Minnesota Bankruptcy Blog

October 13, 2012October 13, 2012

Paying Off Your Chapter 13 Plan Early

From time to time I am asked the following question by a potential Chapter 13 client: If somehow I could come up with the money, could I pay my Chapter 13 plan off early? If you have ever seen a Chapter 13 plan, it is easy to understand how this question would arise. The plan document provides for monthly payments in a certain amount, and then it shows what the total of the payments over the life of the plan will be. It shows how all the money is to be applied – so much to unsecured creditors, so much to attorney fees, so much for the trustee’s fees, and certain amounts to taxes or other priority debts. Usually it will even state in terms of a percentage exactly what fraction of the unsecured debts are being paid.

It seems obvious that once the plan is approved, if the Debtor could come up somehow with the total due under the plan, he or she should be able to wrap it up early and get their discharge early.

Well, guess what. That’s not how it works. Or at least it usually is not how it works. Simply stated the rule is this: the only kind of Chapter 13 Plan that can be paid off early is a 100% plan. Chapter 13 plans fall into two categories: 100% plans and less than 100% plans. In a 100% plan, all the unsecured debt is to be paid under the plan. In a less than 100% plan, only a portion of the unsecured debt is to be paid. The vast majority of Chapter 13 plans are of the less than 100% variety.

So in most plans, where less than all of the unsecured debt is scheduled to be paid, the trustee will welcome extra payments from folks who have come into extra money that was not expected, such as an inheritance or big bonus at work. In fact the trustee might REQUIRE that such funds be paid into the plan. But after that extra payment is made, unless the plan is of the 100% variety, the regular plan payment is due again the next month – and that continues until the end of the plan or until 100% of the unsecured debts are paid, whichever comes first.

The result of all this is that in most Chapter 13 cases, it is self defeating to take draconian measures for the purpose of raising extra money to pay into the plan. Unless you can raise enough to pay off 100% of the unsecured creditors who have filed their claims with the bankruptcy court, there’s no reason to make an extra effort. In fact you might be more or less punished for any such extra efforts.

If you are in Chapter 13 and receive extra money from somewhere, consult your attorney about it right away. If the amount is significant enough you probably have an obligation to report it to the bankruptcy trustee. Sometimes your lawyer can negotiate a deal which allows you to keep some of the funds and pay in only part of it.

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 your own attorney concerning the details of your case.

David Kelly Law Office is a debt relief agency helping people to file for relief under the federal bankruptcy code.

October 2, 2012

At the Bankruptcy Institute Today and Tomorrow

It’s that time of year again. Every October the bankruptcy section of the Minnesota State Bar Association puts on a two day continuing legal education program for the bankruptcy attorneys of the state. Unlike the meetings of the National Association of Consumer Bankruptcy Attorneys, to which I also belong, these sessions include lawyers for the creditors as well as lawyers for the debtors.

There were multiple classees to choose from, and nobody could attend them all without the ability to be in more than one place at the same time. First I attended a really boring session about amendments to the bankruptcy rules of procedure. Boring but important. I hate it but I need to know that stuff. There was then a sessioabout law office technology, where they had a geek who frankly I had trouble following. I think his presentation was aimed at law offices larger than what I operate.

The big excitement for the day, however, was the session on lien stripping. As we filed in and found a place to sit, they were playing an old hit, “The Stripper,” over the sound system. That lightened things up a bit. Following the disappointment with the decision in the Fisette case, to which I have devoted an earlier post, the big question is where does lien stripping go from here. It seems that the rules committee has finished work on a new local rule of procedure which outlines a proposed procedure for doing lien stripping in the District of Minnesota. The rule has now been presented to the judges for consideration. As they consider the rule, I expect they will ask for comments. The new rule seems to assume that lien stripping will be legal in Minnesota, which of course is still undecided – at least not decided permanently and for good. In my opinion the procedure will eventually become legal and common, but right now I’m still not sure what to make of it.

The proposed lien strip rule will require a motion prior to the confirmation of the Chapter 13 plan asking the court to issue an order establising the value of the home as compared to the amounts owing on the mortgage liens. This motion requirement appears to be an invitation to a fight with the lender and the lenders’ lawyers. I’m not absolutely sure, but the impression I have is that the bankers’ and lenders’ lawyers on the committee outnumber the consumer bankruptcy lawyers on the committee, so that the proposed rule is coming out leaning way in the direction of the bankers. If this rule is approved, it appears to me that it would make the procedure more risky and more expensive than what most of us were anticipating.

After the lien strip session I attended a session on how to prepare one’s law practice for a disaster, and another sessin about reaffirmation agreements.

