The 2017 Chapter 13 Debt Limits (valid through 2019)

Effective April 1, 2016 and valid for all of 2017 and 2018, the debt limits for filing chapter 13 bankruptcy as prescribed by section 109(e) of the Bankruptcy Code are as follows:

Unsecured debt limit:            $394,725

Secured debt limit:                $1,184,200

These limits adjust every three years and the next chapter 13 debt limit adjustment will occur on April 1, 2019.

The secured debt limit of $1,184,200 includes the total of all debt that is secured by personal and real property owned by the debtor including mortgages secured by real estate (i.e., residential homestead mortgages as well as mortgages on rental or commercial properties, if any) and other collateralized debts such as vehicle loans, equipment loans, etc. The secured limit may also include tax liens.

The unsecured debt limit of $394,725 includes the total of all amounts owed on unsecured lines of credit, credit cards, medial debts and other consumer debts, some taxes owed and even disputed debts in most cases. This unsecured debt limit is calculated per person in the event that a married couple files a joint chapter 13 bankruptcy case.

Any individual that is either employed or self-employed in business is eligible for chapter 13 bankruptcy relief provided the individual’s unsecured debts are within these limits of $394,725 unsecured / $1,184,200 secured.

Individuals who exceed the chapter 13 debt limits still have the option to file under chapter 7 so long as their income qualifies under the means test, or otherwise may file an individual Chapter 11 proceeding, particularly for individuals with income-producing assets such as rental properties, valuable business interests and other property holdings that would be liquidated in chapter 7.

If you exceed the 2016 chapter 13 debt limits, read more about alternatively filing under chapter 11 at What is Individual Chapter 11 Bankruptcy and Why Would I file an Individual Chapter 11?

Attorney Lynn Wartchow advises clients on which form of bankruptcy they qualify for and whether Chapter 7 or Chapter 13 fits their needs best.  Contact for a free consultation and more information on all your options available in bankruptcy.

Minnesota Bankruptcy Courts Now Allow a Chapter 13 Debtor to Compel a Mortgagee Bank to either Foreclose or Take Deed to a ‘Zombie Property’

On September 1, 2015, the honorable Judge Michael Ridgway of the US Bankruptcy Court for the District of Minnesota joined several other jurisdictions nationally in recognizing a chapter 13 debtor’s ability to compel her mortgage bank to either foreclose a property or to take deed to a property for which it had previously refused to foreclose. In so creating this new caselaw in Minnesota, Judge Ridgway has now established the legal procedure for debtors to get out from under a ‘zombie property’, i.e.., a property that the bank refuses to foreclose for financial reasons unknown.

Particularly when it comes to zombie condos and townhomes, mortgagee banks often elect not to foreclose in effort to avoid incurring the homeowner’s association fees, real estate taxes and other accruing costs for a property that may not easily sell to recoup its losses. For such zombie properties, the homes can remain abandoned for years before it is finally either subject to a tax forfeiture proceeding or the toxic mortgage is eventually assigned to a bank who will foreclose. To the homeowner, however, it means years of uncertainty and increasing personal liability for homeowner’s association assessments and other costs of remaining the titled owner to an unwanted home.

For now in Minnesota, chapter 13 bankruptcy offers an avenue of relief in that the debtor can now force a lienholder—i.e., the mortgage bank, the homeowner’s association, or perhaps even the county itself—to either foreclose the property or take deed to the property.

