SCHREIBER LAW OFFICE, LLC
ABOUT CHAPTER 13 BANKRUPTCY
If someone files a Chapter 13 bankruptcy and has secured debts like house or car payments, the payments on
these loans can be kept outside the Chapter 13 plan if desired.
A Chapter 13 bankruptcy works well for people who are behind on secured debts. Chapter 13 allows for the
deficiencies on these debts to be paid back at an affordable rate. The same theory applies to people who owe
money for child support and taxes. These debts can be paid over the course of up to 5 years through a Chapter
13, and government agencies such as the IRS and State of Minnesota are prevented from garnishing wages.
Repayment is on your terms, not theirs.
Chapter 13 is also an option for someone who does not qualify for Chapter 7 due to a high income.
In some situations Chapter 13 allows individuals to remove, or “strip off” the second mortgage on a home, if the
amount owed on the first mortgage is more than what the home is worth.
Chapter 13 bankruptcy is also an option for people who are not eligible for a chapter 7 bankruptcy, such as
individuals who have filed a previous chapter 7 in the last 8 years. Also, in an uncommon situation where a
person's property is not completely exempt in a chapter 7 bankruptcy, chapter 13 is a viable alternative.
Filing for bankruptcy (Chapter 7 or 13) automatically stops creditors from collecting debts. This is called the
"automatic stay." It means creditors must stop phone calls, letters, utility shut-offs, repossessions, foreclosures,
and any other demands for payment, immediately once the bankruptcy is filed.
The automatic stay is a very powerful tool. It extends to most lawsuits, so if a creditor is taking you to court, this
activity must stop immediately upon the filing of a bankruptcy petition. If a creditor is in the process of
garnishing wages or levying a bank account, this also must stop when a bankruptcy petition is filed.
A Chapter 13 reorganization bankruptcy is quite similar to a debt consolidation,
with the exception that the payment in a Chapter 13 is usually much lower than
the repayment in a non-bankruptcy consolidation. Also, creditors do not need to be
paid in full. You pay what you can afford to pay each month, and after the final
payment is made the remaining balances are eliminated. The length of a Chapter
13 plan ranges from 3 to 5 years. In a Chapter 13, individuals make a monthly
payment to the Chapter 13 Trustee, who in turn distributes the money to creditors.
In a Chapter 7 bankruptcy, individuals are generally able to discharge their unsecured debts, which are debts without
collateral. When a debt is discharged, it is eliminated and does not need to be paid back. Common examples of
unsecured debts include credit cards, medical bills and personal loans. Secured debts such as a mortgage or car
payment must continue to be paid if the person desires to keep the property. Most, but not all debts, are discharged in
a Chapter 7 bankruptcy (see below).
There are income guidelines to qualify for Chapter 7 bankruptcy. The primary guideline to determine eligibility for
Chapter 7 is your income compared to the state's median income (the "means test"). Please see the FAQ section of
this web site for more information on the means test and Chapter 7 eligibility.
Understandably, many folks worry that they may lose their property if they file for bankruptcy. This is a common
myth. The bankruptcy code is written in a way to allow people who file for bankruptcy a fresh start from their debts
while being able to keep the property they already own. In fact, for the vast majority of bankruptcy cases filed no
assets are lost.
Not all debts are discharged in bankruptcy.
Common Debts that are Non-Dischargeable:
● Certain Debts Incurred Through a Divorce.
● Certain Taxes Owed to the IRS or State of Minnesota.
● Debts for Injury Caused While Driving Under the Influence of Alcohol.
● Debts for Spousal Maintenance and Child Support.
● Most Student Loans.
Also, if a substantial amount of purchases are made on a credit card right before a bankruptcy is filed, it is possible
that the creditor may bring an action to declare that credit card debt non-dischargeable on the basis of fraud.
ABOUT CHAPTER 7 BANKRUPTCY
MINNESOTA BANKRUPTCY LAW FIRM