So that’s what I learned in school today.

September 27, 2012September 27, 2012

Good “Business Insider” Article on How Much Student Loan Debt a Person can Manage

When I sit down and go over debts with a client, I find that at least a third of my clients have massive student loan debts – way more than they could ever get paid based on their current income. It is my job to explain that student loan debt cannot be discharged in bankruptcy, at least not unless one is seriously ill or disabled. I used to do adversary petitions asking the court to declare student loans dischargeable, but I have given up on that. Over the years the standards have tightened to the point that I view winning one of those as nearly impossible.

So it was with great interest that I read an article this morning in Business Insider about a future law student who just figured out that the kind of student loan debt required to complete law school would be “like walking into my own grave.” The article includes a video which apparently comes from Yahoo. The video makes reference to thousands of law school graduates unemployed and living in their mother’s basement. I haven’t seen it so much with law school graduates, but I have done bankruptcy work for all sorts of other graduates who were unable to find work in their field.

If I am hearing and reading this correctly, the article says to not run up more student loan debt than a sum equal to one third or one half of the income you anticipate from your first job after graduation. For many I would take that to mean that if massive student loan debt is required for a particular program, then that educational program is probably not worth it.

This is for general information purposes only and does not create an attorney-client relationship. I am a debt relief agency helping people to file for relief under the federal bankruptcy code.

September 15, 2012September 16, 2012

Minnesota Bill Collectors Going Out of Business?

Collection Agencies Going Out of Business? — Collection Agencies Closing Offices? Economy Worse then Expected?

Is the economy getting so bad that the bill collectors are going out of business? From where I sit it appears that at least two of the old tried and true bill collectors have moved out of Minnesota. When a bankruptcy case is filed, it is very important to be sure that all the creditors are being notified. The notices are sent out to the creditors by US Mail by a central noticing center which is operated by the court. When an address is bad or when a notice comes back in the mail in connection with one of my cases, I get notified of that right away by email from the clerk of court’s office. In cases where a collection agency has taken over an account, I always try to list both the original creditor and the agency in the bankruptcy papers. If the debt has also been referred to a lawyer, I list the law firm on the list of creditors too.

For as long as I can remember, Allied Interstate has been one of the big collection agencies in these parts. In recent times their office was within a few blocks of mine. They were located in that big, white office building on the northwest corner of the intersection of I-394 and Highway 169 known as the Interchange Tower. There was more than one occasion when I was about ready to go over there in person and yell at them. To me they were an institution, kind of like the federal government. It never occurred to me that they would not always just be there. In bad economic times, I would have assumed that their business would have just gotten all the better.

You might imagine how shocked I was to receive a notice, and then another notice, telling me that the address I was using for Allied Interstate was bad. Well, they had apparently been assigned a number of debts of a couple of my clients – so I had to find a new address for them. At first I assumed that they had just moved to a new location in their old neighborhood. As I almost always do when I have such a problem, I went to Google looking for a new address. There were no results for Minnesota except what I already had. I went to Bing. Same result. Next I tried to call all the phone numbers I could find for Minnesota locations of Allied Interstate. More shock – they were disconnected. Finally I stared trying locations outside of Minnesota. They had been a nation-wide operation. The first few numbers I tried were not being answered. Finally someone answered at an Allied Interstate office in Ohio. He said to use the following address:

Allied Interstate, PO Box 4000, Warrenton, VA 60197-6123

So I added that address to the list of creditors at the court web site for both of my cases, and it seems so far to have been a good address. Meanwhile a notice that I had sent to an Illinois office of Allied Interstate came back in the mail as well. One has the impression that this outfit is not doing so well.

Not long after this business with Allied Interstate, I received notice that an address I had been using for one of the bill collecting law firms was bad. They were it seemed to me a lot like Allied Interstate in that they had been around forever. To me they seemed to be one of the top law firms that over the years had driven many of my clients to my door. Their office had always been in St. Paul, but they sued people from all over the Twin Cities. Again I went to Google and several other sources. What I found or seem to have found is that they closed their St. Paul office and are now doing business from their home office in another state.

From day to day I see little indicators – including the above – that the economy is worse than anybody in the media outlets wants to admit.

This is for general information purposes only, is not legal advice, and does not create an attorney-client relationship. I am a debt relief agency, helping people file for relief under the federal bankruptcy code.

September 14, 2012September 13, 2022

How Much it Costs to NOT File Bankruptcy

Promptly filing bankruptcy can minimize your losses

By Dave Kelly, Minnesota Bankruptcy Lawyer

Nearly every day I am asked how much it costs to file bankruptcy. Here I turn the question around and ask – assuming that you already know that you qualify for bankruptcy – how much is it costing you to not file.

