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.

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.  

  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.
  4.  

  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.
  6.  

  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.
  8.  

  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.

Frequently Asked Questions about Chapter 13 Bankruptcy

If you are finding your quality of life compromised due to the difficulty you have meeting monthly debt payments, it may be time for you to consider seeking debt relief. While there are many forms of debt relief available to individuals, the most effective option for long-term, permanent debt relief is bankruptcy. Bankruptcy is a system that has long been put into place by the government to protect debtors from destitution, provide fair treatment to creditors, and promote a healthy economy overall. If you are considering bankruptcy, Behm Law Group Ltd. attorneys can help you file a strong case for Chapter 7 or Chapter 13 bankruptcy in Pipestone, MN.

 

Both Chapter 7 and Chapter 13 are the most frequently filed types individual consumers. While Chapter 7 provides liquidation of non-exempt assets in exchange for debt discharge, it’s not a chapter that most wage-earning debtors can qualify for because their incomes are often too high.

 

Chapter 13 bankruptcy, on the other hand, offers a way to restructure your debts into a manageable repayment plan lasting three to five years. Although Chapter 13 is a common bankruptcy format, there are still many frequently asked questions we receive including:

 

  1. How much of my debt will I have to repay?
    1. You will have to pay all of your secured debts (i.e., mortgages and auto loans) that you want to retain in full, but the payment arrangements may be under different and under more friendly terms.
    2. You will have to pay priority debt (i.e., child support and tax debt) in full.
    3. You will most likely have all or much of your unsecured debt (i.e., credit card debt and medical bills) discharged after your chapter 13 plan is concluded. The amount you will pay depends on how much your monthly income exceeds your monthly reasonable and necessary living expenses and how much you would be able to repay creditors with the value of your non-exempt, liquidated assets in hypothetical Chapter 7 bankruptcy case.
  2. How long will my plan last?
    1. Your plan will last three years if your income is below the state median income of a similar household size.
    2. Your plan will last five years if your income is above the state median income of a similar household size.
  3. Will I have any income for personal use?
    1. The remainder of your income after you meet payment requirements for your secured and priority debts will be split into two types, disposable and discretionary.
    2. Your disposable income will go to your household needs, including income tax, utilities, food, and gas.
    3. Your discretionary income is yours to spend as you see fit.
  4. What happens if my income changes?
    1. Fluctuations in income and expense obligations are taken into account throughout the duration of your repayment plan. Three to five years is a long time, and your trustee will understand if changes occur.
    2. If you do have a job change or other significant life event that might affect your plan, notify your attorney and the trustee right away so your monthly plan payment can be altered accordingly.

 

Filing for bankruptcy is a complex process without the assistance of a trained professional no matter what chapter you file. Contact Behm Law Group Ltd. at (507) 387-7200 or via email at stephen@mankatobankruptcy.com for help getting started with Chapter 13 bankruptcy in Pipestone, MN, today.

Overview of the Basic Differences between Chapter 7 and Chapter 13 Bankruptcy

In the United States, there are two main types of bankruptcy available to individuals and businesses alike: Chapter 7 and Chapter 13. While both types provide government-administered debt relief, the two chapters work very differently. Both are valuable options for debtors, and the more suitable one depends on the financial and personal circumstances of any given filer. If you are considering bankruptcy but don’t know where to start, Behm Law Group Ltd. can help. We can work with you to determine which chapter is right for you, and we can guide and protect you throughout your case. Filing for bankruptcy in St. Peter, MN, isn’t the impossible process it might seem to be, and our expert attorneys can help you see that every step of the way.

The main differences between Chapter 7 and Chapter 13 lie in how the debts are handled and how long the cases take.

Debt Handling

  • Chapter 7 is a liquidation process. This means your non-exempt assets/properties are liquidated/sold, and the amount realized from that sale is given to your creditors. This payment to your creditors allows any debts tied to those sold properties to be discharged. Your unsecured debts, such as credit card or medical debt, will also be discharged in the Chapter 7 process.
  • Chapter 13 is a reorganization process. This means that you will take your debts and reorganize them into a repayment plan customized to your income. The repayment plan requires one lump monthly payment until your plan is complete. You may be able to repay your secured debts in full under different terms, but your unsecured debts will be fully discharged after your chapter 13 plan has concluded.