In In re Stewart (Case No 15-40709-MER), the chapter 13 debtor had long-abandoned a condominium property in her former state of residence, Maryland, before moving to Minnesota and eventually filing for bankruptcy relief. For over three years, the condo sat vacant, abandoned and awaiting foreclosure by the bank or any other lienholder for that matter. Yet despite her many efforts to cooperate in a voluntary foreclosure or even deed-in-lieu the property to its lienholders, no one wanted to take deed and ownership to the zombie condo. Even after successful completion of a 5-year chapter 13 plan, she would have emerged from bankruptcy owing tens of thousands of dollars in HOAs and other costs if property continued to not be foreclosed. In essence, the very purpose of her bankruptcy proceeding would have been negated if she could not rid herself of the debts associated with the condo. Therefore, her chapter 13 plan—which was confirmed without objection by any party—provided that the condo unit would vest in its mortgagee bank (One West Bank at that time) in satisfaction of the claim and the deed would so transfer out of her name at long last. Yet over two years after her chapter 13 plan was confirmed, neither the mortgagee bank nor the homeowner’s association made any attempts to foreclose the zombie property. So the debtor and her attorney, Lynn Wartchow, brought a motion to compel the mortgagee bank to either foreclose or take deed to the property once and for all.

In so deciding in favor of the debtor and enforcing the terms of her chapter 13 “Baxter Plan”, Minnesota is now aligned with several other bankruptcy courts including Hawaii (In re Rosa, 495 B.R. 522 (Bankr. D. Haw. 2013)), Oregon (In re Watt, 520 B.R. 834, 839 (Bankr. D. Or. 2014)), Massachusetts (In re Sagendorph, II, 2015 WL 3867955 (Bankr. D. Mass. June 22, 2015)) and the Eastern District of New York (In re Zair, 2015 WL 4776250 (Bankr. E.D.N.Y. Aug. 13, 2015)).

The full memorandum opinion and order of In re Stewart may be viewed on the bankruptcy court’s website at


Debt Consolidation vs. Debt Settlement vs. Bankruptcy? What Can You Expect from Each and Which Option is Better?

When facing mounting debts that cannot be repaid according to the regular monthly terms, one should consider all options for debt resolution including bankruptcy relief and non-bankruptcy alternatives. But before you hastily take the most convenient option, consider the benefits and disadvantages for each. In fact, I often encourage my bankruptcy clients to make an apples-to-apples comparison between their debt resolution options—including a list of the pros, cons, risks and costs for each resolution—and often the best and cheapest option quickly becomes clear.

Debt consolidation is a general term for taking out one larger, lower interest loan and using the loan proceeds to pay off any number of smaller, higher interest rate debts. In this way, you are repaying 100% of your debts but potentially saving money on interest over time. While balance transfers and credit card checks with promotional interest rates may be tempting, it’s critical to read the fine print for any hidden fees of balance transfers and the deadlines when the promotional interest rates expire. For example, credit cards and some new loans will charge a small percentage fee on the amount of credit used for the balance transfer or to initiate the loan. Also, the promotional rate expires in only a short time and often any balance remaining after that deadline will revert to the standard interest rate which can be three times higher than the promotional rate. Debt consolidation may work best for people who have regular, predictable income so that they can commit to the monthly consolidated payment and their only issue is the high interest rates. Debt consolidation also assumes that you can obtain financing at a lower interest rate than your current credit cards, which usually necessitates a minimum credit score if not also a pledge of collateral to secure the consolidation loan. Debt consolidation usually will not work well for people who cannot afford a consolidated loan payment (even at lower interest) or for those who cannot obtain new credit due to a low credit score and/or lack of collateral.

Debt settlement (or debt negotiation) is an option that occasionally makes more sense than filing bankruptcy, particularly for higher income individuals, individuals with substantial assets or individuals with access to cash to pay off just a few debts at a reduced balance. Debt settlement involves negotiating a final settlement of the debt and release from future personal liability one-by-one with each creditor. Depending on the number of debts that need to be settled and how far into default each debt is, the debt settlement process can be tedious, expensive and can easily take two or more years to complete with all creditors. There is always the risk that until the debt is fully settled, the creditor can still collect on the full balance and initiate a lawsuit against you. Depending on individual circumstances, debts will typically settle for 25% to 75% of the amount owed and payment is required in either one lump sum or series of payments over no more than six months. Because inevitably some of the debt is repaid and you may end up incurring attorney fees for assistance with the process, debt settlement is almost always more costly overall than a standard chapter 7 bankruptcy proceeding. Finally and unlike what happens when a debt is discharged in bankruptcy, beware that a debt settled for less than the full amount owed often will result in your receiving a Form 1099 for the amount forgiven which is treated as income for tax purposes (with few exceptions, see Received a 1099-Misc on Cancelled Debt? You May Qualify for Exclusion from Taxes if You Were Insolvent or Filed Bankruptcy). For these reasons, debt settlement can be a far more expensive and time-consuming option than bankruptcy.

