Chapter 13 Debt Limits as of April 1, 2013 (also applies to 2014 bankruptcy filings)

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

The Bankruptcy Code section 109(e) sets certain unsecured and secured debts limits for individuals filing Chapter 13 bankruptcy. As of April 1, 2013 and for all of 2014 and 2015, the Chapter 13 debt limits are $383,175 (unsecured debt limit) and $1,149,525 (secured debt limit). These are the chapter 13 debt limits that will continue to apply until 2016.

The secured debt limit of $1,149,525 includes the total of all debt that is secured by collateral, real property or personal property owned by the debtor such as vehicle loans, equipment loans (but not leases), tax liens and mortgages secured by real estate including both residential homestead mortgages as well as mortgages on rental or commercial properties, if any.

The unsecured debt limit of $383,175 includes the total of all amounts owed on credit cards, judgments and other unsecured consumer debts, non-liened taxes and unsecured disputed debts in most cases. This debt limit applies per debtor in a joint chapter 13 bankruptcy filing.

Any individual that is employed or self-employed is eligible for Chapter 13 bankruptcy relief so long as the individual’s unsecured debts total less than $383,175 and secured debts total less than $1,149,525. These statutory debt limits are adjusted periodically every three years according to the consumer price index and the next debt limit adjustment will be in 2016.

Individuals who exceed the Chapter 13 debt limits still have the option to file under Chapter 7 or Chapter 11 for individuals.

Wartchow Law Office 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 options available under Chapter 13 bankruptcy.

What the Supreme Court Decision Overturning DOMA in United States v. Windsor Means for Bankruptcy Law and Joint Bankruptcy

In a 5-to-4 decision in United States v. Windsor, the U.S. Supreme Court ruled today that married same-sex couples are now entitled to receive federal spousal benefits in the states in which they are legally married. The landmark ruling overturns a portion of the Defense of Marriage Act (DOMA) from 1996 which denies federal benefits to legally married same-sex couples despite the recognition of those marriages under state law.

What this historic decision practically means is that same-sex couples in the 14 states/districts where same-sex marriage is legal can now enjoy the numerous benefits bestowed by federal law on married couples, including a lower tax rate on their married-filing-joint federal income tax returns, spousal tax exclusions on transfers of funds and assets, other estate tax benefits, social security survivor benefits, federal health care protections extended to married couples such as COBRA coverage and Medicare’s spousal benefits, spouse-based sponsorship for U.S. citizenship, the ability to file joint bankruptcy petitions, and many more.

When it comes to bankruptcy, all married couples in these 14 states (including Minnesota) can now file joint bankruptcy petitions at least in a state which recognizes their legal marriage. The benefit to filing a joint bankruptcy case rather than two individual bankruptcies is that a same-sex couple will not needlessly pay two filing fees (currently $306 per Chapter 7 case) nor will they have to pay two attorney fees (usually charged at a flat rate). Instead, a joint bankruptcy filing requires the payment of just one filing fee and typically only a small upcharge on the attorney fee, thereby saving the couple up to $2,000 or more on their joint Chapter 7 bankruptcy case. In addition to savings, a joint bankruptcy filing can also utilize the protections of two sets of exemptions rather than jut one, potentially protecting a  greater amount of valuable assets from possible liquidation in Chapter 7.

As of the date of this posting, the 14 states that recognize same-sex marriage include California, Connecticut, Delaware, District of Columbia, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington. California was welcomed to this list thanks to the Supreme Court’s same-day decision knocking down California’s Proposition 8 in a separate ruling.

The question is still unanswered as to whether same-sex couples legally married in one state can file a joint bankruptcy petition if they now reside in one of the other states which do not recognize same-sex marriage.

Lynn Wartchow is graduate of Carleton College and a bankruptcy attorney located in Edina, Minnesota representing all couples in Chapter 7 and Chapter 13 consumer bankruptcy proceedings throughout the Twin Cities area of Minneapolis and St. Paul, Minnesota.

 

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

Conversion to Chapter 13 from Chapter 7 isn’t a death sentence for your bankruptcy case (see Chapter 13: Not Always a Gloomy Diagnosis in Bankruptcy). Perhaps a Chapter 7 was filed underestimating your income and you didn’t actually qualify for Chapter 7 for this reason. Or perhaps you realize after filing your Chapter 7 that you have mortgage arrears that you wish to repay in order to save your home from foreclosure, which is something that you cannot do in Chapter 7. Or perhaps you discover after already filing Chapter 7 that you have non-exempt assets which you would rather ‘pay to keep’ in Chapter 13 rather than turn over to the Chapter 7 trustee for immediate liquidation. Also, conversion can arise when the Office of the United States Trustee brings a motion to dismiss your Chapter 7 case for abuse, usually citing that you did not qualify for Chapter 7 from the beginning. While converting to Chapter 13 is neither an everyday experience nor a great risk for the average debtor, it can arise and ideally your attorney has already explained the differences between Chapter 13 and Chapter 7.