Time

  • Chapter 7 takes between three to four months to complete. The time period varies depending on how quickly you complete the pre-bankruptcy credit counseling and other requirements, how long it takes your trustee to liquidate any non-exempt assets, and whether there are any judgment claims in your case that need to be expunged. 
  • Chapter 13 takes three to five years to complete. Your repayment plan will either be a three-year or a five-year period. If your income is lower than the state median of a similar household, it will be a three-year plan. If it’s higher, then your plan will be five years.

There are other differences between Chapter 7 and Chapter 13 as both are nuanced processes that vary case by case. Another major difference, for example, is that you can only qualify for Chapter 7 if you pass the state Means Test. This test measures your income-to-debt ratio. You’ll only be eligible for Chapter 7 if that ratio is lower than the state median of a similar household.

To learn more about the differences between the two chapters or to begin filing for bankruptcy in St. Peter, MN, contact Behm Law Group Ltd. at (507) 387-7200 or via email at stephen@mankatobankruptcy.com today.

Why Chapter 13 Is Less Common than Chapter 7 Bankruptcy in Mankato, MN

If you’re considering filing for bankruptcy, you’re not alone. Over 700,000 individuals file for bankruptcy each year in the United States. While those numbers have decreased significantly since the 2008 market crash, they still show that anyone can struggle financially in the face of many different factors. Filing for bankruptcy is a process designed to treat personal and business debts with a legal, federal court-administered relief program. However, filing for bankruptcy can also be a highly complex, nuanced system to navigate. The help of an expert bankruptcy attorney can turn a difficult case into a successful one with long-term debt relief. Behm Law Group Ltd. attorneys have the knowledge, skills, and experience to guide you through a Chapter 13 or Chapter 7 bankruptcy in Mankato, MN.

 

The two most frequently filed types of individual bankruptcies are Chapter 13 and Chapter 7. Chapter 13 bankruptcy works to reorganize your debts into a manageable repayment plan suited to your income. This plan lasts three to five years depending on your income in comparison to the state average income of a similarly sized household. Chapter 7, on the other hand, works to liquidate your non-exempt assets in exchange for the discharge of your debts.

 

While both Chapter 7 and Chapter 13 are common bankruptcies for individuals, Chapter 7 bankruptcy is filed for much more frequently than Chapter 13. From 2006 to 2017, the ratio of Chapter 13 to Chapter 7 cases filed was on average 30% versus 70%. These ratios range from 75.09% of Chapter 7 bankruptcies versus 24.85% Chapter 13 bankruptcies in 2006, and 61.50% versus 31.94% in 2017 with fluctuations between. Historically, in the United States, every year’s total of cases shows more Chapter 7 bankruptcies than other type, and for good reason.

 

Bankruptcy isn’t something that people choose to go through if they can help it. Those who file for bankruptcy are truly struggling with debts and have other financial hardships, and they turn to bankruptcy as the best choice for help in resolving those issues. If you are considering filing for bankruptcy, you can understand the legal, mental, and general stress that those who file experience. On top of this, the most common cause of bankruptcy is unemployment. The stress of financial burdens and a typically lower income means that filers will more frequently qualify for Chapter 7 bankruptcy.

 

Chapter 13 bankruptcy is a highly effective process for those with steady incomes. While you are more unlikely to have a significant amount of debt when you have a steady income, it’s completely possible to find yourself with heavy debts and a steady income. Typically, however, a low income is a primary cause of burdensome debt and leads to a Chapter 7 bankruptcy case more often than not.

 

If you are struggling financially for any reason, filing for bankruptcy may be the best step to take for long-term debt relief. To learn more about Chapter 13 and Chapter 7 bankruptcy relief in Mankato, MN, contact Behm Law Group Ltd. at (507) 387-7200 today.

Finishing Your Repayment Plan and What Happens after Chapter 13 Bankruptcy in Redwood Falls, MN

There are many reasons why individuals might accumulate debt that they find unmanageable with their current income. Debt from even the most common sources such as credit cards, medical bills, mortgages, and car loans can escalate with little warning. If you are finding it impossible to meet every debt payment on time each month, or if your budget has been pushed to extremes, it may be time to consider bankruptcy as a debt relief possibility. With the help of Behm Law Group Ltd., you can build a strong and successful case for Chapter 13 bankruptcy in Redwood Falls, MN, and receive long-term, effective debt relief.

 

Chapter 13 bankruptcy works to reorganize your debts into a manageable three- to five-year repayment plan that is suited to your income and overall financial situation. With the guidance of a Behm attorney, you’ll create a repayment plan proposal with attention to your income and in fairness to your creditors.