In bankruptcy, most unsecured debts are discharged in full and the majority of chapter 7 debtors pay nothing more than the attorney fee and filing fee. In chapter 13, some percentage of the debts is repaid but the total paid into a chapter 13 plan can still be significantly less than what a debt settlement may cost.

For help in assessing of your debt resolution options, contact Wartchow Law Office located in Edina, Minnesota.

2015 Chapter 13 Debt Limits for Bankruptcies filed through April 2016

Click here to see the current Chapter 13 Debt Limits effective April 1, 2016 and valid through 2019.

The chapter 13 debt limits for all of calendar year 2015 will remain unchanged from the 2014 debt limits. As of April 1, 2014 and continuing until the next debt limit adjustment on April 1, 2016, the chapter 13 debt limits are:

Unsecured debt limit:            $383,175

Secured debt limit:                $1,149,525

These 2015 chapter 13 debt limits are set by section 109(e) of the federal Bankruptcy Code and are adjusted (usually upward) every three years according to the consumer price index. The next chapter 13 debt limit adjustment will occur on April 1, 2016.

Note that the secured debt limit of $1,149,525 includes the total of all debt that is secured by personal and real property owned by the debtor including mortgages secured by real estate (i.e., residential homestead mortgages as well as mortgages on rental or commercial properties, if any) and other collateralized debts such as vehicle loans, equipment loans, etc. The secured limit may also include tax liens.

The unsecured debt limit of $383,175 includes the total of all amounts owed on unsecured lines of credit, credit cards, medial debts and other consumer debts, some taxes owed and even disputed debts in most cases. This unsecured debt limit is calculated per person in the event that a married couple files a joint chapter 13 bankruptcy case.

Any individual that is employed or self-employed in business is eligible for chapter 13 bankruptcy relief so long as the individual’s unsecured debts are less than $383,175 and secured debts are less than $1,149,525.

Individuals who exceed the chapter 13 debt limits still have the option to file under chapter 7 so long as their income qualifies under the means test, or they may otherwise file an individual Chapter 11 proceeding, particularly for individuals with income-producing asset holdings such as rental properties and other property holdings that could be liquidated in chapter 7.

If you exceed the 2015 chapter 13 debt limits, read more about alternatively filing under chapter 11 at What is Individual Chapter 11 Bankruptcy and Why Would I file an Individual Chapter 11?

Attorney Lynn Wartchow advises clients on which form of bankruptcy they qualify for and whether Chapter 7 or Chapter 13 fits their needs best.  Contact for a free consultation and more information on all your options available in bankruptcy.

More on Divorce and Bankruptcy: How do Child Support, Spousal Support (Alimony / Maintenance) and Property Settlements Impact either Chapter 7 or Chapter 13 Bankruptcy?

How certain payments owed under a divorce or family law decree—including child support, spousal support (also called maintenance or alimony) and even property settlements or cash equalizers— may impact your bankruptcy filing depends on whether you are the recipient such payments or the obligator of such payments, i.e., the payer.

For a recipient of child support, spousal support or other domestic support obligations (also called “DSO”), this support income must be added to all other sources of income in order to determine whether one is eligible to file chapter 7 under the means test. Generally speaking, if one’s total annual income from all sources including domestic support income is less than the median income for your state and household size, you will qualify for chapter 7. However if you are above the median income, you are instead steered toward filing chapter 13 with some exceptions. Median income varies by state and household size and is regularly updated. Especially if you are ‘on the line’ of the median income or above it, it is the initial job of any bankruptcy attorney to calculate the means test and advise on eligibility for chapter 7 under current median income standards.

