relief during this uncertain time, Behm Law Group Ltd. can help you navigate the legal process and receive long-term, effective debt relief in Marshall, MN, and the surrounding area.

 

Those who have steady incomes but are finding it difficult to meet their monthly financial requirements may be considering Chapter 13 bankruptcy to reorganize their debts into a manageable repayment plan.  Homeowners with steady incomes are also most likely to benefit from refinancing their home mortgages. A refinance with current interest rates could save homeowners several hundreds of dollars with each payment. The resulting savings could be significant enough such that the money saved could effectively be put into paying off several other debts that might otherwise force a homeowner into filing for bankruptcy relief.

 

Approximate Mankato mortgage rates as of November 2020 for a $250,000 loan

Loan type Rate Points APR Monthly payment
15-year fixed loan 2.1% 0.56 2.4% $1,300
20-year fixed loan 2.5% 0.84 2.7% $1,060
30-year fixed loan 2.6% 0.75 2.8% $800
5/1 ARM variable loan 2.4% 0.89 2.7% $780
7/1 ARM variable loan 2.5% 0.76 2.7% $790
10/1 ARM variable loan 2.6% 0.76 2.8% $800

 

For a conventional loan, refinancing may cost around $3,000 to $4,000, but that cost would be wrapped into your refinanced mortgage, so it won’t typically impact the amount of cash you have on hand at the time of the refinance. The only common factors that might prevent qualification are a low FICO score due to missed mortgage payments, too many debts, other than your mortgage, with high balances or low self-employment income from this year.

 

While saving $100 to $300 a month on a refinanced mortgage might not seem like a large amount, it’s a significant enough of an amount that many homeowners may use to repay other debts and financial obligations that they might not otherwise be able to pay. Those minor monthly adjustments can be key in preventing the stress and budget shortfalls that can lead one into having to file for Chapter 13 bankruptcy relief.

 

Chapter 13 or Chapter 7 bankruptcy can be highly helpful options for those struggling financially who are unable to refinance their mortgages and are unable to make other helpful budgetary adjustments. To learn more about finding debt relief through bankruptcy in Marshall, MN, and the surrounding region, contact Behm Law Group Ltd. at (507) 387-7200 or email stephen@mankatobankruptcy.com.

 

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Part Three: Utility Bills and Debt Relief This Winter

This is the third and final part of a blog series covering frequently asked questions regarding utility bills and bankruptcy. Because the coldest months of the year are just beginning, it’s important to keep gas, water, and other utilities running to protect your household or business from frozen pipes and interrupted hot water sources.

When you’re unable to pay monthly utility bills, you risk service shut off when debts accumulate. Filing for bankruptcy relief can stop service shut offs and discharge utility debts permanently. If you are considering filing for bankruptcy, Behm Law Group, Ltd. can help you through the process and find effective, permanent debt relief in Owatonna, MN and the surrounding area.

These are a few more of the most commonly asked questions about utility bills in bankruptcy.

Is my cable considered a utility? How can I stop it from possibly being shut off?

While cable television is not technically a utility, it’s still a service that will be shut off when you default on your monthly bill payments. Fortunately, cable bill debts can also be included in your bankruptcy and can be permanently discharged. If you list your cable debt amount, the automatic stay injunctive provisions of 11 U.S.C. §362 will apply to your cable provider and to all of your other utility providers, and your cable television debt will be discharged with all of your other unsecured utility debts.

My provider is asking for a large security deposit to reconnect my service. Can the bankruptcy court help me pay it?

One form of adequate assurance (see part two to learn about adequate assurance) your utility provider might require from you in order to continue service is a security deposit amount that is too much for you to pay. If you filed for bankruptcy protection, the bankruptcy court will be able to help. When you cannot come to an agreement with your utility creditor about the security deposit amount, you can request the bankruptcy court to reduce the security deposit to an amount that you can afford to pay.

I’ve paid my bills on time for a year now. Can I get my security deposit back?

If you filed for bankruptcy relief, provided a security deposit as an assurance, and then paid your bills on time for the twelve-month period after your bankruptcy was concluded, you may be eligible for the return of the security deposit. Reach out to your utility provider for more information about the possible return of your security deposit and how that process might work.

To learn more about the treatment of utility debts, unsecured or secured debts, and the process of obtaining permanent debt relief by filing bankruptcy in Owatonna, MN, contact Behm Law Group, Ltd. today at (507) 387-7200 or stephen@mankatobankruptcy.com.