 

When this repayment plan is accepted by the court, you’ll begin your repayment period, which means you’ll make monthly payments to your bankruptcy trustee (who is assigned to your case at the beginning of your petition). Your repayment plan may be adjusted at any point during that period based on income changes, such as a new job. Any significant changes to your income status must be reported to your trustee and to your attorney or you risk having your case dismissed.

 

But what happens when your repayment plan period ends and you’ve paid back the debt your plan requires? The process afterward involves basic confirmation and lots of paperwork, but luckily you, as a filer, won’t have many responsibilities during this time.

 

  1. Trustee Review: First, your trustee reviews your case to confirm that you’ve met the “Order Confirming the Chapter 13 Case” requirements listed in your repayment plan proposal. This can take up to 90 days, depending on the complexity of the case. Once confirmed, the trustee creates a report.
  2. Trustee Report: The trustee report causes the court to issue you a “Certification of Eligibility for Chapter 13 Discharge,” which you must return signed. This form allows for the discharge of any remaining debts and allows for the closure of your case.

 

In order for the court to finalize your case, you’ll have to complete a financial management course in a timely fashion (learn more about the course you must take here). Once the review and report have been completed and the certificate has been signed, your Chapter 13 bankruptcy case is finished, and you begin your life free of the debts involved in your case.

 

To learn more about filing for Chapter 13 bankruptcy in Redwood Falls, MN, contact Behm Law Group Ltd. today at (507) 387-7200.

Reduced Pay for Educators Increases Cases of Chapter 13 Bankruptcy in Fairmont, MN

Across Minnesota, K-12 school budgets are dropping, and funding for private colleges is also suffering in several departments. This trend has had a marked effect on students, teachers, and administrators alike. For teachers and professors, the effect can be immediate or gradual. Specifically, those employed as educators at all levels have experienced an overall reduction in salaries, meaning their finances have changed for the worse. This shift has been a large part of why we’ve seen increased cases of educators filing for Chapter 13 bankruptcy in Fairmont, MN, and across the state. If you are an educator struggling to meet debt payments, Behm Law Group Ltd. can provide the guidance and assistance you need to file a successful case and find long-term debt relief.

 

Chapter 13 Bankruptcy for Educators

If you have made the decision to file for bankruptcy as an employed educator, you are most likely restricted to filing for Chapter 13 bankruptcy. While lowered salaries may be what brought you to the point of filing for bankruptcy, the fact remains that you still have an income. This means you won’t qualify for Chapter 7 liquidation bankruptcy unless your debts significantly outweigh your income.

 

On the bright side, Chapter 13 bankruptcy is often more desirable for those who want to keep their home and other possessions. Instead of liquidating your non-exempt assets in exchange for debt discharge like Chapter 7, Chapter 13 works to reorganize your debts into a reasonable monthly payment that you make to a chapter 13 trustee.

 

The reorganization process structures your debts into a repayment plan that lasts three to five years, depending on your income. If your income is lower than the median Minnesota income for a household of your size, your plan will last only three years. If your income is higher than the state median income for a household of your size, your plan is must last five years. In our experience, educator incomes do not typically exceed the median, even when filing jointly with their spouses. This means you can typically expect to have a three year repayment plan and pay a lower percentage of many types of debt.

 

How Chapter 13 Handles Debt

A Chapter 13 reorganization plan handles debt in several ways. First, you generally will continue to make your monthly payments to most of your secured debts, such as mortgage loans and vehicle loans, directly to those creditors.  Sometimes, however, if you have become delinquent with your mortgage payments or vehicle payments, any pre-petition or pre-bankruptcy filing delinquencies can be paid or “cured” through your chapter 13 plan.  For instance, if you have become $5,000.00 delinquent with your mortgage payments, this amount can be paid to the creditor by the chapter 13 trustee through your chapter 13 plan over the duration (36 to 60 months) of your plan.  You must, however, be able to make the ongoing, regular post-petition mortgage payments that come due after your case has been filed.  Second, priority debts such as certain tax debts, alimony and child support arrearages or even criminal fines, must be paid in full. Third, general unsecured creditors, such as credit card debts, medical debts, etc., do not receive interest, late charges or service fees.  Any amounts that are paid to those creditors go against the principal that you owed those creditors when your bankruptcy case was filed.  Typically, unsecured creditors are only paid a percentage of the total you owed them when your case was filed.

