Minnesota Chapter 13 bankruptcy

A chapter 13 bankruptcy is commonly referred to as a wage earners bankruptcy. The reason for this is that a chapter 13 plan typically requires a steady, predictable source of income often found by individuals who receive a regular salary from an employer. Of course, having a steady income is not required to file a chapter 13 bankruptcy, but makes the process easier.

A chapter 13 bankruptcy involves a repayment plan that typically ranges from 36 to 60 months. The repayment plan is based on the amount the debtor is able to pay into the plan. The code requires that all of a debtors disposable income be committed to the chapter 13 plan. This means the payment will be the amount left over every month after all the regular bills are paid. In order to create a successful chapter 13 plan the debtor and attorney will have to work together to create a realistic budget so the payments are manageable every month.

The main advantage of a chapter 13 bankruptcy is that it allows a debtor to catch up on past due house and car payments throughout the course of the plan. A chapter 13 bankruptcy will also allow the debtor to discharge debt that would not be dischargeable in a chapter 7 bankruptcy. In some situations a debtor will be required by the BAPCA to file a chapter 13 bankruptcy, and will not have the option for a chapter 7 bankruptcy. In the situation where the debtor has income that is above the median, the typical chapter 13 plan will run for 60 months and at the end of the 60 months any debt that has not been repaid through the plan will be discharged.

The chapter 13 bankruptcy can also prevent a house from going into a foreclosure. As soon as a chapter 13 bankruptcy is filed the automatic stay applies to all creditor activity including a home foreclosure. The automatic stay prevents all collection activity and can prevent a sheriffs sale from happening on property. Once the chapter 13 plan is confirmed it allows the debtor to catch up on missed house payments, provided the debtor can remain current on the regular house payments. In many cases, with the drop in home prices nationwide, it seems that people are choosing to give up their homes, instead of fighting to make payments on a house where they owe more money than the home is worth.

The recent lax lending standards created a situation where banks were giving home equity loans and refinancing homes based on inflated estimates. Once the price of the homes stopped rising it created a negative equity situation for many homeowners, creating a state of affairs where the homeowner has very little incentive to keep the property. The only incentive for many homeowners would be states where the lenders are allowed a deficiency balance after the homes are sold at auction.