The most common type of bankruptcy is Chapter 7. It also tends to be the most desirable form of bankruptcy. Often it is referred to as “straight bankruptcy.” It is the type of bankruptcy where usually you can get rid of all your unsecured debt in just a few months with minimal cost. There is typically no payment plan, just relief from your debt.
The best way to qualify for a Chapter 7 is to have annual income below the median for your household size in your state. If your income is a bit higher than that, you might still be able to qualify by passing a means test; but the means test is not all that easy. I would prefer to have your income below the median if we are going to do a Chapter 7. If it is much above the median, I would probably suggest a Chapter 13.
Meidan Income – A Moving Target
The US Trustee’s office has just announced the biggest increase in Minnesota median incomes for bankruptcy purposes that I can remember seeing. I calculate that the increases are around 8% for all the household sizes between one and four. Since these increases are supposedly based on a six month period, they seem to be thinking that median incomes in Minnesota have been increasing by 16% on an annual basis. I find that hard to believe, but I won’t complain.
Most years the median income numbers are adjusted on April 1st and again on November 1st. Sometimes they all go up, sometimes they all go down, sometimes the ups and downs are mixed, and sometimes they don’t change at all. Every state is different and is assigned their own set of numbers.
Latest Numbers for Minnesota
Here’s the exact Minnesota numbers as of the recent update copied from my Chapter 7 page:
One person: $ 71,643
Two people: $ 90,946
Three people: $ 114,267
Four people: $ 141,324
Add $9,900 for each individual in excess of4
For a household of one the increase is $5,309 per year. For a household of two it’s a $6,739 per year increase. It’s $8,467 for a household of three, and $$10, 472 for a household of four. If you thought you didn’t qualify for a Chapter 7 before, take another look. These numbers could make a big difference.
Call or text me at 952-544-6356. We can set up a time for a free telephone consultation to talk over the details of your case.
About a month after a personal bankruptcy is filed, whether it’s a Chapter 7 or a Chapter 13, there is a hearing they call the “First Meeting of Creditors.” Most of the time I just call it the “hearing”, although the official name is “First Meeting of Creditors.” I think “hearing” is a more accurate term because for one thing, in the vast majority of cases, the last thing you will ever see at one of these events is a creditor. The creditors are invited to appear, but they know it’s a waste of their time and almost never show up.
“Hearing” is also a good way to describe what happens. The process is presided over by either the bankruptcy Trustee or a lawyer on the staff of the bankruptcy Trustee. This Trustee is not a judge, but from my perspective he or she might was well be. Nobody has more power or influence over how the case goes than the Trustee. The person who filed the bankruptcy is put under oath and asked a series of questions. Depending on the answers, things can expand into even more questions. In a simple case it might only take ten minutes. But I have seen complicated cases where it has taken over an hour; and in those more complicated cases it can easily take more than one sitting.
Traditionally these hearings/Meetings of Creditors always took place at a federal courthouse or some other location like a federal courthouse, depending on the county in which the Debtor lived. I would put on my traditional lawyer outfit, including my lawyer shoes, and head for the designated location. I had it down to a science. I knew where I wanted to park and where I wanted to meet my clients before the hearing. It was usually kind of fun, because I would see my lawyer friends there. This was the norm. It was how things were done.
Covid Hit and Everything Changed
In early 2020 when Covid hit the whole process changed dramatically. The Trustees started conducting these hearings remotely by Zoom or some similar method. Everyone assumed this change was temporary and we’d be back to the courthouses when the virus passed. It never occurred to any of us that the change might become permanent. There may have been jokes about it becoming permanent, but nobody considered it a serious possibility – at first.
But I did start noticing that not going downtown saved time, and grief and parking money. People including the Trustees started to like doing it remotely, so did I. Many of my clients said they didn’t want to go downtown and expressed relief that we were not going to have to. My clients could stay home if they wanted to and do the hearing from there; but it has always been my preference to have them come to my office for the hearing. Even if we are not going down to a courthouse, I still think there is a tremendous benefit to being physically present in the same room with my clients when this hearing takes place. As I have always done, I like to meet early before the hearing with my clients and do preparation. I almost always know approximately what the Trustee will be asking. I want to go over the expected questions with my client and have my client as ready as possible.
When Are We Going Back to In-Person? Never!
Late last year as I usually do I attended the Bankruptcy Institute, a big series of classes and talks put on by Minnesota Continuing Legal Education. I was assuming that one of the things I would learn would be what the plans were for returning to in-person hearings for the Meetings of Creditors. In-person hearings were already taking place before the judges for the more complicated matters such as motions, adversary proceedings and reaffirmation agreements. Instead what I heard was that the switch to remote for the Meetings of Creditors was going to be made permanent. A nationwide protocol for doing it by Zoom on a permanent basis was going to be promulgated some time in 2023.
