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About Chapter 13 Bankruptcy

You might need to file under the Chapter 13 bankruptcy code because you make too much money to qualify for a Chapter 7.  The 2005 Bankruptcy Act now makes it more difficult for people with higher incomes to liquidate their debts in bankruptcy. For example, if you live in a household of four people and earn a net income of $90,900.00 or more, you might not qualify to file the Chapter 7 bankruptcy code. There is a sliding scale depending on household size.

Even if you financially qualify for a Chapter 7 bankruptcy, you might choose to file a Chapter 13 bankruptcy because it will allow you to:

Common Chapter 13 Bankruptcy Questions

How does a Chapter 13 Bankruptcy work?
In a Chapter 13, you set up a ‘payment plan’ with the bankruptcy trustee. The bankruptcy plan is calculated by subtracting the amount of your monthly living expenses from your income.  These monthly living expenses do not include the debts that you would be paying off in the re-payment plan, such as credit cards.   For example, if your income exceeds your expense by $600 each month, this is the amount that you would pay to the trustee. The trustee then pays off your creditors, often at a reduced rate. Your mortgage payments would not change, but the amount of your car loans might change. The amount the trustee pays on your credit card payments could be significantly reduced.
How long do these payment plans last?
If you are in a Chapter 13 bankruptcy plan because your income won’t let you file a Chapter 7 bankruptcy, you will be in the plan for five years. If you choose a Chapter 13 bankruptcy over a Chapter 7 bankruptcy because you think it will work better for you, you can choose a three year payoff plan.
What if my Chapter 13 bankruptcy plan fails?
You might be able to convert your filing to a Chapter 7 bankruptcy case, even if you originally would not have qualified for a Chapter 7 because you made too much money.
How much do I have to pay an attorney to file a Chapter 13 bankruptcy?
Minnesota’s bankruptcy rules prohibit fees exceeding $3,000 without approval from the bankruptcy court.
What is the process in filing a Chapter 13 bankruptcy petition?
First, you meet with us to review your situation to determine which chapter of the bankruptcy code works best for you.  If we agree that a Chapter 13 bankruptcy petition best meets your needs, we will ask you to fill out a bankruptcy questionnaire. This questionnaire will give us information about your income, expenses, assets, and debts. It is very, very important that you carefully and thoroughly fill out this questionnaire.

Next, we will use the information from your questionnaire to draft a bankruptcy petition. We will also complete a proposed plan that we will ask the bankruptcy trustee to adopt in setting up your debt repayment plan. Remember, most of your debt will be paid off in amounts far less than their full value.

You will need to attend a credit counseling course before you can file for bankruptcy.

A First Meeting of Creditors Hearing will be held Redwood Falls in which you and your attorney must attend. The bankruptcy trustee will ask you questions about your income, expenses, debts, and assets. The trustee will review the plan to decide whether it is workable.

If the trustee approves the plan, you need to begin making payments. You will continue making payments to the trustee throughout the length of the plan, either three years or five years. Once you have completed your obligations under the plan, the debts are discharged. *You will need to take another class, called a ‘Financial Management class.” This must be completed before you make your last payment on the bankruptcy plan.

What is a Bankruptcy Trustee?
This is a lawyer who represents the interests of the creditors. It is his/her job to carefully review your economic situation to determine whether there are assets available to pay the creditors and whether the payment plan we propose is fair to the creditors.
Do you ever need to appear in front of a judge?
Usually, not. The trustee is not a judge. You would only appear in front of a judge if there is an unusual circumstance such as the trustee won’t accept your plan, creditors appear to dispute the plan, or other similar issues.
What if I can’t make payments on my Chapter 13 bankruptcy plan?
If you can’t make your payments, you may be allowed to convert your Chapter 13 bankruptcy into a Chapter 7 bankruptcy.