What can you expect if you convert to Chapter 7 from Chapter 13:

  • File and sign new petition forms and amended schedules required for the verified conversion.
  • Formulate a Chapter 13 plan with your attorney. The plan will propose a monthly Chapter 13 payment to commence about one month after the conversion is filed and continue for three to five years. From this payment, mortgage arrears and priority tax claims can be paid off over three to five years, vehicle loans may be crammed down to the value of the vehicle rather than the pre-petition balance of the loan, and other terms can be written into your plan that are more versatile than can be achieved in Chapter 7.
  • Attendance at the Chapter 13 Meeting of Creditors. You will need to attend a Meeting of Creditors with the Chapter 13 trustee even if you have already attended a Chapter 7 Meeting of Creditors.
  • Additional attorney fees. Chapter 13 almost always costs more than Chapter 7, in large part due to the attorney work necessary to formulate a Chapter 13 plan and for the fact that your bankruptcy attorney continues to represent you throughout the entire three to five-year Chapter 13 plan (versus the few months in which a Chapter 7 bankruptcy is usually completed). Many times, these fees can be paid in large part ‘through the plan’, which means the attorney fees are paid over time through the monthly plan payments you make to the Chapter 13 trustee.

Unless you recognize a change in circumstances where you voluntarily wish to convert your case, your attorney will also apprise you of any event arising in your Chapter 7 case which may require conversion to Chapter 13.

For more information on how to convert your case from Chapter 7 to Chapter 13, contact Wartchow Law Office for a free bankruptcy consultation. Located in Edina, Minnesota, Wartchow Law represents clients in all forms of bankruptcy throughout the Minneapolis and St. Paul metro area of Minnesota.

What Happens after the 341 Meeting of Creditors is Over?

The answer to this depends on whether you have filed Chapter 7 or Chapter 13 bankruptcy. (Chapter 11 individual debtors also are required to attend a Meeting of Creditors). At a minimum and for all Chapter 7 and Chapter 13 cases, the debtor must take the second financial management course and file the certificate with the Bankruptcy Court. The Notice of the Meeting of Creditors will give a specific deadline for filing the certificate in a chapter 7 case (the certificate can be filed anytime up to the week prior to the discharge being received) while in chapter 13 the certificate may be filed at any time before their chapter 13 Plan is complete.

In most Chapter 7 cases, attendance at the Meeting of Creditors which occurs about one month after your case is filed, is the last active event for a debtor in a bankruptcy proceeding. Once the Chapter 7 trustee has concluded the Meeting of Creditors and determined that no additional questions or documents will be needed from the debtor, the debtor only has to complete the second financial management course and wait for their Chapter 7 bankruptcy discharge to be entered by the Bankruptcy Court about two months later. A Chapter 7 case is held usually open for two months after the date of the Meeting of Creditors so that certain actions can be taken in a case. Although these post-Meeting of Creditors actions are somewhat uncommon in the garden-variety Chapter 7 case, potential actions include turnover of a non-exempt asset to the Chapter 7 trustee, a creditor objection to the discharge of a particular debt (which is a common type of adversary proceeding), motions to dismiss a case brought by the attorney for the Office of the United States Trustee, or an administrative audit of the Chapter 7 case. Your Chapter 7 attorney can advise you of the potential actions and other requirements you may expect to occur after the Meeting of Creditors in your bankruptcy case, if anything. However most of the time once the Meeting of Creditors is over, it’s just a matter of waiting for your discharge without any further action required other than completing the financial management course.

In Chapter 13 bankruptcy, the Chapter 13 plan is often confirmed about one month after the Meeting of Creditors is concluded. While plan confirmation requires an additional court hearing, attendance is rarely required at the confirmation hearing and you should not plan to attend unless your attorney advises you to do so. Once confirmed, the Chapter 13 debtor must continue to make all Chapter 13 plan payments as well as any other requirements set forth under the terms of their confirmed Chapter 13 plan (such as to report any bonus income received during the plan to the Chapter 13 trustee or provide income tax returns each year). Since a Chapter 13 case will remain an active bankruptcy case while the plan is underway, there are a number of events that can arise after the Meeting of Creditors that require you’re your and your attorney’s involvement. For example if during the course of the Chapter 13 plan there are significant changes to income or expenses, your bankruptcy attorney may advise you to file a motion to convert to Chapter 7 rather than stay in Chapter 13. Also, if you move or change your address you must notify your attorney.