For the payer of domestic support obligations, such support payments are typically allowed as an expense on the means test which effectively reduces one’s annual income. This means that if your regular wage or self-employment income is above the median income for your state and household size but the subtraction of domestic support payments brings you back down below the median income, then you would qualify for chapter 7 bankruptcy. Qualification for chapter 7 via this route is also called “rebutting the presumption of abuse” on the means test. However if one’s income is such that the subtraction of DSO payments does not reduce the income below the median or alternatively if one is not actually making the required DSO payments, then they may not qualify for chapter 7 and instead file chapter 13.

The means test involves various additional factors other than income and domestic support payments. For more information about median income and the means test, see What is the “Means Test” and Why Does it Matter in Bankruptcy? and 2014 Median Income in Minnesota.

Regarding property settlements (also sometimes referred to as equalization payments or cash equalizers), these are usually ordered in a divorce based on a fair distribution of marital assets rather than a need for financial support by one spouse. For example, a wife may be ordered to pay a property settlement to her ex to “equalize” her award of a family home having equity that was built up during the marriage. In this case, the wife that keeps the family home may be required to pay her ex-spouse one half of the home equity by a certain future date. Property settlements also commonly arise when one spouse is assuming most or all of joint debts acquired during the marriage and the other spouse emerges from divorce debt free other than the obligation to pay the property settlement. In any event, unpaid property settlements and cash equalizations are valuable assets that must be listed in the bankruptcy case of the recipient.

As with all assets, any individual bankruptcy debtor is limited as to the total value of assets which may be exempt and it’s possible that a portion of a large unpaid property settlement (above approx. $12,000) could be non-exempt if the recipient files bankruptcy. In this case, the non-exempt portion of the property settlement would become property of the bankruptcy estate and either liquidated in chapter 7 or, in chapter 13, at least the equivalent of the non-exempt portion must be paid into the plan. This situation is also circumstance dependent and may be affected by the facts of one’s situation, including whether the obligator spouse has a practical ability to pay the settlement.

For the payer of the property settlement, this award is a liability that must be listed in the creditor schedules. Unlike most debts, one’s liability to pay a property settlement is not usually discharged in chapter 7 bankruptcy however may be discharged under some circumstances in chapter 13 bankruptcy.

A qualified bankruptcy attorney will explain more how a property settlement would be treated under your specific circumstances, the chapter of bankruptcy you file and local bankruptcy law. For more information on how property settlements are treated in chapter 13, see Bankruptcy and Divorce: Some Payments in a Divorce Decree May be Dischargeable in Chapter 13.

Also read more about family law and timing considerations in bankruptcy: Bankruptcy and Divorce: What Should Come First?

Located in Edina, Minnesota, attorney Lynn Wartchow represents clients in all chapters of bankruptcy in Minneapolis, St. Paul, Ramsey and Hennepin County, and throughout Minnesota. Contact for a free consultation.

What are the Options for a Home Mortgage in Bankruptcy: Can I Get Rid of a Second Mortgage in Bankruptcy or Chapter 13?

The answer is that it depends. If you file chapter 7 bankruptcy, you cannot restructure any mortgage yet the underlying note is still discharged in chapter 7 bankruptcy. However, a discharge of the second mortgage does not mean that the mortgage itself is released and many debtors nevertheless continue to make the regular monthly payments on the discharged second mortgage to avoid foreclosure or to allow for a sale of the home. A discharge of the note merely means that the bank cannot collect against a homeowner personally after the bankruptcy (via a lawsuit or otherwise) yet the bank can still foreclose the collateral or demand payment of the unpaid balance in order for the property to transfer to a buyer. Therefore a chapter 7 discharge offers little benefit to a homeowner, particularly when the second mortgage is at least partially secured by equity in the property beyond the balance owed on the first mortgage.

