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.

What Should I Expect at the 341 Bankruptcy Meeting of Creditors?

If you have done basic research into the bankruptcy process, you will know that about one month after filing a bankruptcy petition and schedules there will be a mandatory hearing called the “341 Meeting of Creditors”, which is named after the section of the Bankruptcy Code that requires the hearing.

Clients often ask what to expect at the Meeting of Creditors, what they should bring to the Meeting of Creditors and what creditors will be present at the Meeting of Creditors.

For most people, the Meeting of Creditors is relatively uneventful: it’s typically held at the federal courthouse in a hearing room with people who filed bankruptcy around the same date that you did and their attorneys, all waiting for their names to be called so they can sit for the few minutes of questioning by the bankruptcy trustee assigned to their case. When your name is called, you can expect to go up and sit at the hearing table across from the trustee, and then be sworn in under oath to tell the truth, to confirm your name and address and then to answer some basic yes/no questioning for several minutes. If you have fully disclosed everything to your attorney and on your bankruptcy schedules, there should be no surprises and nothing new that comes up during the Meeting of Creditors. In the vast majority of cases, the trustee’s job is routine and they blandly conduct this hearing to determine if there are any non-exempt assets and to get your required testimony on record.

What should I bring to the Meeting of Creditors? In Minnesota bankruptcy cases, you should plan to bring your driver’s license and social security card, all paystubs received since the date that your case was filed, and also a bank statement that confirms the balance in each bank account on the file date of your bankruptcy case. If the trustee wants more documentation, they will either request it at the Meeting of Creditors or from your attorney.

Who shows up at the Meeting of Creditors? Usually, just you, your attorney and the bankruptcy trustee are present for a Meeting of Creditors. It is rare that any creditor will appear for a Meeting of Creditors, even though all creditors will receive notice of the scheduled time and date at least 21 days prior to the hearing. However, the only creditors who typically show up are ex-spouses or ex-business partners that feel jilted by the bankruptcy or, in some rare cases, individuals who have something to reveal to the trustee that was may not have been fully disclosed in the bankruptcy petition and schedules. Rarely does an everyday unsecured creditor make an appearance at the Meeting of Creditors. Even if a creditor or other party-in-interest shows up for the Meeting of Creditors, they are only allowed to ask questions related to the information contained in the schedules and are not allowed to use the Meeting of Creditors as an opportunity to ask unrelated questions.

Many people understandably feel nervous about their upcoming Meeting of Creditors, and inevitably all feel much relief once it is favorably concluded without incident. As long as you have fully disclosed all information in your petition and to your attorney, and you have the required documents and IDs on the hearing date, then the Meeting of Creditors should pose no concern. If you still feel anxious, just ask your attorney to spend a little more time helping you prepare for the Meeting of Creditors and/or provide a list of the sample questions asked at the Meeting of Creditors.

Keep reading for the Typical Questions Asked at the Chapter 7 Meeting of Creditors

Wartchow Law Office is a bankruptcy 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.

What is the “Means Test” and Why Does it Matter in Bankruptcy?

The “Means Test” was one of the major and most controversial additions to consumer bankruptcy law that occurred as part of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). Part of the congressional intent of BAPCPA was to limit a person’s ability to obtain Chapter 7 relief and instead direct them into filing Chapter 13. While there are many reasons why some consumer debtors actually prefer to file Chapter 13 bankruptcy, Chapter 7 is still widely available and common, only now with a few additional hurdles to pass.

These “hurdles” to qualify to Chapter 7 that were added in 2005 as part of BAPCPA are collectively referred to as the “Means Test”. In actuality, the Means Test is an 8-page calculation that determines one’s eligibility for Chapter 7 using criteria such as the debtor’s income (as based on the last six months), household size, expenses and any special circumstances that may justify relief under Chapter 7 bankruptcy. While many of the numbers used are drawn from IRS standard allowances for food, utilities, and similar routine expenses, a person’s actual payments made monthly on secured debts such as mortgages and car loans are included to reduce their income. Generally speaking, if a person has no disposable income remaining at the end of the month after payment of all these standard and actual expenses, they may qualify for Chapter 7.

However, if when the last six months of income is annualized (i.e., doubled) and the person falls above the median income for their household size and state, they are instead steered toward filing Chapter 13, which includes a monthly 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.