Located in Edina, Minnesota, Lynn Wartchow represents clients in Chapter 7 and Chapter 13 bankruptcy in Minneapolis, St. Paul, Ramsey and Hennepin County, and throughout Minnesota.

How Are Non-Dischargeable Debts Treated in a Chapter 13 Bankruptcy?

Non-dischargeable debts are those few categories of personal liabilities which can never be discharged in either form of Chapter 7 or Chapter 13 bankruptcy. Non-dischargeable debts include most individual income taxes, many business-related taxes such as withholding tax and other trust fund taxes, domestic support obligations, spousal support/alimony and child support, debts related to fraud or fiduciary embezzlement, educational and student loans, unlisted debts and other less common types of debts. (Note that some divorce decree obligations may be dischargeable in Chapter 13.)

One of the great benefits of Chapter 13 over Chapter 7 is that certain non-dischargeable debts can be paid back over time in Chapter 13 plan, usually over five years, which can maximize a Chapter 13 debtor’s cash flow and repayment flexibility. For example in Chapter 13, you can stretch out repayment of priority debts—such as income taxes—over five years versus the standard two to three years the taxing authorities typically require outside of bankruptcy.

It’s important to note that most taxes, domestic support obligations and mortgage arrearages must be repaid in full through the Chapter 13 plan. Practically speaking, this means that the debtor’s budget must demonstrate that they afford the minimum monthly repayment required in order to repay the non-dischargeable over sixty months (in a five year plan).  Your Chapter 13 attorney can help you calculate whether repayment of the non-dischargeable debts is feasible considering your monthly income and expenses.

The flexibility of time in repaying the few categories of non-dischargeable debts is a distinct advantage to Chapter 13. Whether a debt is discharged in bankruptcy is often fact-specific and you should seek the advice of an attorney for more information specific to your circumstances.

Wartchow Law Office advises clients in Minnesota on how Chapter 13 bankruptcy can provide relief and what they can expect from a Chapter 13 plan.  Contact for a free consultation and more information on options available under Chapter 13 bankruptcy. Located in Edina, Minnesota.

 

 

Will My Assets Be Protected in Bankruptcy? What Are the Bankruptcy Exemptions?

Most people who file for bankruptcy are able to protect most if not all of their assets, including cash bank accounts, household goods and furnishings, 401(k) plans and IRAs (as well as other types of retirement accounts), cars and vehicles, their homestead and more. Assets are protected in a bankruptcy by way of exemptions, meaning that an asset is protected when it is ‘exempt from the bankruptcy estate’.  When an asset is exempt, it is outside of the reach of both creditors and the bankruptcy trustee and will not be liquidated to cash to be applied to debts. When an asset is non-exempt, it must be surrendered to the Chapter 7 trustee or otherwise the value liquidated and paid into a Chapter 13 plan.

In both Chapter 7 and Chapter 13 bankruptcy, all assets must be fully disclosed on the bankruptcy Schedules A and B. Assets include any interest in real property as well as all conceivable forms of personal property, bank accounts, and even certain intangible property such as rights to sue and future interests. Exemptions are listed on the bankruptcy Schedule C which restates the property claimed exempt, its value and the amount claimed exempt, and the basis for the exemption under either federal exemptions or Minnesota state exemptions. Both the federal and Minnesota bankruptcy exemptions provide for various categories of commonly exempt property, such as the debtor’s future earnings and income, a homestead interest, vehicles and cars, jewelry, tools of trade used in a debtor’s profession, household possessions and personal effects, retirement accounts, social security benefits, tax refunds, insurance proceeds, and many more. Most exemption categories specify a defined dollar limit for each type of asset exempted and the exemption limits are updated regularly.

While most people’s assets are protected within the available bankruptcy exemptions, common sense dictates that there are reasonable limits to what can be protected when one files for bankruptcy. For example, it may be difficult for a debtor to receive a discharge in Chapter 7 bankruptcy while retaining significant equity a family cabin or rental property. Whether your assets can be protected in bankruptcy is fact dependent and a comprehensive disclosure of assets is an important discussion to have with your bankruptcy attorney before you file bankruptcy. And this is a discussion that should be open and honest since full disclosure of assets is required on the bankruptcy schedules. Additionally, some asset exemption planning steps may be taken before a bankruptcy is filed to maximize your ability to protect certain assets.