My Lawyer Shoes Continue to Gather Dust
Usually I manage to avoid those in-person hearings in front of the judges. Those tend to only be required if something has gone wrong with the case. If the case is put together well, we should be able to stay away from the judges. So these days I am only dressing like a lawyer from the waist up. It may be a long time if ever that I again have to wear the pants that come with my suit. The same goes for my lawyer wingtip shoes, which have been gathering dust in the corner of my bedroom. Maybe I’ll just have to wear the pants and the shoes some time for the heck of it.
I just received word that the US Trustee’s office has again released new median income numbers for Minnesota. If you want to file a Chapter 7 bankruptcy, it is best if your household income is below these medians for your household size.
The new number for a household of one is $66,334 per year. For a household of two it’s $84,207; for a household of three $105,800; and for a household of four is up to $130,852.
The numbers are based on data from the U.S. Census Bureau. The figures have increased for a household of one and for a household of four, but have gone down for households of two and three. The increase for a household of one was about $800 per year, and for a household of four it was about $5,000 per year. But for a household of two it has gone down by $645 and for a household of three it’s down by $2,151. Certainly it’s a mixed bag this time. If you thought you might not be eligible for Chapter 7, look again. The history here seems to be that every time they do an update, the numbers go up at least a little bit; although that was not the case in all categories this time..
People who were not eligible before for a Chapter 7 bankruptcy might be eligible now. I do free telephone consultations. 952-544-6356. Wouldn’t hurt to check with me to see if you qualify.
Recently a potential client made a hasty exit from my office after I explained that the accounts that had been set up for the children could be at risk in a Chapter 7 bankruptcy. What kind of account you set up for your children, how much you put in it and when can all make a big difference. I feel a blog post on this subject coming on. At least one post, maybe two. If you have bank accounts for your children, be sure you tell your lawyer about them.
Please note that in this article I am talking only about Chapter 7 bankruptcy. Chapter 13 bankruptcy is a whole other topic. Some of the problems described here could be more easily resolved in a Chapter 13.
529 College Savings Accounts
A 529 savings account may be the safest way to save money for your children’s college. Much like a 401K, the money you put in should be tax deductible. Such accounts are not always protected when you file bankruptcy. You have to look at how much you deposited and how long ago that was.
Any amount deposited more than two years before filing the bankruptcy should be protected. Funds that were deposited between two years and one year before the filing date are protected up to $6,425. Any more than that belongs to the bankruptcy estate and probably will be claimed by the bankruptcy trustee. AND any amount deposited within one year before filing the bankruptcy is not protected at all. Again, that amount will be claimed by the bankruptcy trustee.
Uniform Transfer to Minors Act (UTMA) Accounts
These are accounts set up under state law. The account is in the child’s name and is held under the child’s social security number. In your bankruptcy papers it would typically be listed under property held for another. The law requires, however, that an adult be named as the custodian of the account. The adult will manage the account until the child turns 18, then the money can be claimed by the child. How safe or unsafe the money in one of these accounts is depends on when the money was put in and by whom.
As a general rule, if the money in the account came from Grandma or some other third party, it should be safe. Because it never was your money. It would be best if you had records that can prove it never was your money. If you put the money in and now you want to file a bankruptcy, there could be a problem. Minnesota has a fraudulent conveyance statute that has a six year look back period. If that was money that you could have used to pay your debts but you put it in the child’s account instead, the bankruptcy trustee might be able to claw it back out of that account.
Joint Savings Account with Your Child
Of the accounts I am talking about here, this could be the most difficult kind. Your name is on the account along with the child, so how do your prove it’s not yours. For one thing it has to be listed in the bankruptcy petition along with all the other accounts your name is on. If the money did come from you, there is the same “fraudulent conveyance” problem I mentioned above. If the money came from a third party, however, like Grandma, I hope you have good records to prove that. Minnesota does have a statute that says money in a joint account belongs to the person who deposited it. If the money never was yours and you can prove it, the account is probably safe. It would help if the amount is relatively small. The larger the balance, the more likely it is that the trustee would try to make an attempt to grab it.
What if the Money in the Account is from Social Security?