 

When the debt amounts are calculated and structured into your plan, you’ll be able to see the amount required to be paid monthly to your bankruptcy trustee. You can rest assured this amount will fit your income, though keep in mind your discretionary income will depend on a budget relating to your reasonable and necessary living expenses and your disposable income (income over and above what is necessary to cover your monthly reasonable and necessary living expenses) must be paid to unsecured creditors through your plan. This monthly payment may change if your monthly income and monthly reasonable and necessary living expenses change.

 

To learn more about filing for Chapter 13 bankruptcy in Fairmont, MN, as an educator, contact Behm Law Group Ltd. at (507) 387-7200 today.

Filing for Chapter 13 Bankruptcy in St. Peter, MN, When Self-employed

Self-employment is often a rewarding way to create income for you and your family. However, self-employment doesn’t always guarantee a regular income, especially if you work in an industry that has fluctuations in demand. If you are self-employed and have found it difficult to meet debt payments each month, you have several options for debt relief, including bankruptcy. For those with a steady self-employed income who also want to keep their home and other properties, filing for Chapter 13 bankruptcy in St. Peter, MN, is a realistic and highly effective option. With the help of Behm Law Group Ltd., self-employed filers can build a successful case and start a repayment plan that fits their financial circumstance.

Filing for bankruptcy, especially Chapter 13 bankruptcy, requires a collection of financial documents, income verification, expense reports, and much more. These documents can sometimes be difficult for some people to track down and organize, particularly for those who are self-employed.

The help of an expert bankruptcy attorney is often critical for self-employed filers to compile a case with a repayment plan proposal that the court and bankruptcy trustee can accept. Many self-employed filers are required to provide more extensive documentation of income and expenses when they file for Chapter 13.

 

Income Verification

Verifying your income received from self-employment can be tricky depending on the nature of your work. Tracking your income carefully, even if you don’t plan on filing for bankruptcy, is a good idea for those who are self-employed. This tracking can include:

  1. Check Stubs: When your clients, customers, or other parties who commissioned your work pay by check, saving those checks from the last 12 months is an excellent start to income documentation.
  2. Invoices: If you request payment in the form of invoices, filing those invoice documents (digital or physical) is also key.
  3. Contracts: Contracts are legal proof of your work with a client. Without that proof, you may have a difficult time explaining forms of payment such as checks, cash, or transfers.
  4. Tax Returns: Records of your self-employment income and the yearly taxes paid on it is also required for a Chapter 13 bankruptcy petition.
  5. Bank Statements: Deposits, withdrawals, credit card transactions, account records, interest, and most other bank statements are necessary to build a strong Chapter 13 case.
  6. Signed Statements: In many cases, unconventional, random, or odd signed statements can often also prove up a contractual agreement. These signed statements are frequently required for your bankruptcy case, and missing the information they provide might break, rather than make, your case.

 

Overall, the more financial information self-employed filers can provide their attorney and the court, the better. Every transaction you encounter that connects to your income as a self-employed individual as far back as a year may be involved in your case.

 

To learn more about gathering the necessary financial information and building a strong case for Chapter 13 bankruptcy in St. Peter, MN, contact Behm Law Group Ltd. at (507) 387-7200 today.

Escrow Accounts and Chapter 13 Bankruptcy in Owatonna, MN

Anyone with a mortgage or other large loan either has an escrow account or knows about the function of one. Escrow accounts are set up with a third-party agent or broker who manages and distributes the money in that account. The account works as a consolidation system for a mortgagor, holding values required to make a single payment for the monthly loan, interest, taxes, and insurance. Escrow amounts will change over time based on the cost of property taxes, insurance rates, and other taxes. If you have an escrow account and you find yourself in a situation where you must file for Chapter 13 bankruptcy in Owatonna, MN, Behm Law Group Ltd. can help you understand how it will affect the account and guide you through the process of filing bankruptcy overall.

 

Chapter 13 bankruptcy works to reorganize your debts into a three- to five-year repayment plan. The reorganization plan is an extremely valuable option for those with a steady income who don’t want to work through the asset liquidation process of a Chapter 7. A repayment plan typically takes priority, secured, and unsecured debts, and rolls them into a single monthly payment made to a bankruptcy trustee.