However there are viable and beneficial options regarding a second home mortgage (or third mortgage or other junior lien) in chapter 13 bankruptcy. There are generally two options in chapter 13 bankruptcy regarding a second mortgage on a homestead property: 1) Lien strip an entirely unsecured second/junior mortgage, or 2) Cramdown the balance of a “short term” mortgage, which essentially bifurcates that mortgage into a secured portion which must be paid off during the life of a chapter 13 plan and an unsecured portion which is dischargeable at the end of the chapter 13 plan. Each option is further explained below.

Option #1: Chapter 13 Lien Strip when 2nd mortgage is entirely unsecured:

If the second mortgage is entirely unsecured—i.e., the balance owed on the first mortgage plus any other senior liens exceeds the value of the home so that there is no equity which secures/collateralizes the second mortgage—this junior mortgage may be stripped from the property. This process is called a “chapter 13 lien strip” and can only be obtained in chapter 13 bankruptcy. A chapter 13 lien strip typically requires that a recent appraisal be done which proves that the value of the house is less than the amount owed on the first mortgage. In Minnesota, a motion to determine value of the secured claim must be filed in the bankruptcy court shortly after the chapter 13 case is filed. The mortgagee-bank will have the opportunity to object to the lien strip, usually on the basis that the debtor’s appraisal is too low and that there is equity which at least partially secures the second mortgage so that it cannot be stripped under the law. However if no objection is filed or the bankruptcy judge finds that the value of the home is such that the second mortgage is entirely unsecured, the mortgage will be stripped from the property at the successful completion of all payments due under the chapter 13 plan.

Option #2: Chapter 13 Cramdown of ‘Short Term’ 2nd Mortgage:

If option #1 does not apply because there is some equity which at least partially secures the second mortgage, a chapter 13 debtor may still have an option to “cram down” the balance of the second mortgage. In this option, the balance of the second mortgage is effectively reduced to the amount of equity in the property which secures that mortgage. A chapter 13 cramdown can only be done if the second mortgage is “short term” under the Bankruptcy Code, i.e., the mortgage either has become due prior to filing bankruptcy or will become due during the 5-year chapter 13 plan. This option will not apply if the second mortgage does not become due until after the 5-year chapter 13 plan ends, i.e., the mortgage is not “short term”. Assuming the second mortgage is short term, section 1322(c)(2) of the Bankruptcy Code provides for the mortgage to be bifurcated into two parts: 1) a secured claim which must be paid off in full, through the chapter 13 plan in no more than five years and at a low interest rate; and 2) an unsecured claim which, like all other unsecured creditors, is typically repaid a fractional dividend of the total amount of the claim and the balance of the claim is then dischargeable at the end of the chapter 13 plan.  Depending on the amount of equity which secures the second mortgage and the potential savings on lowering the contract interest rate to perhaps 4% or 5%, a chapter 13 cramdown can be greatly advantageous and offer a vehicle to pay off a second mortgage for less than owed. This option is also particularly appealing for homeowners whose short term mortgages have already ballooned or soon will balloon and the homeowner is unable to pay off the amount due or otherwise refinance under favorable terms.

For more information about the advantages of chapter 13 bankruptcy, keep reading Chapter 13: Not Always a Gloomy Diagnosis in Bankruptcy.

Attorney Lynn Wartchow can help you determine whether Chapter 7 or Chapter 13 best fits your needs regarding a mortgage. Contact Lynn for a free consultation and more information on options available under either Chapter 7 or Chapter 13 bankruptcy.

What are the Bankruptcy Exemptions and Which Assets can be Protected in Bankruptcy?