Some children receive a Social Security benefit because their parent has died or or disabled. This money, however, is supposed to be available to the child’s custodian to pay for the child’s living expenses. Social Security money is generally exempt and can’t be touched. But it better be in an account where you can prove that’s what it is. Assuming you are the child’s custodian, it would be best if you were using at least some of it for the child’s expenses. If you just bank the whole thing and never touch any of it, you could appear to not be making your best efforts to avoid bankruptcy. The trustee might not be able to touch the money, but I fear the trustee could object that the case is not being filed in good faith. No such objection has ever happened in any case of mine, but I can’t promise it would never happen if the facts were lined up as I just described.
Conclusion
I have had many cases involving children’s savings accounts fly through with no problem. But as you can see, there are a lot of ifs, buts and maybes concerning these accounts. Don’t assume you know what to do or how to handle these. You need to have the accounts reviewed by an experienced lawyer well in advance of any bankruptcy filing.
Youtube recommends that every channel should have a welcome video. The video designated as the welcome video will be the first thing a person sees when they go to a particular channel. The video should be a short statement of what the channel is about and what information can be found there. My channel has videos going back to 2007; but until now there was no welcome video. I just uploaded it a few days ago, and here it is:
Information you can find on my Youtube channel includes but is not limited to the following:
You will also find a lot of information about how to qualify for bankruptcy and what kind of bankruptcy you might qualify for.
It looks like my videos are attracting quite a bit of traffic. Youtube is peppering my videos with all sorts of commercials over which I have no control and from which I don’t get a cent. In order to get paid anything at all from the advertising revenue, they require a lot more subscribers than I currently have. So please do me a favor. If you find my channel helpful at all, PLEASE SUBSCRIBE.
In a Chapter 7 bankruptcy if you want to keep your assets and belongings, they have to be claimed as exempt under an applicable exemption law. In Minnesota there are two exemption laws to choose from, the federal list and the state list. I have written a lot elsewhere about why one would choose one list or the other. That is not my topic here. I just want to talk about how most of the state exemptions are going up in a few days. The federal exemptions were increased on April 1st this year. I covered that in a recent blog post.
On July 1st in even numbered years, certain parts of the Minnesota state exemptions are updated to keep up with inflation. Since this year is even numbered, we are about to have another update. I am glad to see that all the numbers which can be changed are going up.
Summary of Minnesota Exemption Increases
Household furniture, household goods increased from $11,250.00 to $11,700.00.
Wedding rings increased from $3,062.50 to $3,185.00.
Tools of the trade increased from $12,500.00 to $13,000.00.
Life insurance benefits increased from $50,000.00 to $52,000.00.
Additional dependent insurance benefits increased from $12,500.00 to $13,000.00.
Motor vehicle increased from $5,000.00 to $5,200.00.
Insurance policies increased from $10,000.00 to $10,400.00.
Employee benefits (retirement accounts) increased from $75,000.00 to $78,000.00.
Homestead (limited to 160 acres) increased from $450,000.00 to $480,000.00.
Homestead used primarily for agriculture increased from $1,125,000.00 to $1,200,000.00.
Our Minnesota State Exemptions Remain Far from Perfect
For a more complete rundown on how this all works, take a look at my exemptions page. These state exemptions leave a lot to be desired. They have a lot of gaps which seem to always allow the bankruptcy trustees to require my clients to buy back some of their stuff. Most jewelry is not exempt. Most electronics are not exempt. There is no exemption that covers tax refunds, and there are issues with money in bank accounts. I have ranted about this on this blog before. The legislature needs to fix it but they don’t.
The Minnesota state exemptions are primarily good for one thing. They allow you to protect lots of equity in your homestead, unlike the federal exemptions which are very limited in that area. I don’t think any of the increases here have kept up with the real rate of inflation; so in fact we seem to be loosing ground.
If you don’t properly claim any asset as exempt, you risk losing it to the trustee. It’s tricky and risky and should not be attempted without a lawyer.
Easier Qualifying for Chapter 7 Bankruptcy in Minnesota
The primary requirement for being able to file a Chapter 7 bankruptcy is to have your income below a certain level. Stated most simply, to qualify for Chapter 7 you want your income to be lower than the median income for your household size in your state. These levels are set by the Department of Justice, US Trustee’s Office; and new, higher numbers came out recently on April 1st. If your income is slightly above the median, there is a means test that you might be able to pass which would allow you to still file a Chapter 7. Doing the means test, however, can sometimes be an invitation to a close scrutiny of the case. Being below the median is best. Here are the April 2022 numbers and how much they just went up.