Even if someone is above the median income for Minnesota, they may still qualify for Chapter 7 (also referred to as “passing the Means Test”) based on other circumstances.

One job of your bankruptcy attorney is to give you all your bankruptcy and non-bankruptcy options, including calculating the Means Test for you and advising you on whether you qualify for Chapter 7 or if you may want or need to file Chapter 13 instead.

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.

 

What is the “Credit Counseling” Requirement to File Bankruptcy?

A credit counseling course must be completed before an individual can file bankruptcy. This course basically goes through your budget and educates on how to prioritize certain expenses, save money and manage a household budget.

While every individual who files for Chapter 7, Chapter 13 or even Chapter 11 bankruptcy is required to complete this credit counseling course before filing bankruptcy, this class is relatively simple and some even find it useful.

What you should know about the credit counseling course:

  • You can take the course online, over the phone or in person.
  • The course usually costs around $25 if you take it online or over the phone.
  • Once completed, you will be issued a Certificate of Credit Counseling, which you must provide to your bankruptcy attorney for filing with the court.
  • Have your attorney’s email address handy when you take the course so the agency can forward the certificate directly to your bankruptcy attorney.
  • A Certificate of Credit Counseling is only valid for 180 days. If you do not plan to file for bankruptcy for another six months or more, you may wish to hold off on taking the class until closer to the file date.
  • It must be taken from an approved credit counseling agency in Minnesota (for Minnesota bankruptcy filers).
  • You will also have to take a second course after you file bankruptcy but before you get a discharge. This second course is called “Debtor Education” or “Financial Management” and the process is similar to taking the first course. This second certificate must be filed with the bankruptcy court before you can receive a bankruptcy discharge. You do not have to take the second course from the same agency that you took the Credit Counseling.

A list of the approved Credit Counseling and Debtor Education agencies can be found on the US Department of Justice website at www.justice.gov/ust/eo/bapcpa/ccde/index.htm.

Lynn Wartchow represents clients in Chapter 7 and Chapter 13 in Minneapolis, Edina and Twin Cities Minnesota consumer bankruptcy proceedings. Consultations are free.

The Role of the “Trustee” in Chapter 11

Unlike under other Chapters of the Bankruptcy Code, Chapter 11 is unique in that there is no initial appointment of a trustee. In contrast, an independent trustee is appointed in a Chapter 7 business bankruptcy to manage the business operations if the business is still operational and effectuate an orderly liquidation. However in Chapter 11 where the intent of the bankruptcy proceeding is to reorganize, having an independent trustee manage the business operations is often expensive, unnecessary and even counterproductive to the reorganization process. After all, the principals of a business are usually the best suited to run their own business and continuity of current management typically minimizes overhead costs, best maintains vendor and client relationships and operates the business in its most efficient manner. The appointment of a trustee in a Chapter 11 case can be akin to a death sentence if the trustee appointed decides to unseat the current management or principals and/or to convert the business to Chapter 7 liquidation.

While somewhat uncommon here in Minnesota, a Chapter 11 bankruptcy trustee or examiner can be appointed under specific circumstances, usually when the principals of a Chapter 11 debtor have utterly mismanaged the debtor’s finances and business. The appointment of a trustee or examiner in a Chapter 11 business reorganization must be made by request of a party in interest—usually that party is the attorney for the United States trustee—and must be based on one of the grounds recognized under the Bankruptcy Code, including for fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management, either before or after the commencement of the case. Appointment of a trustee in a Chapter 11 case is an extraordinary consequence and generally should be avoided. The best plan to avoid the appointment of a trustee in Chapter 11 is to follow the rules and procedure, read and observe the Operating Guidelines and Reporting Requirements of the U.S. Trustee (as well as follow all Reporting and Other Requirements in Chapter 11), and always ask your Chapter 11 attorney before doing anything that may be outside the ordinary course of business.

Lynn Wartchow is a Minnesota Chapter 11 attorney advising business clients on their options and Chapter 11 solutions to keep a business operating and improve future prospects. Located in Edina, Minnesota, Wartchow Law Office represents clients throughout Minneapolis, St. Paul and surrounding areas in Minnesota.

Defined: The Bankruptcy “Trustee” and the “United States Trustee”

The terms “trustee” and “United States Trustee” sound similar and often encompass similar objectives, however the role of the trustee in bankruptcy proceeding is distinctly different than that of the United States Trustee.

