A chapter 13 bankruptcy is a great way for Minnesotans struggling with their finances to manage their debts. In a chapter 13 bankruptcy case the debtor (what you call a person who files for bankruptcy) pays as much as they can afford, each month, in a 3 to 5 year repayment plan, after which they receive a discharge of their remaining debts.
Reasons a person may file a chapter 13 bankruptcy case include, the fact that they make too much money to be eligible for a chapter 7 case, they have a lot of property that they do not want to lose if they file a chapter 7 (you don’t lose property in a chapter 13), or they want to get caught up on car or home mortgage payments, among other reasons. An individual may file a chapter 13 case by themselves, or jointly with their spouse, which usually makes sense to do if both spouses have a significant of debt.
Bankruptcy law is a great tool for helping people manage, and ultimately, get rid of debt. However, in order to receive the tremendous relief from creditors that a chapter 13 bankruptcy affords, the debtor must be careful about what they spend money on during their case. Bankruptcy law allows the debtor to spend money on basic expenses such as groceries, car payments, rent/mortgage payments, clothes, basic grooming, insurance, and very modest entertainment expenses. After paying all of these basic expenses each month, the remaining money left over (aka the debtor’s disposable income) is what the debtor pays to their creditors as a monthly payment.
Since the debtor must have a fairly restrictive budget in a chapter 13 case, the debtor is essentially not allowed to help others financially. All of the debtor’s excess money that is not necessary for their basic support must go to the creditors, not the debtor’s friends and family members. Debtors are, of course, allowed to financially support their minor children, as the law requires such support. Debtors may also financially support their adult children if they can demonstrate that the adult child needs financial assistance due to a medical condition or disability. However, if the child is legally an adult, not in high school, and does not have an actual disability, bankruptcy law is pretty strict about not allowing the debtor to financially support the adult child, even if they do not have a job to support themselves (i.e. they are a full-time college student).
It is also common for debtors to want to support other family members, such as their elderly parents, for example. While providing financial assistance to one’s needy family members is noble, it is generally not allowed in chapter 13 bankruptcy cases, because it diverts funds that should otherwise be going to the debtor’s creditors. An exception to this rule, would be if the debtor was legally granted a guardianship and/or conservatorship over their family member, in which case the bankruptcy court would allow the debtor to financially support that person.
Bankruptcy law can be quite complex. For that reason, a person considering filing for bankruptcy should first consult with an experienced bankruptcy attorney before filing their bankruptcy case. LifeBack Law Firm now has a new location in the historic Cathedral Hill neighborhood of Saint Paul, specifically located at 370 Selby Avenue, Suite 224, Saint Paul MN 55102. Come visit us there, or online, at lifebacklaw.com!