Minnesota Median Household Income April 2022
One person: $ 65,514 — Up $2,490
Two people: $ 86,358 — Up $3,875
Three people: $ 106,445 — Up $4,776
Four people: $ 125,753 — Up $5,533
Five people: $ 135,653 — Up $6,543
Six people: $ 145,553 — Up $7,443
More information at https://mn-bankruptcy.com/chapter7.html
Easier Protection for Your Stuff in Minnesota Chapter 7
As soon as you file a Chapter 7 bankruptcy, the court appoints a trustee whose job it is to find assets that can be used to pay all or part of your debt. You really want the trustee to not be able to find any assets, or certainly not much for assets. The way to keep your assets away from the trustee is to claim them as exempt. What you can claim as exempt and how much is obviously very important. In Minnesota you have a choice between a state exemption list and a federal exemption list. In this post I am only talking about the federal list. The federal exemptions just went up in every category. Here are a few typical items and how much they went up. These are just a few examples. It is not anywhere near a complete list.
April 2022 Federal Exemptions
Household goods $14,875 - Up $1,475
Car $ 4,450 - Up $ 450
Tools of Trade $ 2,800 - Up $ 175
Cash value of
Life Insurance $14,875 - Up $1,475
Catch-all $15,425 - Up $1,525
More information at https://mn-bankruptcy.com/exemptions.html
There is now word on the street that a round of increases to the Minnesota state exemption list is being contemplated for July 1, 2022. Watch my blog for news about that.
Filing a bankruptcy is a big step. You don’t want to do much or go very far before you consult a lawyer. In preparing to file your case, there may be some financial moves you should make. I cannot emphasize more strongly that you should not make any major changes of any kind without consulting a lawyer first. Be sure that the lawyer knows bankruptcy law – many do not. I often suggest that whoever you talk with should belong to the National Association of Consumer Bankruptcy Attorneys (NACBA) . Any attorney who is serious about learning what they are doing in the field of consumer bankruptcy would be a member. You need someone to consult. You need somebody to plan with. You can’t afford to make a mistake at this phase of things. It’s time for you to hire (“retain”) a bankruptcy lawyer.
Things You Can’t Do Without Retaining an Attorney First
Once you retain a lawyer, that is once the attorney-client relationship is brought into existence by means of a retainer agreement, you have the ability to do several things you could not do before.
For one thing, you can refer calls from bill collectors to you lawyer. I like to keep the bill collectors in the dark about what we are up to. But sometimes they may start calling your mother, or one of your children, or your place of employment. Sometimes they manage to be such a nuisance that you really need them to stop. Once your case is filed they will be under a court order to stop. But what can you do before the case is filed? Here’s what. Answer the phone. Tell whoever it is that you have retained an attorney to do a Chapter 7 or Chapter 13 bankruptcy and you have been advised to not speak with them. But then you give them your lawyer’s name and phone number and say they should call your lawyer. Normally that will be the last you hear from those people.
For another thing, you can set up a payment plan with the lawyer so you can get the attorney fee paid by the time the bankruptcy is ready to file. In Chapter 7 cases your attorney has to be paid before the case is filed. After the case is filed, if you owe money to your lawyer he or she is just another creditor who is forbidden from trying to collect from you. Since it usually takes a few weeks if not longer to prepare a case for filing, this is the perfect time to make payment arrangements for the attorney fee, court filing fee and perhaps also the credit report fee. In Chapter 13 cases the attorney fee can be paid as part of the Chapter 13 plan, but most attorneys still like to have a good part of their fee and costs paid before the case is filed.
And of course hiring a lawyer means you now have somebody to consult with and plan with as you go about the difficult job of planning and putting together your bankruptcy case.
Disclaimer
I am a debt relief agency. I help people file for bankruptcy relief under the federal bankruptcy code. This post is for general information purposes only and does not create an attorney-client relationship. It is not legal advice. Seek the advice of the attorney of your choice concerning the details of your case.
I’ll never forget a certain day a few years ago when I had a hearing downtown at the federal courthouse. When I arrived that day the hallway outside the hearing room was crowded and my clients were there waiting for me. First thing they said, to my surprise, was that they were sure glad they had hired me. Before my arrival they had overheard someone else complaining loudly to their lawyer about having the money in their checking account seized by their bank. My clients knew I had made sure that wasn’t going to happen to them. They were very grateful.
Your Bank May Have a “Right of Setoff”
If you owe money to your bank or credit union on the day you file a bankruptcy, they may seize the money in your checking and savings accounts and apply it toward what you owe. The first time I saw a bank do this I thought they were violating the automatic stay. The automatic stay is the court order addressed to all the creditors when a bankruptcy is filed. It tells them to stop all collection efforts. It turned out the bank was exercising what they call a right to setoff. This is one of the exceptions to the automatic stay. Apparently the reasoning is that they are considered to have the money in your accounts already, so they aren’t really taking anything new from you when they seize it. This is twisted logic in my opinion, but nobody is asking me.