 

While large portions of your unsecured debts are discharged in a chapter 13 repayment plan, your priority debts, such as tax debts, child support debts and alimony, and secured debts on assets that you want to retain, such as vehicles and houses, must be repaid. Because your mortgage is a secured debt, it must be paid in full but typically you will continue making the regular monthly mortgage payments directly to the mortgage lender rather than through the chapter 13 trustee. In many cases, the debt leading up to a bankruptcy and a Chapter 13 plan itself can affect mortgage escrow in two ways:

 

  1. Pre-petition arrearage: If you have been unable to meet full escrow payments even before you file for bankruptcy, you will have an escrow shortage, and therefore, be in arrears. In this case, the court will treat the shortage like a typical mortgage arrearage and require it to be repaid in full throughout the repayment period. Unlike a mortgage, however, the shortage amount does not incur interest.
  2. Post-petition arrearage: When you enter a repayment plan, you have to meet escrow payments as a part of the consolidated monthly payment that’s due. If you can’t meet this payment and you become short on escrow, you may be in danger of a case dismissal if you do not take steps to propose and work through a repayment plan adjustment.

 

The three to five years you are working through a Chapter 13 plan require you to be conscious of your finances and to maintain a strict adherence to your budget. The financial struggles that put you into the position of filing for Chapter 13 bankruptcy must be put behind you, and the court expects you to understand the responsibilities of a repayment plan.

 

That said, there will be room for adjustments to be made throughout the repayment period depending on your income and your costs of living. If you are considering filing for Chapter 13 bankruptcy in Owatonna, MN, contact Behm Law Group Ltd. at (507) 387-7200 today.

 

Guidelines and Limitations of Chapter 13 Bankruptcy in Windom, MN

Chapter 13 bankruptcy is a format of debt reorganization most common for individuals and some types of businesses. Overseen and administered by a standing bankruptcy trustee, a Chapter 13 case takes secured, unsecured, and priority debts and alters them into a consolidated repayment plan that lasts three to five years depending on the debt amount of the filer. If you have a steady income and want to protect your assets from the liquidation that could occur in a Chapter 7 case, Chapter 13 may be the best choice for you. With the guidance of Behm Law Group, Ltd., you can successfully file for Chapter 13 bankruptcy in Windom, MN and obtain long-term debt relief.

 

While Chapter 13 is a highly effective bankruptcy option for people in a broad range of financial situations, it has limitations and guidelines like any other type of legal process. The most basic of these limitations decides who can and can’t file.

 

Who can file?

  1. Individuals:
    1. For an individual to qualify for Chapter 13 bankruptcy, they must have a steady income that allows for reasonable and necessary expenses for living to be factored out of their repayment plan while still meeting monthly payments.
    2. They must have undergone credit counseling within 180 days prior to filing.
    3. They cannot have secured debts exceeding $1,184,200 or unsecured debts exceeding $394,725.
    4. They must have filed all of their income tax returns for the past four years prior to filing.
    5. They cannot have filed a Chapter 13 case within the past two years or a Chapter 7 case within the past four years.
    6. They cannot have filed and had dismissed another bankruptcy case within the last 180 days.
  2. Spouses:
    1. Spouses can file a joint Chapter 13 case involving both of their debts and combined incomes if they have also met all the requirements listed for individual filers.
  3. Businesses:
    1. Some businesses are eligible to file for Chapter 13 bankruptcy. Specifically, those whose owners are personally liable for the business debts.
    2. This includes sole proprietorships and business partnerships.

 

Other limitations and guidelines of Chapter 13 bankruptcy outline the repayment plan itself.

What is an accepted repayment plan?

  1. For a filer’s repayment plan proposal to be accepted by their trustee and the court, it must meet specific requirements designed in fairness to creditors.
  2. In their repayment plan, a filer must be able to repay allowed secured creditors’, under adjusted loan terms/conditions, in full over a three to five-year period.
  3. Their priority debts such as tax debts, child support debts, alimony, criminal fines, etc., must be included in the plan and must be repaid in full over a three to five-year period.
  4. Unsecured debts must be repaid the value of the filer’s non-exempt assets that would have otherwise been liquidated in a Chapter 7 process.   This is informally referred to as the “Best Interests Test”.  For example, if a filer would have non-exempt assets totaling $10,000.00 in a hypothetical Chapter 7 case, the filer must pay that amount over a three to five-year period to their creditors in a Chapter 13 case.

 

While there are many guidelines to follow and limitations to adhere to in the process of Chapter 13 bankruptcy in Windom, MN, it’s undeniable that it has been an effective treatment for a wide variety of debtors. To learn more about the process or to get started, contact Behm Law Group, Ltd. at (507) 387-7200 today.