When you find yourself in financial difficulty, there are three main types or "chapters" of bankruptcy that can be filed with the bankruptcy court. When your bankruptcy law firm files on your behalf, an "automatic stay", is created which immediately stops creditor harassment, foreclosures, evictions, repossessions, lawsuits, garnishments, tax levies, and utility shut-offs. Generally, creditors cannot take any further action against you or your property without permission from the Bankruptcy Court.
In order to most effectively determine the appropriate solution to your financial problems, your personal bankruptcy attorney looks at all your debt and classifies it according to different categories. Second, your income from all sources is calculated and a detailed budget is prepared of all your monthly living expenses. Your personal bankruptcy attorney will analyze this information and determine if you are eligible for Chapter 7 or Chapter 13. Generally at this phase, you should be able to get a fee quote for the legal services you qualify for.
A Chapter 7 will discharge (cancel or eliminate) most debts, including credit cards, medical bills, personal loans, judgments, balances remaining on repossessed vehicles, some income taxes, and most other unsecured debt. Child support, spousal maintenance, divorce property settlements, fraudulent debts, most taxes, and student loans (unless undue hardship applies) are not dischargeable.
To qualify for Chapter 7, you must not have filed and received a discharge in a Chapter 7 case within the last eight years. Furthermore, you need to show that you are below the "median income" for a family of your size, or otherwise pass a complicated "means test". The majority of people filing Chapter 7 falls below the "median income" and need not pass the "means test" budgeting of their expenses.
An average Chapter 7 case takes approximately three months to complete after it is filed with the Bankruptcy Court, and requires one appearance before a trustee, called the Meeting of Creditors.
In most cases, you will be able to keep your home, automobile, retirement accounts and pensions, household furnishings, and all your property by claiming either the state or federal exemptions. Also, you will almost always need to keep making the payments on your house or automobile, if there is a mortgage or security interest against the property, to keep the property.
A Chapter 13, also referred to as a "wage earner plan", is a reorganization of a debtor’s debt, where the debtor pays their creditors over a three to five year plan, and at the completion of the plan the debtor receives a discharge. When your Minnesota personal bankruptcy attorney files a Chapter 13, it stops interest from accruing on most debts, except secured creditors, and allows a debtor to generally pay their unsecured creditors a percentage (less than the full balance), while discharging any remaining balance at the end of the plan. The amount of your monthly plan payment to the Chapter 13 Trustee is based upon your monthly income and reasonable and necessary monthly living expenses.
A Chapter 13 case filing stops foreclosures on home mortgages (so long as the sheriff’s sale has not been held), and allows a debtor to pay the mortgage arrears through the chapter 13 plan over time, while the debtor continues to pay the regular monthly mortgage payments after the case is filed.
A Chapter 13 case filing can also be used to stop the repossession of an automobile and allows the debtor to pay the loan through the plan. If the automobile has been repossessed before the case is filed, we can generally get the car back immediately upon the filing of the case so long as the lender has not already sold it. Also, if the automobile loan is over 910 days old, we can generally pay the lender what the vehicle is worth rather than the full loan balance.
Other debts that can be reorganized and consolidated in a Chapter 13 case include credit cards, medical bills, personal loans, back taxes, student loans, child support arrears and spousal maintenance arrears, and most other types of unsecured debts.
Chapter 11 is a business reorganization, primarily used by corporate entities to restructure and pay its creditors over a period of time, while under bankruptcy protection.
CREDIT COUNSELING REQUIREMENTS
Under the changes to the Bankruptcy Code that took effect October 17, 2005, a person filing either a Chapter 7 or a Chapter 13 is required to take two short credit counseling courses, one before your business or personal bankruptcy attorney files bankruptcy for you (credit counseling), and one after you have filed your case (financial management). The credit counseling agency must be approved by the United States Trustee. The counseling sessions can be done over the phone or internet, or in person, and take about a half hour to an hour. The agencies charge a small fee for the courses. For a list of approved credit counseling agencies, CLICK HERE. For a list of approved providers for the personal financial management course, CLICK HERE
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