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Part Two: Utility Bills and Debt Relief This Winter

This is the second part of a blog series covering frequently asked questions concerning utility bill debts and bankruptcy. The first part can be found here. Utility debts occur when you miss monthly utility payments for any period of time. As an unsecured debt (a debt that does not have collateral – secured by any property), it is always fully discharged in an individual consumer bankruptcy case. Because of that, bankruptcy is one of the best options for finding relief from utility bill debt and other unsecured debts like credit card balances and medical bills. At Behm Law Group Ltd., our attorneys are dedicated to helping households work through Chapter 7 or Chapter 12 or Chapter 13 bankruptcy cases to receive permanent, effective debt relief in Mankato, MN, and the surrounding communities.

While filing for bankruptcy relief will be denoted on your credit profile for a limited period of time (usually 5 to 7 years), the benefits almost always outweigh the potential negatives because your debts will be fully discharged in bankruptcy. Utility bill debts are debts that are handled in bankruptcy, and if you owe those debts, filing for bankruptcy can also stop your utility services from being shut off and keep creditors from harassing you. These are some of the more frequently asked questions about how utility debts are handled in bankruptcy.

When is filing for bankruptcy not enough to prevent service shut off?

Although the automatic stay injunctive mandates of 11 U.S.C. §362 are immediately imposed upon all creditors when you file your bankruptcy petition, there are still some steps that you must take to stop possible utility service shut off. In your petition paperwork, make sure your utility bill debts are listed in the correct section. Listing those unpaid bills as debts will allow the bankruptcy court to notify your utility providers of your bankruptcy filing and prevent service shut-off. Within 20 days of filing, you must also show your utility provider that you will be able to pay your utility bills that are incurred and come due after the date that your bankruptcy petition is filed. This proof is called “adequate assurance.”

What is “adequate assurance?”

Adequate assurance is a good faith measure of proof to your provider that you will be able to pay your future utility bills. This proof can be offered in several different forms, including letters of credit provided by a lender, security deposits (much like a damage deposit with a landlord if you’re renting an apartment), certificates of deposit, prepayment, surety bonds, or another type agreed on by you and your utility provider.

What happens if my provider doesn’t accept my offer of adequate assurance?

If you and your provider don’t agree on a form of adequate assurance, you can request the bankruptcy court to order your provider to accept that assurance. The bankruptcy judge may also order you to modify the form or amount of the assurance deposit.

Utility bill debts are stressful, especially when service shut-off is a threat during the colder months. If you’re struggling financially, contact Behm Law Group Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com for more information about bankruptcy and debt relief in Mankato, MN.

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Part One: Utility Bills and Debt Relief This Winter

With the coldest months of the year just beginning, many family households that are in debt are wondering how the cold will affect their access to steady utility service. This blog is one part of a series covering frequently asked questions about utilities and debt relief through filing for bankruptcy in Minnesota. If your debts are significantly compromising your quality of life or if you are simply unable to pay your debts, you’ll likely be able to find permanent debt relief by filing for bankruptcy. Chapter 7 bankruptcy is the most commonly filed type of bankruptcy, and it works to liquidate your non-exempt assets in exchange for the discharge of your debts, meaning that your legal contractual obligations to pay your debts are nullified. With the help of Behm Law Group Ltd. attorneys, you can work through a Chapter 7 case and receive permanent, effective debt relief in Luverne, MN.

 

For those already struggling to make debt payments, utility bills can fall lower and lower on the priority list of bill paying. When utility debts start to stack up, you run the risk of service shut-off and/or potential creditor harassment. Filing for bankruptcy will most likely solve such problems. The following FAQs cover some points about how utility debts are handled in bankruptcy.

 

Can filing for bankruptcy stop my utilities from being shut off?

Typically, yes. When you file for bankruptcy relief, the automatic stay injunctive mandates of 11 U.S.C. § 362 go into effect against your creditors. This means your utility creditors will not be able to collect on the utility debts you owe, and they will not be allowed to deny you services, as long as you continue making your current utility payments that come due after the date you filed for bankruptcy relief.  All utility debt that you owe the utility provider as of the date that your case is filed will be discharged.  However, under 11 U.S.C. § 366, a utility provider may require a reasonable deposit from you within 20 days after your bankruptcy is filed in order to continue providing utility services.

 

Since I filed for bankruptcy, why did my utilities still get shut off?