When filing either chapter 7 or chapter 13 bankruptcy, each individual debtor is allowed to exempt a limited amount of equity in real property, cash, personal assets and other property while still obtaining a discharge of most debts. Only when a debtor exceeds the available exemptions will they have “non-exempt” assets that will either be liquidated in chapter 7 or, alternatively, the debtor will effectively pay to keep over the duration of a chapter 13 plan.

Bankruptcy exemption law allows for the exclusion of certain assets from the bankruptcy estate and, thereby, protects such assets from the reach of either creditors or the bankruptcy trustee. When filing bankruptcy in Minnesota, a debtor elects to utilize either the federal exemptions or the Minnesota state exemptions. Since the federal exemptions are more liberal as to what assets can be protected, a Minnesota debtor will only elect state exemptions when they have over $20,000 in equity in a homestead (or, less commonly, a significant certain asset such as pending insurance proceeds or personal injury award). Most debtors however opt to use federal exemptions for the availability of up to a $12,775 “wildcard exemption” which can be used to protect any assets which are not otherwise protected under a separate federal exemption.

As of the date of this post, the federal exemptions provide for the following amounts per debtor:

Asset Type


Available Federal Exemption*
Equity in homestead property


$23,675 per debtor (double for joint filers)
Household goods, furniture and wearing apparel


$12,625 (limit of $600 per item in this category)
Wedding rings


Alimony / child support


unlimited so long as funds are necessary for support of the family
Unemployment / Disability benefits (future benefits only)


Social Security benefits (future benefits only)


Cash value of life insurance policy


$12,625 (only one policy is exempt)
Vehicle equity


$3,775 (only one per debtor)
Personal injury claims that are not yet settled


ERISA-qualified retirement accounts such as 401(k), 403(b) and 408 plans


Individual Retirement Accounts (IRAs)


usually unlimited subject to certain limits on recent contributions
Other retirement benefit plans including Public Employee Retirement Association (PERA), Minnesota State Retirement System (MSRS), and Teachers Retirement Association of Minnesota (TRA)


unlimited so long as the employee does not have a right to withdrawal of funds upon termination
Tools of trade (must be used in employment)


Workers Compensation


unlimited only if claim has not been settled or paid out (however proceeds already received can be exempted under Minnesota law)
Anything else not exempt under any other provision such as excess equity in a vehicle, cash, bank account balances, second vehicles, recreational equipment, stocks and bonds, ownership interest in a business, inheritance proceeds, claims against a business or individual, tax refunds, etc. up to $13,100 total “wildcard” / (d)(5) exemption


* These amounts are valid as of 2016 and adjust periodically. You should consult a bankruptcy attorney to analyze the available exemptions for your particular circumstances.


Converting from Chapter 13 to Chapter 7: What’s Involved and Why Would You Convert?

Life inevitably changes and things happen that may cause a chapter 13 debtor to no longer need or afford their original chapter 13 plan. A job loss, other reduction of income or unanticipated increase in expenses can all be reasons for a debtor to lose their ability to continue making the chapter 13 plan payments. If the chapter 13 payments become unfeasible and, assuming the debtor qualifies, a chapter 13 case can be converted to chapter 7 for an immediate discharge.

Typically people file chapter 13 bankruptcy for one of two reasons: Either their household income is above the applicable state median income and they do not qualify for chapter 7, or they voluntarily elect to file chapter 13 due to having mortgage arrears, non-dischargeable taxes or other priority debts that can be repaid over the course of a chapter 13 plan. Also debtors may elect to file chapter 13 if they have non-exempt assets that would lose to liquidation by a chapter 7 trustee and instead chose to ‘buy back’ their non-exempt property by making monthly plan payments in chapter 13.