They May Freeze Your Account Even if They Don’t Have a Setoff
Lawyers I know have repeated told me that one of the banks in our community has been known to sometimes freeze a person’s account when they find out that customer has filed a bankruptcy. They apparently do this even when their customer does NOT owe them anything. What it is said they do is freeze the account and then send a letter to the bankruptcy trustee asking what they should do with the money. If the customer has managed to claim the contents of the bank account as exempt, the trustee will probably say to let the person have their money. But in the mean time the account could be frozen for a week or ten days. Obviously this could be very inconvenient if not tragic. I have never understood why they do this. It has not happened to any clients of mine because I always advise staying away from that particular bank, I tell them to open a new account somewhere else and get the old accounts closed before we file.
Consult your lawyer about this issue. Every situation is different. Some institutions are worse than others. Many might not bother seizing or freezing your money if your balance is low. The lawyers I know often debate how low of a balance it takes to avoid this problem. Nobody knows for sure. The safest thing to do is just change banks before you file your bankruptcy.
Call Dave at 952-544-6356 for a free telephone consultation
I am a debt relief agency. I help people file for relief under the federal bankruptcy code. This post is for general information purposes only. It is not legal advice. It does not create an attorney-client relationship. Consult the attorney of your choice concerning the details of your case.
This is the second in a series of seven blog posts about my top seven things that you should do if you are preparing to file a bankruptcy. This also applies even if you are just considering filing a bankruptcy – either Chapter 7 or Chapter 13. What I want to talk about it getting your credit reports. I wouldn’t dare want to file somebody’s bankruptcy without reviewing at least one credit report. There are three major reporting agencies which each produce their own reports – Experian, Equifax and Trans Union. Usually all three reports are about the same, but not always.
Easiest way: Authorize Your Lawyer Get Your Credit Reports
While you can get your reports on your own, your best choice is to have your lawyer get them for you. For $37 per person I can get a report that pulls information from all three credit reporting bureaus. We will have to provide your email address and social security number. After that we will have to answer three questions to which only you would have the answers. Then I can download your comprehensive credit report info directly into my bankruptcy software. And I will print a copy of the report for you. As a bonus it provides your credit score along with a prediction of what filing bankruptcy will do to your credit score. Somewhat surprisingly, the prediction is usually for an improvement in the score.
The Hard Way: Get the Reports Yourself
If you want to get the reports on your own, the best place to go and the only place I recommend is https://annualcreditreport.com. There is a federal law that requires the three major reporting agencies to make a report available to each individual once a year. This site was created by the agencies to satisfy this requirement. Unlike the other resources I am aware of, this web site is really free. All the other sites will want you to subscribe or sign up for something. The one exception at annualcreditreport.com is if you ask for your credit score. Don’t do that. It looks like they want to get something in exchange for that, and I don’t need the credit score. I just want to know who the creditors are.
It helps me if you can download each report as a pdf document and then print it on paper as well. If you don’t have a printer, send me the pdf and I’ll print it. There is often a problem in printing these reports where the printer cuts off the top, bottom or side of the pages. If that happens the report is often missing so much that it is not useable. Problems like this can be avoided of course if you just have me get the reports instead.
The Bankruptcy Must List All Your Debts
I can’t emphasize enough how important it is that we list all your debts. Failure to list a debt could result in that debt not being discharged. Unlisted debts aren’t discharged in Chapter 7 cases where there are assets for the creditors. Unlisted debts are also not discharged in Chapter 13 cases. In those situations the creditor could have filed a claim and gotten their share of the payments or assets. But they can’t file a claim if they are never notified. So the discharge doesn’t apply to them.
Creditors can be added for a while after the case is filed, but it is obviously much better to get them all listed to begin with.
Sometimes certain debts don’t show on your credit reports. An example of this is medical bills. The medical people have a confidentiality requirement and don’t want to just tell the world that you owe them money. Typically medical bills don’t show up on credit reports unless they have been sent to a collection agency. In order to report to a credit bureau, the creditor has to have a membership in that bureau. Many small businesses do not have or can’t afford to have that, and debts owing to those businesses won’t be on the reports either. Please keep in mind that even if the debt doesn’t show on the reports, it is still your responsibility to make sure all your debts are listed in the case. You have to give this info to your lawyer. Your lawyer isn’t a psychic.
Disclaimer
This post is for general information purposes and is not legal advice. It does not create an attorney-client relationship. Small details in your case can make a big difference. Consult the attorney of your choice concerning the details of your case. I practice in Minnesota. Laws and practices may be a lot different in your state.
Call Dave – It’s Free
Call Dave for a free telephone consultation. 962-544-6356.