Wartchow Law Office provides free initial consultations to discuss your assets and what exemptions may be available to you in either Chapter 7 or Chapter 13 bankruptcy. Located in Edina, MN, Lynn Wartchow represents clients in Minneapolis and throughout Minnesota.

Homeowners Associations and Bankruptcy: How Does Bankruptcy Affect My Condo or Townhome and My Association Dues (HOAs)?

The prevalence of condo and townhome development in the mid-2000s throughout Minneapolis and the suburbs was hit especially hard by the decline in the real estate market, with prices sinking disproportionately on these urban homes that were often originally overpriced and over-marketed to younger consumers. Owners of condos or townhomes who file bankruptcy should be aware of the Minnesota laws that govern the association’s rights as well as be properly advised of what bankruptcy can and cannot do with regard to unpaid HOA assessments.

Under Minnesota law, a homeowner’s association has a statutory lien for any unpaid HOA assessments, which means that unpaid association dues automatically become a lien against the property much like a second mortgage would be however without the need for the HOA to record the lien with the county. Additionally, the association also has a claim against the homeowner for any unpaid HOA dues incurred prior to filing bankruptcy. With both avenues of relief available, the association has several options to collect against a defaulting homeowner, including restriction of rights to use common amenities, bringing a civil action against the homeowner and even foreclosure of the unit under Minnesota law.

While the bankruptcy of an association member will discharge their personal liability to repay the HOA assessments accrued through the file date of the bankruptcy case, the association nonetheless still retains its lien against the property. This association lien can be foreclosed just same as an unpaid second mortgage. An association lien often also includes additional amounts for unpaid late charges or interest, fines imposed upon an owner for violations of the HOA’s rules and regulations, attorney fees incurred by the association, and any other amounts charged against an owner under the association’s declaration.

In either Chapter 7 bankruptcy or Chapter 13, the rule of thumb is that a homeowner will be liable for most if not all HOA assessments in spite of their bankruptcy, particularly if the property is not foreclosed or otherwise the homeowner continues to own the property. This is because any HOAs arising after the file date of a bankruptcy case are not included in the bankruptcy, and any HOAs that arose prior to the file date of a bankruptcy case usually remain a lien against the property and therefore must be paid off in order for the owner to sell or refinance. If the property is foreclosed, the homeowner generally will owe all HOAs due through the later date of either the foreclosure (i.e., the sheriff’s sale in Minnesota) or the homeowner’s bankruptcy.

In Chapter 13, the homeowner can obtain relief with regard to HOA arrears by paying those off with interest over the course of a three to five year Chapter 13 plan.

If you are considering bankruptcy and own a condo or townhome, it’s important to understand how bankruptcy may impact your liability for HOA association dues and other assessments, your right to continue to occupy the property and use the common amenities (noting some amenities can be denied), and foreclosure. Especially under these circumstances, you should seek advice from a bankruptcy attorney who can advise you on the best way to obtain bankruptcy relief while protecting your interests with regard to your property.

Lynn Wartchow is a Minneapolis / St. Paul area bankruptcy attorney representing clients in Chapter 7 and Chapter 13 consumer bankruptcy proceedings in Minnesota since 2005. Email for a free bankruptcy consultation to understand your options in Chapter 13 or Chapter 7 bankruptcy.

Bankruptcy and Divorce: Some Payments in a Divorce Decree May be Dischargeable in Chapter 13

The rule of thumb is that bankruptcy will discharge most unsecured debts that are not taxes or domestic support obligations (which are two of the most common “non-dischargeable debts” that will survive a bankruptcy). This means that child support, domestic support owed to an ex-spouse and many taxes are never discharged in any form of bankruptcy. However a fine line can be drawn where some payment obligations in a divorce decree can still be discharged, but only in a Chapter 13 bankruptcy.

The divorce obligations that can be discharged in Chapter 13 bankruptcy (but not in Chapter 7) are payments that relate to property settlements such as a cash equalizer. Cash equalizers are common, for example, when there is equity in a homestead that needs to be fairly divided between the spouses when one spouse will stay on deed to the home. The general standard for discharging these types of divorce-related obligations is whether the payment is “domestic support” in nature (non-dischargeable) or is more of a property settlement (dischargeable).

In Chapter 13 cases, payments due to an ex-spouse on account of a property settlement are not allowed in the debtor’s budget since these obligations typically are considered general unsecured debt similar to a credit card. Also like a credit card, the ex-spouse can file a proof of claim in the Chapter 13 case to claim their right to receive a proportionate distribution paid to all unsecured creditors, with any amount unpaid being discharged at the end of a successfully completed Chapter 13 plan. While usually this distribution is only fraction of the amount that is owed, unsecured creditors may nonetheless file a claim.