In cases converted to chapter 7 from chapter 13, the debtor must prove that they would qualify for chapter 7 as of the date of conversion (not the original file date) by passing the means test. See What is the “Means Test” and Why Does it Matter in Bankruptcy. The debtor’s bankruptcy attorney will complete a new means test as of the date of conversion to determine if the debtor is chapter 7 eligible. If eligible, the case can be converted by the debtor filing a motion to convert to chapter 7 which gives all creditors and other parties the opportunity to object. (Note that in Minnesota, no motion is required and the debtor can instead file a simple request to convert to chapter 7 along with updated schedules and statements). If the motion/request to convert is granted, the case will proceed as a chapter 7 case and the debtor will attend a chapter 7 Meeting of Creditors before a discharge is ordered.

If your income has gone down or your expenses have increased since your chapter 13 plan was confirmed, you should consult your bankruptcy attorney so she can advise you of what options you have to convert to chapter 7, to have your case dismissed voluntarily or otherwise to modify your chapter 13 plan to reduce the plan payment. Any missed chapter 13 plan payments will result in a quick dismissal of your chapter 13 case so it is important to notify your attorney immediately if you are considering a conversion to chapter 7 from chapter 13. Once a chapter 13 case is dismissed, the debtor will have to pay a significantly larger filing fee to file chapter 7 and also increased attorney fees over the typically smaller attorney fee for just a conversion.

Read more about converting from chapter 7 to chapter 13 bankruptcy here.

File Bankruptcy to Protect Your Wages and Other Earnings from Garnishment

From the moment that a bankruptcy petition is filed, the “automatic stay” is invoked and this automatic stay of legal proceedings affords many protections from collection activities, including wage garnishment on W-2 income, other income levies such as from 1099 income–usually earnings of self-employed persons or independent contractors–and bank account levies. In other words, the filing of chapter 7 bankruptcy effectively puts all collection activities and legal proceedings on immediate hold due to the automatic stay. Depending on the circumstances, the automatic stay can be lifted for various reasons but rarely, if ever, so that a creditor can continue wage garnishment or bank account levies. (One of the more common reasons for the bankruptcy court to allow the automatic stay to be lifted is for the foreclosure of a homestead that is in default and for which there is no proposal to cure the arrearages, for example through a Chapter 13 plan.)

Wage garnishment is a collection remedy that is usually only, but not always, available after a judgment has first been obtained or at a minimum after you have not responded to a summons and complaint previously served on you several weeks prior. If you have been served with a summons and complaint in a collection lawsuit and/or a judgment has been entered, you are likely also aware that a wage garnishment is headed your way. While most employees will receive notice of the wage garnishment prior to the garnishment taking effect via the next payroll, employers do not always provide prior notice of the upcoming garnishment and availability to claim potential exemptions from garnishment. While a debtor often has advance notice of a wage garnishment, you almost never receive notice of a bank levy until after it has already occurred.

For most people in Minnesota, a wage garnishment means that 25% of your net (“take home”) earnings will be garnished each payroll until the underlying debt is paid off. There are exemptions to wage garnishment available to some individuals meeting certain criteria.

Even if you are a self-employed or contract worker, 1099 non-wage income can still be garnished, especially if the garnishing creditor is aware of such income from previous disclosures made to them including in credit applications.

Bankruptcy puts an immediate stop to wage garnishment and all other collection tactics. In some cases, the last 90 days of wages garnished from you can be refunded by the garnishing creditor within weeks after the bankruptcy is filed.

Located in Edina, Minnesota, bankruptcy attorney Lynn Wartchow represents clients in all Chapters of bankruptcy in Minneapolis, St. Paul, Ramsey and Hennepin County, and throughout Minnesota.

How the 2014 Changes to Regulation Z (TILA) and Regulation X (RESPA) Impact Homeowners who are in Default on their Mortgage or in Bankruptcy

The Consumer Financial Protection Bureau (CFPB) is the federal agency that oversees and sets the standards and regulations for how home mortgages are serviced by lenders, particularly in the wake the post-2010 mortgage crisis. Amongst its many duties, the CFPB is tasked with creating and enforcing regulations on how home mortgages are serviced in the United States and, more specifically, how homeowners that are in default or in an active bankruptcy proceeding. In January 2014, the CFPB made some notable changes to Regulation Z (TILA) and Regulation X (RESPA) in an effort to provide homeowners with greater consumer protections regarding their mortgages.