The “United States Trustee” (also called the U.S. Trustee or “UST”) is essentially a federal office within the U.S. Department of Justice that oversees the administration of all bankruptcy cases in a certain district. Here in the district of Minnesota as in other districts, the office of the U.S. Trustee employs a group of staff attorneys, financial analysts and other professionals all charged with the responsibility to promote the efficiency and protect the integrity of the federal bankruptcy system. The Office of the US Trustee does not always directly engage in consumer Chapter 7 and Chapter 13 bankruptcy proceedings, however does monitor each case to determine whether legal action needs to be taken in order to enforce the requirements of the Bankruptcy Code and to prevent fraud or abuse. The UST often reviews petition and schedules filed with the Court to determine whether fraud exists or if an audit must be conducted to uncover more information. However in the majority of consumer Chapter 7 and Chapter 13 bankruptcy cases, the individual debtors will never hear from the United States Trustee or be subject to its action. In Chapter 11 cases, the Office of the US Trustee becomes a principal player in monitoring the business reorganization proceeding.

In contrast, the “trustee” (also called a “panel trustee” or a “standing trustee” in Chapter 13 cases) is often a private attorney charged with the responsibility to administer a bankruptcy, hold the meeting of creditors, and distribute any non-exempt assets to creditors. A bankruptcy trustee is appointed to every individual’s Chapter 7 or Chapter 13 consumer bankruptcy case. In the District of Minnesota, there are approximately 25 such attorneys that serve as Chapter 7 and Chapter 13 trustees. Unlike the US Trustee whose main objective is to ensure the integrity of the bankruptcy process, the role of the Chapter 7 trustee is to collect any non-exempt assets of the debtor, liquidates those assets, and then distribute the proceeds to creditors. In Chapter 13, the trustee additionally evaluates the debtor’s financial affairs, makes recommendations to the Court with regard to the Chapter 13 plan and ultimately administers a the Chapter 13 plan by collecting payments from the debtor and disbursing the funds to creditors. In Chapter 11, no trustee is initially appointed and the debtor effectively operates as its own trustee, i.e., the “debtor in possession”.

Lynn Wartchow is the founding attorney of Wartchow Law Office located in Edina, Minnesota and representing consumer and business clients in Chapter 7, Chapter 13 and Chapter 11 bankruptcy proceedings throughout the Minneapolis and St. Paul and surrounding areas.

What to Bring to the Initial Bankruptcy Consultation

Your first consultation with a bankruptcy attorney will cover a lot of ground, and the goal is for you leave with all the information needed to decide whether bankruptcy is right for you and what your non-bankruptcy options may be. A productive Chapter 7 or Chapter 13 bankruptcy consultation will mean that you should plan to bring several important documents and other important information with you to your consultation.

The documents you should plan to bring include:

  • Credit report. Free credit reports are available online from annualcreditreport.com. Also bring a list of creditors that do not appear on your credit report, such as loans from family members or other private individuals and statements of past due taxes.
  • Driver’s license and social security card.
  • Paystubs for the last seven months. The purpose of bringing so many paystubs is so we can determine if you qualify for Chapter 7 or Chapter 13 bankruptcy, which is largely income based and calculated according to the means test.
  • Deed to your home. If you file bankruptcy, we want to list the exact legal description of your home so in the future there won’t be any issues because it was incorrectly described in your bankruptcy papers. Note that the property tax statement only has an abbreviated version so be sure to bring the actual deed.
  • Recent mortgage and car loan statements.
  • Tax returns for the last two years including W-2s. This information will be listed in your bankruptcy schedules and also will need to be provided to the trustee assigned to your case.
  • Copies of bank statements, recent retirement plan statements, cash value life insurance statement (if applicable), copies of any leases or contracts you are party to, recent stock brokerage account statement, foreclosure
    notice
    , divorce decree in the past 5 years, etc. These are all required for the purpose of confirming what assets can be protected under the bankruptcy exemptions and various other issues that may be involved in a bankruptcy.
  • Recent lawsuits, notice of judgments, garnishment notices, etc. (if applicable).

Just like all other legal proceedings, bankruptcy is a paperwork-heavy process. The documents above are a solid starting point for your bankruptcy attorney to fully evaluate your circumstances and give you the most options.  

Contact Wartchow Law Office for a free Chapter 7 or Chapter 13 bankruptcy consultation.