Minnesota Bankruptcy Means Test

Minnesota bankruptcy law has changed over the past several years with the introduction of the Bankruptcy Abuse and Prevention Act (" BAPCA"). BAPCA created several changes, the most notable changes affected consumers filing for bankruptcy. The main change in consumer bankruptcy practice was the introduction of income limits to determine who qualifies for a consumer chapter 7 bankruptcy. In order to qualify for a chapter 7 bankruptcy a consumer must either have a household income below the median level for the county where they live, or qualify using the means test. These income requirements create issues for consumers who have a household income above the median for the county where they reside. In some cases these families will not be eligible for a chapter 7 bankruptcy and will need to file a chapter 13 bankruptcy for relief from their creditors.

If the means test is needed for a consumer bankruptcy filing the bankruptcy code and recent Minnesota case law allows the consumer to deduct secured debt payments and various other deductions from income to see if the consumer has under $100.00 per month to repay creditors. If the debtor has less than $100.00 per month to repay secured creditors then they will still be eligible for a chapter 7 bankruptcy. This provision benefits debtors who own several homes, including investment properties. The payments on the investment properties are secured and are deducted on the means test, and in some cases reduce the income available to repay secured creditors to less than $100.00 per month.

The debtor who owns several properties is a common scenario recently with the flood of foreclosures and declining property values. In many cases individuals who invested in property during the housing boom are now finding that their properties are worth less than what is owed on the property. The other common situation is where individuals have taken out HELOC’s or second mortgages to pay off credit card debt, and now with the falling value of their property find that refinancing is no longer an option and must look at bankruptcy as the only viable option to control unsecured debt. In many cases bankruptcy is the only option available to individuals with large amounts of credit card debt. The average individual who may have missed several credit card payments will be looking at interest rates ranging from 25% to 30% and if they owe $50,000 that is interest payments of approximately $12,500 to $15,000 per year. Those type of payments are not possible for most debtors, and if they are possible the payments that are made will only cover interest, not any principal on the loan. This is why it is important to have bankruptcy as an option for individuals. Without bankruptcy individuals would be in a virtual debtors prison, with garnishments on bank accounts and wages for life.