So often when someone comes to my office, the story I hear involves the loss of things we could have saved if the bankruptcy had been done sooner. In the past few months I have seen all the situations I am about to list here:Large tax refund used to try and get caught up on debts, but it wasn’t enough.

Use of home equity line of credit to pay unsecured debts. What this does is take perfectly good equity in the home, which in bankruptcy would have been exempt, and squander it on unsecured credit card debt. Even after maxing out the home equity line of credit, the credit card debt is still to high to manage. Had a bankruptcy been filed sooner, the debts could have been eliminated and the equity in the house saved.

Mortgage payments stopped so credit card payments, or medical bill payments, can be made. The bill collectors for the credit cards – and lately those for the medical providers too – will often be a lot more agressive than those for the mortgage company. In this scenario, people allow themselves to be pressured into paying credit card or medical bill payments before they make their mortgage payment. The mortgage falls so far behind that foreclosure is started. The mortgage is now too far behind to ever be brought up to date, and the house will be lost. A bankruptcy before things got this far would have eliminated the medical bills and credit card debt and saved the house.

Large loans from relatives for payment of credit card debt. When a job is lost or a medical problem arises, many of us have wonderful relatives who are willing to help – financially. Often this kind of help will come from a parent. It’s not unusual for loans from relatives to exceed $20,000 – accumulated a little at at time. This will sometimes continue until the relative is tapped out and can’t lend anymore. The money from the relative was not enough to bring the debts under control. A bankruptcy filed sooner could have saved Mom’s or another relative’s savings account.

Bankruptcy not considered until wage garnishment actually begins. Filing bankruptcy is not like buying a can of beans at the grocery store. It’s not even like going to your accountant or to H&R Block to file your taxes. It’s not just a matter of one session in the lawyer’s office. Typically it takes me six to eight weeks to have a case prepared for filing. If I rush it, maybe I can shorten that to three or four weeks – or not. Until the case is filed, the wage garnishment continues. There goes one or two months of take home pay.

My office is the right place to deal with these and similar problems, but there are many, many times I wish my client would have come in sooner.

This is for general information purposes only, is not legal advice, and does not create and attoney-client relationship. My office is a debt relief agency, helping people file for relief under the federal bankruptcy code.

September 13, 2012September 14, 2012

Fisette is a Fizzle – Minnesota Chapter 13 Lien Strip Decision Inconclusive

Can the lien of the second mortgage be removed from my house? - Bankruptcy

What I am about to say here applies only to Minnesota and the other states in the swath of territory here in the middle of the US which is served by the 8th Circuit Court of Appeals. It is only my opinion. You may find other attorneys who would disagree.

We have been waiting for the 8th Circuit Court of Appeals to make a final decision on lien stripping. I’ve been telling people for months that I would really like to see what the appeal court has to say before I get seriously into lien strip work.

In a bankruptcy context, when you see talk about “lien stripping,” it is about a process in Chapter 13 cases where a second mortgage can be treated as if it was unsecured. This can be done, if it is permissible at all, in Chapter 13 cases where the value of the house is lower than the balance on the first mortgage, so that there literally is no security to support the second mortgage. The second mortgage becomes no longer a mortgage on the house, no longer a lien that must be paid if you want to keep the house. It is to be treated like any other unsecured debt. Usually in Chapter 13 the unsecured creditors get paid very little, only a fraction of the full amount of the debt.

A lower court – the Bankruptcy Appellate Panel (or BAP) – ruled about two years ago in the Fisette case that the procedure is permissible. The decision was promptly appealed to the 8th Circuit Court of Appeals, and we have been waiting for a decision ever since. Finally the big decision was released yesterday. I practially held my breath as I tried to figure out what the decision said. I printed a hard copy for myself to I could go over it more carefully. It started out reading in a fairly positive way. As I flipped through the pages, at first I thought I was seeing a decision in favor of lien stripping. A footnote on page 3 of the decision listed a string of cases from other courts which say that lien stripping is an acceptable procedure. The opinion, however, comes to an abrupt end with the words, “The appeal is dismissed for lack of jurisdiction.”

Only “final” orders can be appealed. The court said they didn’t think the order being appealed was final. They sent it back to the lower court for “further judicial activity,” whatever that means. They don’t seem to have decided a thing, and it’s very disappointing.

It is true that they did not overturn the BAP decision. That means that the BAP decision, which said that lien stripping is OK, is the current law of the 8th Circuit. However, the lower court judge this is apparently being sent back to is reputed to be very much against the lien stipping idea. There is likely to be another lower court decision which again will be appealed. It’s hard to tell, but the process could take years before we have the clarity I was hoping for.