While there are some rare cases when the automatic stay would not apply, you should immediately see the positive effects of the automatic stay on all creditor collection activities. If you’ve filed your petition and your utilities do get shut off, you should immediately contact your attorney.   Typically, your attorney will provide proof of your bankruptcy filing to the utility provider and the utility provider will reinstate your utility services.  Under 11 U.S.C. § 366, however, you will have to work with your attorney to provide a reasonable deposit to the utility provider within 20 days in order to have the utility services continued.

 

How are utility bill debts treated in bankruptcy?

Utility bill debts are unsecured debts and the amounts you owe the utility providers on the date that your bankruptcy case is filed will be discharged.  In Chapter 7 bankruptcy, unsecured creditors sometimes receive payments from the Chapter 7 trustee if the trustee is able to transact/sell non-exempt assets (assets you are not able to protect in Chapter 7 bankruptcy with your bankruptcy exemptions).  However, in most Chapter 7 bankruptcy cases, the bankruptcy exemptions are more than adequate to protect all of a person’s assets and unsecured creditors, including utility providers, get paid nothing. Along with credit card debt and medical bills, utility debts are fully dissolved in Chapter 7 bankruptcy. If the majority of your debts are unsecured, Chapter 7 bankruptcy is the quickest, most effective debt relief tool.

 

To learn more about debt relief in Luverne, MN, through bankruptcy, contact Behm Law Group Ltd. at (507) 387-7200 or email stephen@mankatobankruptcy.com.

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How to Enjoy the Holidays While Working Through a Chapter 13 Bankruptcy

During the holidays, many households struggle with the financial expectations of gifts, decorations, and fancy foods. If you are one of the many individuals having a hard time meeting debt payments, it may be time to take action for permanent debt relief.

 

While there are options for debt relief outside of bankruptcy, such as debt settlement or debt consolidation these options are rife with fraud and full of bad actors who are only interested in taking your money, have no legal authority to make your creditors do anything and will not provide permanent debt relief.  At Behm Law Group, Ltd., we can guide you through the process of filing for Chapter 7 or Chapter 13 bankruptcy in Pipestone, MN and the surrounding area to receive immediate, effective and permanent debt relief.

 

Those who are already in the process of working through a three to five-year long Chapter 13 bankruptcy repayment plan can still enjoy the Holiday Season as they would any other year outside of the bankruptcy process. While it’s true that some income must be paid to the chapter 13 trustee to meet monthly repayment plan requirements, one can still purchase gifts for friends and relatives, spend money entertaining friends and relatives and plan and take trips to visit friends and relatives as one would normally do outside of the bankruptcy process.

 

Discretionary Income

When you enter into a Chapter 13 bankruptcy repayment plan, your income will be broken into disposable and discretionary categories. Your disposable income is what’s left after all reasonable and necessary living expenses are paid. Utility bills, food, gas, taxes, and all other household financial needs are considered reasonable and necessary living expenses that you can use any amount of your discretionary income to pay. What’s left of your income after reasonable and necessary living expenses are paid is called disposable income. For the full period of your Chapter 13 bankruptcy, your disposable income will be used to make your chapter 13 plan payments to the chapter 13 trustee and the chapter 13 trustee will divide those monthly payments among your unsecured creditors.  Christmas presents, decorations, and luxury foods are all things that you can use your discretionary income to purchase during the Holiday Season. Being in a Chapter 13 bankruptcy simply means that you and your attorney and the chapter 13 trustee will draft a monthly budget to help you spend your discretionary income more efficiently to cover your reasonable and necessary living expenses, including recreational expenses and charitable contributions.

 

Budgeting

Even with your disposable income being used to repay unsecured creditors through your chapter 13 plan, you can still enjoy the Holiday Season as you always have enjoyed it. One significant resource you can rely upon is part of your yearly income tax refunds. Although your yearly tax refunds technically constitute disposable income that should be used to repay unsecured creditors, the chapter 13 trustee will only require you to pay over a portion of your yearly tax refunds and permit you to use the rest as you wish. You could also request an adjustment to your repayment plan for the months during the Holiday Season.  Most chapter 13 trustees will allow a temporary change in your plan.

 

If you are facing serious debt problems this year, contact Behm Law Group, Ltd. today at (507) 387-7200 or stephen@mankatobankruptcy.com to learn more about filing for Chapter 7 or Chapter 13 bankruptcy in Pipestone, MN.