For more information about foreclosure in Minnesota and options in bankruptcy, read Foreclosure in Minnesota: Know the Process, Timeline and How Bankruptcy Can Help.

As of January 10, 2014, the CFPB instituted new mandatory requirements regarding mortgages, including the following changes that apply to homeowners in bankruptcy proceedings:

  • “Dual tracking” of foreclosure actions now prohibited while a mortgage modification application is pending. Most important for many homeowners is that the recent 2014 changes now prohibit foreclosure while the homeowner has a mortgage modification application pending a response from their bank. “Dual tracking” is the practice of many banks to continue foreclosure proceedings while at the same time consider a mortgage modification application submitted by the homeowner. Understandably, this dual tracking caused enormous frustration for homeowners already struggling through the tedious and often prolonged process of obtaining a mortgage modification before the clock ticked down on a simultaneous foreclosure proceeding. Instead, mortgage servicers are now prohibited from initiating foreclosure proceedings during the first 120 days of delinquency and also must stop a foreclosure proceeding if the homeowner has submitted a “complete” application for loss mitigation.
  • Monthly mortgage statements must be provided despite the homeowner’s default or bankruptcy. Previously, many homeowners in default on their home mortgage or in an active bankruptcy proceeding experienced that their lender ceased sending the periodic mortgage statements that are relied on to track mortgage account information and make the monthly mortgage payments. With the 2014 changes, the mortgagee bank must now provide a homeowner who is 45 days or more delinquent with a detailed statement that includes, amongst other items: the date of first delinquency and a six-month account history that tracks the accrued delinquency over time, notification of risks such as foreclosure as well as loss mitigation options including mortgage modification and contact information for HUD-approved home counselors and the total amount due to bring the account current. These new rules do not apply to some fixed rate mortgages, reverse mortgages or timeshares.
  • Notice of all mortgage payment changes must be filed with the Bankruptcy Court and provided to Chapter 13 debtors. Previously, homeowners in bankruptcy cases were not always notified when their adjustable rate mortgage adjusted interest rate and, accordingly, their monthly payment also adjusted. With the 2014 changes, homeowners in Chapter 13 will receive notice from the mortgagee bank of the upcoming mortgage payment change since the bank must now file a statement with the bankruptcy court each time that the mortgage payment changes due to an adjustment in interest rate or other change in terms.
  • Force placed insurance now restricted. Previous to the 2014 changes by the CFPB, some mortgagee banks required that homeowners compensate the bank for mandatory hazard insurance that the bank obtains instead of the homeowner providing their own homeowner’s insurance. Once the bank obtained a separate insurance policy on the home, the bank would then force the homeowner to compensate the bank either by a mandatory and additional escrow into their mortgage payment and/or a charge-back to the homeowner for the bank-paid insurance. This force placed insurance often resulted in higher premiums to the homeowner, additional bank fees and increased the total arrearage owed to bring the mortgage current. The January 2014 changes now mandate that the mortgagee bank must now provide at least two notices to the homeowner requesting proof of insurance before the bank can institute the often more costly force placed insurance. Additionally when it is allowed after the requisite notice, the bank’s costs and fees associated with force placed insurance are also now restricted.
  • Banks must respond to homeowner request for account information and error reporting within 60 days. The 2014 changes to Regulations Z and X now require that mortgagee banks respond to homeowner requests for account information and alleged account errors within 60 days. Additionally, mortgagee banks must provide confirmation to the homeowner of their request within 5 days and must initiate an investigation within 30 days.

Links to more information on CFPB and consumer protection in mortgage servicing laws:

For more information on the foreclosure process in Minnesota and how Chapter 13 or Chapter 7 bankruptcy may help, contact Wartchow Law Office for a free bankruptcy consultation to understand your options.