It will take a while before the legal community in these parts has this decision fully digested. It is very early to say what the meaning of it really is. I’ll try to keep you posted.

This post is for general information purposes only, is not legal advice, and does not create an attorney-client relationship. Please consult the attorney of your choice concerning the details of your case. I am a debt relief agency, helping people file for relief under the federal bankr

September 6, 2012

Will Filing Bankruptcy Reduce my Monthly Payments?

Very often, the impetus for filing bankruptcy is mounting debt and unmanageable monthly payments. Refinancing can help to some degree but if the monthly payments are more than you can handle on your present income, something else has to be done. You may wonder if filing bankruptcy will reduce the amount you have to pay out each month to your creditors.

Under a Chapter 7 bankruptcy, your unsecured debt is usually completely removed by the bankruptcy discharge. There are certain exceptions such as some taxes, child support and student loans. If you want to keep your car as part of your Chapter 7, you will have to keep paying your car loan even though the debt is discharged. Similarly, if you want to keep your house in Chapter 7, paying the mortgage or mortgages is still required. Many of our Chapter 7 clients wind up not owing any of their creditors anything. Many others don’t actually owe anything because the debts are discharged, but still voluntarily pay a car loan or a house payment so they can keep their house or car. Some get rid of all their debt except for their student loans. Others get rid of all their debt except for their taxes. In cases where the taxes are old enough, usually over three years since the return was filed, some even do manage to get rid of their tax debt. This allows you to get a fresh start in life. You can rebuild your credit and get a better handle on your financial life.

With a Chapter 13 debt reorganization plan, your income is first evaluated. All sorts of income can be used including your earned wages, child support, commissions, social security, spousal support, disability benefits, unemployment benefits, workman’s compensation and retirement incomes – as long as the income is received on a regular basis. Gifts might also be included if they are recieved with regularity.

The next step in Chapter 13 is to determine your normal living expenses. This amount is set aside. Whatever is left after your living expenses is available for debt repayment. If you are unable to repay all of your debts within three to five years, a plan that allows you partially pay down your debt over that time frame is established, sometimes called a “best efforts” plan. The purpose of the partial repayment plan is to pay back as much of what you owe as possible. When you reach the end of the specified time, any amount remaining is discharged. In the majority of Chapter 13 cases, the amount of the monthly payments is set at a relatively low amount that the Debtor can afford. Also, in most Chapter 13 cases, only a small percentage of the overall debt is repaid.

With Chapter 7 you can end up with no monthly payments on unsecured credit related debt. With Chapter 13 you will more than likely have reduced monthly payments. It is best to discuss this with your bankruptcy lawyer to determine the best course of action for your situation.

This post is for general information purposes only, is not legal advice and does not create an attorney-client relationship.

August 31, 2012August 28, 2012

How Is My Credit Affected By Bankruptcy?

Credit rating is very important in our society. It determines how much money you can borrow to buy a car, a home or how much you can charge on credit cards. A strong credit rating gets you the best credit with the lowest interest rates because creditors see you as a good risk. Many people avoid filing bankruptcy because they fear the effects it will have on their credit rating.

Kelly Law Office does not do credit repair work. From our perspective, those who claim to be able to repair credit appear to be making very questionable claims. In the course of doing bankruptcy work, however, we get a lot of feedback from clients as to how the bankruptcy has affected their credit and their lives in general. The overwhelming majority of the feedback is positive.

Just how a bankruptcy will impact your credit rating if you file a Chapter 7 bankruptcy or a Chapter 13 debt reorganization plan depends primarily on what your credit rating looks like when you make the filing. If your credit is very good, a bankruptcy of any kind will have a serious negative impact on your credit rating. As a practical matter you will not have credit for several years. What we hear is that the credit bureaus keep the bankruptcy filing on the credit report for ten years. However, usually after three or four years, based on what we have been hearing from our clients, credit will start to improve. Typically in any given year, Dave Kelly will regularly get phone calls from clients who filed three or four years earlier asking for copies of documents from their bankruptcy files. Why are they asking for the info? Because they want to use it as part of a credit application. They have a banker or a lender who is about to give them a car loan or extend some other sort of credit. Caution is recommended once credit is available again. We would rather not see folks again for another bankruptcy years later.

If, however, your financial difficulties have been mounting for some time and your credit rating is already significantly damaged or will be in the near future, filing for bankruptcy might be the best move you can make. It may, in fact, help you improve your credit.