 

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The Timeline of a Chapter 7 Bankruptcy

In the United States, the bankruptcy system was put into place to help balance the economy in times of a depression, support individuals and businesses who will never be able to repay their debts, and provide creditors with some form of possible compensation. If you are struggling to meet debt payments each month, you may want to consider bankruptcy as a viable option for permanent debt relief. Behm Law Group Ltd. can provide you with important legal support and guidance through a Chapter 13, Chapter 12 or Chapter 7 bankruptcy in Windom, MN, and the surrounding area.

 

Chapter 7 bankruptcy is the most commonly filed type of individual bankruptcy case in the United States. The process of Chapter 7 bankruptcy works to liquidate the filer’s non-exempt assets in exchange for the discharge of one’s various debts. Credit card debts and medical bills are often the most common debts involved in an individual Chapter 7 bankruptcy, but other debts like mortgages and car loans can also be involved in many cases.

 

The process of filing for Chapter 7 bankruptcy is relatively straightforward, but each step must be done properly and in a timely manner or your case could be at risk of being dismissed. Generally speaking, the steps of a Chapter 7 bankruptcy include the following:

 

  1. Consultation: An initial consultation with a bankruptcy attorney is the first step in any case. Behm attorneys help you determine if Chapter 7 is right for your financial situation and where to go from there.
  2. Scheduling payments: After the initial consultation, we work with you to plan a payment schedule of our attorney costs and the court fees.
  3. Petition: Once we’ve determined a payment schedule that fits your income, we guide you in completing the necessary paperwork involved in your petition. This information includes comprehensive debt and income details, your tax returns, bank statements, and any other relevant financial documentation.
  4. Credit counseling: Part of qualifying for Chapter 7 bankruptcy is taking a court-approved credit counseling course. This course can be completed online and takes about 60 to 90 minutes to complete.  It is available at minimal cost.
  5. Case preparation: Once you submit your financial information to our attorneys, we review your paperwork and forms to ensure everything is correct. We also spend time pinpointing potential issues that might arise with creditors or the trustee, and we work to eliminate or mitigate any potential problems.
  6. The 341 hearing: The 341 hearing (or Meeting of the Creditors) is another requirement that must be completed before you receive your discharge and before your case can be closed. This typically involves a short meeting with the trustee to answer relevant questions to verify, under oath, the information in your bankruptcy petition. Creditors can attend, but they frequently don’t find it necessary to do so.
  7. Financial Management/Debtor Education:  Before you are eligible to receive a bankruptcy discharge, you must complete a second course called “Financial Management” or “Debtor Education”.  This course provides various tips and techniques to help one budget one’s finances more efficiently and manage one’s debts more effectively going forward.  Like the credit counseling course, this course can also be completed online and it takes about 2 hours to complete.  It also is available at minimal cost.
  8. Debt discharge: Once your petition is submitted to the court and your 341 hearing has been conducted and you’ve fulfilled all of the other bankruptcy code requirements, your debts are discharged and all of your creditors receive a copy of the discharge order issued by the bankruptcy court.  The discharge order permanently prevents your creditors from pursuing you for any debts that you owed them.  It also operates as a warning to your creditors that they could be sued and severely sanctioned by the bankruptcy court if they continue collection activities against you.
  9. Trustee administration: Finally, the trustee goes through the process of selling any non-exempt assets and distributing the sale proceeds to creditors. This is the last step in your case before it’s closed.  However, in most cases all one loses are one’s debts.  The bankruptcy code exemptions, which are used to protect property, are quite generous and they are normally sufficient to protect all of one’s property.

 

To learn more about the details of filing for Chapter 7 bankruptcy in Windom, MN, contact Behm Law Group Ltd. by calling (507) 387-7200 or emailing stephen@mankatobankruptcy.com.

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Averages and Other Bankruptcy Statistics from the Past Ten Years

After the housing crisis in 2009, bankruptcy rates increased dramatically but they eventually stabilized around 2015. Since then, an average of 760,013 cases were filed throughout the following four years. Now that we’re ending a pandemic year, those numbers might fluctuate again, with shutdowns, layoffs, illness, and the lack of federally funded unemployment benefits all adding to the financial difficulties of many Americans.

 

If you’re struggling to meet debt payments during this unsure time, you’re not alone. Despite a global pandemic, many individuals and businesses are still finding permanent debt relief and long-term financial stability by filing for bankruptcy. At Behm Law Group, Ltd., we can provide legal services and support from start to finish if you choose to file for bankruptcy relief in Fairmont, MN and the surrounding area.

