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.

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.

Condo, Townhome and HOA Association Liens in Minnesota

In Minnesota, if you have unpaid condominium or townhome association assessments—which are often called “HOAs”—these unpaid amounts operate automatically as a lien on the property under Minnesota Statute § 515B.3-116(a), which is part of the Minnesota Common Interest Ownership Act.

What a condo or townhome association lien typically means for the homeowner is that you cannot get out of paying past due HOA assessments while you own the property. Further, it means that the property can be foreclosed by the Association for unpaid homeowner’s association assessments even if you are current on your mortgages. Due to the financial risk of having unpaid HOAs, the Association’s Board of Directors will often opt to foreclose for lesser amounts and on quicker timelines than a mortgagee would typically foreclose an unpaid mortgage.

For the Association, the protection of an automatic Minnesota statutory lien on the property provides a high level of protection for the Association from accruing large amounts of unpaid HOA assessments for which the other members of the Association may have to make up via a special assessment. Unpaid HOA assessments can be collected upon against a unit owner via a lawsuit against the homeowner and very likely at the expense of the homeowner when the Association’s attorney fees are added to the statutory lien amount. Under the Minnesota Common Interest Ownership statute and likely under the Association’s declaration and bylaws, the automatic lien also includes other amounts and charges associate with collection efforts.

Additional to these legal remedies, many Minnesota homeowner’s declarations and bylaws include the provision that the Association may suspend the rights of any owner or occupant including their guests to use the common element amenities. This means that not only will that homeowner be denied their voting rights, but also that a homeowner’s right to use common amenities such as laundry, parking and other services may be suspended for the non-payment of HOA assessments and other charges due to the Association. Minnesota law does not usually allow for the Association to suspend utility services and physical access to the unit.

The best bet is to stay current on your Association dues and avoid any accrual of assessments, late charges and other fees. Bankruptcy may help you by discharging some amounts due to the Association, but the availability of bankruptcy relief for condo or townhome liens is often dependent on the individual circumstances and whether the owner intends to keep the property.

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

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.

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 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.

Foreclosure in Minnesota: Know the Process, Timeline and How Bankruptcy Can Help

Home foreclosures in Minnesota are common and arguably are even on the rise despite an improving real estate market. In April 2012, the Star Tribune reported that while foreclosures were slightly down during the first quarter of 2012, signs still point to an 11 percent increase in Minnesotans facing foreclosure, adding that one in 312 Minnesota homeowners have received some sort of notice of foreclosure.

Home foreclosure in Minnesota happens via one of two legal proceedings: either the lender forecloses by advertisement or the lender forecloses by action. This post only discusses foreclosure by advertisement, which is the more common of the two Minnesota home foreclosure processes.

In a foreclosure by advertisement, the defaulting homeowner will typically receive one or more pre-foreclosure notices that warn of their lender’s intent to start the foreclosure process if payments are not brought current within a specified time. The time between the first default in mortgage payments and a homeowner’s receipt of the pre-foreclosure notice can be one to three months or more, depending on the lender and any efforts the homeowner may be making to do a workout with their lender. After the pre-foreclosure notice has gone out and the homeowner still has not brought their mortgage current, the lender will then serve the homeowner with a notice of sheriff’s sale. While the Minnesota laws governing service of process in a foreclosure proceeding are detailed, most homeowners are served in-person with the foreclosure papers at their home address. The Notice of Sheriff’s Sale, sometimes also called the auction notice, will provide the date, time and location of the upcoming sheriff’s sale, usually to be held six weeks after the date of service and at the county sheriff’s office. Once the sheriff’s sale has come and passed, ownership of the home transfers to the winning bidder (which is usually the lender for the first mortgage on the home) and the homeowner then has his or her redemption period to reside in the home before vacating it permanently. The length of the redemption period varies according to circumstances, but is most often six months from the date of the sheriff’s sale.

Chapter 13 bankruptcy can help a homeowner save their home from foreclosure by providing an avenue to repay the mortgage arrears over three to five years in a Chapter 13 plan. In fact, mortgage arrears is one of the most Common Reasons for Filing Chapter 13 Bankruptcy in Minnesota. If the homeowner can afford to make the monthly Chapter 13 plan payments, their mortgage may be brought current at the end of the Chapter 13 plan, in addition to the discharge of other debts allowed in bankruptcy.

Chapter 7 can stall the foreclosure process for two or more months and, like Chapter 13 bankruptcy, can also serve to discharge any deficiency owed on the second mortgage. While Chapter 7 bankruptcy will not help to resolve any mortgage arrears owed so that the homeowner can save their home, it can buy more time in the house before the homeowner must leave.

Keep reading for more information about How to Postpone a Sheriff’s Sale in Minnesota.

While Minnesota law governs the foreclosure process, the terms of a mortgage also govern a homeowner’s rights and a lender’s ability to foreclose. 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.

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.