Once you have completed the bankruptcy process, you are essentially debt free. While you have a bad credit score, you now have the ability to repay any new creditors. This makes you a better risk than when you were carrying all the debt. You may be penalized for bankruptcy and poor credit with higher interest rates but it is an opportunity to start rebuilding your credit. Under Chapter 7 protection, you can only file once every eight years. This gives you plenty of time to rebuild your credit once you are debt free.

If it has been less than eight years since you filed a Chapter 7 bankruptcy, you can still file a Chapter 13 bankruptcy, providing you are meeting the pre-established percentages for the debt you must repay. There are time limits on getting at a discharge under Chapter 13 as well, but usually by the time the payment plan is completed in the Chapter 13, the time limit would have expired and the debtor would be eligible for the discharge.

August 28, 2012

Will Bankruptcy Stop the Creditor Harassment?

Facing financial difficulty is stressful enough. Dealing with credit collections can be miserable. Many collections agents are reasonable and will work with you. It always pays to be honest. Explain your situation and some may offer to renegotiate your terms, reduce your payments or offer some other type of assistance. You won’t know unless you talk to them.

Other collections agents are not so agreeable. While there are laws that govern the allowable behavior a collector can reasonably use, many will still attempt to coerce payment from you with threats and intimidation tactics. If you have tried to explain your situation to them and work something out but the harassment continues, your life can become increasingly stressful and depressing, affecting both your personal and professional life.

In this situation, you may need to talk to a bankruptcy attorney. Filing a Chapter 7 bankruptcy forces strict collection and contact laws to go into effect. It effectively prevents the creditors from contacting you. Their dealings must all be with your attorney or the court. If they continue to contact you or in any way attempt to collect on the debt you owe once the Chapter 7 bankruptcy has been filed, they can be sanctioned. If their violations are serious enough, usually involving multiple debtors, they can even lose their business license.

When a bankruptcy case is filed, a court order called the automatic stay goes into effect. This order requires all the creditors to leave the debtor alone. This stay remains in effect until the debts are discharged, at which point the creditors are required to not try to collect because the debtor no longer owes the debt. After the automatic stay expires, however, a creditor with security can foreclose or repossess the security if the payments on the debt are not up to date. So debtors who wish to keep a home, for example, would ordinarily have to keep making the payments on the mortgage.

Harassment is against the law and your bankruptcy attorney can help you put an end to the misery that accompanies financial hardship and collections actions. If you are being hounded at home and at work and are unable to find a reasonable solution on your own, a bankruptcy attorney may be the answer you are looking for. Don’t let the creditors to rob you of the chance to live in peace when help may be just a phone call away.

August 26, 2012August 28, 2012

Are Your Co-Signers Protected Under Bankruptcy?

Plan ahead before you sign the marriage license.

In some situations, you may have needed a cosigner to secure a loan or credit card. This is because there wasn’t enough data to support giving you the loan or credit on your own or because you were rebuilding credit after having had past issues. The purpose of the cosigner is to assure the lender that the debt will be made good. Often the cosigner is a close friend or family member which can make the topic of bankruptcy an especially sticky one. Whether or not your cosigner is protected under bankruptcy varies with the circumstances and type of bankruptcy you are filing for.

If you are filing under Chapter 7, the terms of the debt agreement you and your cosigner signed come into play and the creditor may be able to proceed against the cosigner. However, the cosigner is protected if you file under Chapter 13 Debt Adjustment providing the following criteria are met:

It must be consumer debt
The debt may not be the result of doing ordinary business
No benefit from the debt can pass to the cosigner

As long as you make the scheduled payments under the repayment plan, the creditor cannot attempt collection from the cosigner. Chapter 13 allows you to still pay off your own debts and protects your cosigner. However, if you miss your payments, the creditor may be able to attempt collection from your cosigner

The reason why the cosingers are protected in Chapter 13 is that the automatic stay – the court order issued when the case is filed telling creditors to leave you alone – extends to codebtors in Chapter 13. The automatic stay remains in effect during the payment plan, which usually would be five years. Few Chapter 13 plans involve paying off all the debt. Most of them pay only a small portion, after which the Debtor receives a discharge for whatever is unpaid. The cosigner, however, does not receive a discharge unless he or she filed his or her own bankruptcy. So after the payment plan is over, the creditor may once again pursue the cosigner.

If you are unable to maintain your payments under your Chapter 13 schedule, you can still apply for bankruptcy protection under Chapter 7. This will, however, make your cosigner immediately susceptible to collection attempts from your creditor.

Naturally, it is important to choose the right option when you consider bankruptcy, particularly if a cosigner is involved. Consult with a qualified bankruptcy attorney before you file for bankruptcy and possibly put your cosigner at risk too.

Better Call Dave – Bankrupt MN Blog

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