 

Bankruptcy statistics in the coming years will likely bear out some unusual numbers compared to the last five years, largely due to the effects of the coronavirus and the economic changes that come with every election. The first half of 2020 actually saw a decrease in bankruptcy cases by about 92,200 compared to the first half of 2019. This decrease was likely due to federal stimulus checks and federally backed unemployment benefits giving everyone a little financial boost. In addition to stimulus help, many loan providers and landlords were more lenient with late fees and monthly payments.

 

For the past ten years, filing statistics have been relatively the same when it comes to age, education, income, and the marital status of filers, along with stats regarding repeat filers. Generally speaking, the median age of bankruptcy filers is between 38 and 45 years old.  However, people 55 and older make up about 20% of U.S. bankruptcy cases. Filers under 25 years old make up only 2% of cases.

 

About 20% of bankruptcy filers have a four-year bachelor’s degree or higher education level. 36% have a high school education, and 29% have some at least college education. In the coming years, the burden of increasing student loan debt may cause an increase in the bankruptcy filing rate for people with undergraduate and graduate degrees. About 60% of filers have incomes under $30,000 a year, while cases for those with incomes of $60,000 or more have recently increased by a few percentage points.

 

Most filers, about 64%, are married individuals, with the remaining 17% single, 15% divorced, and 3% widowed. Contrary to some popular beliefs about those living with debt, repeat filers only make up 8% of all bankruptcy cases. This is largely due to the BAPCPA changes to the bankruptcy code which passed in 2005.

 

As we finish the first year in a new decade with an election and a pandemic, we’ll have to wait and see how these conditions affect our economy and individuals’ finances. If you’re considering filing for bankruptcy relief in Fairmont, MN or the surrounding region, contact Behm Law Group, Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com for more information today.

 

 

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What the Student Borrower Bankruptcy Relief Act Means for Filers

As the only law firm practicing exclusively in bankruptcy in southern Minnesota, we’ve worked with many clients over the years at Behm Law Group, Ltd. Each of these clients had different financial circumstances, but they were all after the same goal of permanent debt relief and financial stability for themselves and their families. There are several types of debt that can be readily discharged in bankruptcy. However, the discharge of student loan debt is difficult. While student loan debt is largely excepted from discharge in the process, unless one can sue the student loan lender and show “undue hardship”, a new bill introduced in the United States House of Representatives may be a sign of changes in how student loan debts are treated in bankruptcy. If this new bill were to pass in the United States Senate and be signed into law by the President, filing for bankruptcy relief in Waseca, MN, and the surrounding communities may be a beneficial option to households with student loan debt.

In May 2019, the Student Borrower Bankruptcy Relief Act (SBBRA) was introduced in the United States House of Representatives. The SBBRA is “a bill to provide relief for student borrowers.” Essentially, this bill would remove restrictions from the bankruptcy code that have made it much more difficult to discharge student loans.

The current bankruptcy code requires filers to prove “undue hardship” in order to qualify for the discharge of student loans. Since the passage of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) amendments to the bankruptcy code, the discharge of student loan debt became even more difficult because the exception to discharge under 11 U.S.C. § 523(a)(8) was expanded to include both federally guaranteed student loans and student loans made by private parties. In order to prove undue hardship, one must actually sue a student loan lender in bankruptcy court. Commencing a lawsuit against a student loan lender is an expensive and protracted process. The costs associated with such a process can be $20,000 or more.

If the SBBRA bill is passed into law, the requirement of having to prove undue hardship in order to have student loan debt discharged will be removed. This bill is a result of growing momentum around student loan debt forgiveness in the past five years. Although many don’t expect this bill to be approved by the United States Senate if it is passed in the United States House of Representatives, it’s still a possibility at this point. If the bill passes, thousands of individuals with hundreds of thousands of student loan debts and accrued interest would have bankruptcy as an option to be permanently rid of such debts.

If the bill doesn’t pass, many believe it is still a sign of changes in how student loans are handled in the United States. Other signs, like the recent McDaniel v. Navient case where $200,000 in student loan debt was discharged, point to growing concerns that individuals will not be able to repay student debts. The 2020 election will most likely be the tipping point that determines whether beneficial changes to the bankruptcy code allowing the discharge of student loan debts will become reality.

Even though it is presently very difficult and very expensive to try and discharge student loan debts in bankruptcy, there are still many other debts that can be effectively eliminated in a Chapter 7 or Chapter 13 petition. To learn more about filing for bankruptcy relief in Waseca, MN, with the assistance of Behm Law Group Ltd. attorneys, contact us at (507) 387-7200 or email us at stephen@mankatobankruptcy.com.