Support obligations are never dischargeable in any form of bankruptcy and a Chapter 13 debtor will be expected to continue making these payments during the course of their Chapter 13. These include child support and domestic support owed to an ex-spouse, but not necessarily property settlements, cash equalizers and possibly other payments owed.

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

What is the Median Income in Minnesota and How Does is Factor into Chapter 7 Bankruptcy?

Qualification for Chapter 7 bankruptcy is largely determined by comparing one’s household income to the median income for their state. Essentially, if your gross annual household income exceeds the Minnesota median income for your family size you may not qualify for Chapter 7 and may be required to file Chapter 13 instead. Therefore, the Minnesota median income is a significant factor in determining whether you may qualify for Chapter 7 bankruptcy or if you may be instead steered toward filing a five-year Chapter 13 repayment plan. As of 11/01/2015, the median income in Minnesota for a household of one person is $51,199, for two people $68,515, for three people $80,804, and $98,447 for four people. The median income adjusts at least once per year and these amounts reflect the median income as last adjusted on November 1, 2015 which will again be adjusted in April of 2016.

If you fall above the median income, it’s important to understand that you may still qualify for Chapter 7 bankruptcy if certain factors are present—this is called “rebutting the presumption of abuse” in bankruptcy. These factors are part of a more comprehensive “means test” eligibility calculation and include such expenses as mortgage payments, tax payments, health care expenses, child care and child educational expenses, child support or maintenance payments, and a host of other variables that may be employed to qualify someone for Chapter 7 even if they are above the median income. In general, the higher over the median income a household falls, the less likely it will be to “rebut the presumption” and qualify for Chapter 7. In this case, your option is to file Chapter 13 bankruptcy, which can still be a good solution (see my blog on why Chapter 13 is not always a gloomy diagnosis in bankruptcy).

While some people seek out some of the unique advantages of Chapter 13 bankruptcy—including the possibility of cramming down a car loan, paying off mortgage arrears over five years or even stripping a second mortgage off a homestead—many people still prefer the ease and speed of Chapter 7. Nevertheless, the means test and the median income establish the threshold criteria for whether Chapter 7 or Chapter 13 may be filed, and usually there is little to no wiggle room from the strict results calculated by the means test.

The means test is complicated and often it’s best to have an experienced bankruptcy attorney calculate your household income based on the last six months of income, compare your number to the median income and prepare the means test calculation to determine what type of bankruptcy you may qualify for.

Wartchow Law Office is a law firm located in Edina, Minnesota with an exclusive practice in Chapter 7, Chapter 13 and Chapter 11 bankruptcy law, representing individual consumer and business clients throughout the Twin Cities of Minneapolis and St. Paul, Minnesota. Contact Wartchow Law Office for a free bankruptcy consultation.

What are the Debt Limits for Chapter 13 Bankruptcy?

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

As of the date of this post, the debt limits for Chapter 13 bankruptcy are $1,081,400 in secured debt plus $360,475 in unsecured debt (see the 2014 debt limits here). These limits include only debts that are not disputed, non-contingent and liquidated. This means that amounts which are not yet decided (for example, a potential award of attorney fees in a pending lawsuit) may not count toward these limits. Taxes (whether dischargeable tax or non-dischargeable tax) are included in the unsecured debt limit calculation and disputing a debt without cause generally does not remove it from either calculation.

These statutory debt limits for Chapter 13 are adjusted every three years and the next adjustment is scheduled to occur in 2013. Note: The 2014 Chapter 13 debt limits have been updated as of April 1, 2013.

If you exceed these Chapter 13 debt limits, you can still file for Chapter 7 bankruptcy assuming that all other eligibility criteria for Chapter 7 are met under the “means test”. However, if you are above the debt limits for Chapter 13 and also above the income qualification for Chapter 7, you may still file an individual Chapter 11 bankruptcy proceeding, which is a more involved and expensive bankruptcy proceeding than Chapter 13 however an individual Chapter 11 has unique opportunities to reorganize certain debts with more favorable terms.

Lynn Wartchow is a bankruptcy attorney located in Edina, Minnesota and representing clients in both Chapter 7 and Chapter 13 consumer bankruptcy proceedings throughout Minneapolis and St. Paul in Minnesota. Contact for a free consultation and more information on options available under Chapter 13 bankruptcy.