A Chapter 13 bankruptcy is a three-five year repayment plan, whereby the debtor pays in as much as they can afford to their creditors each month. At the end of the plan, the debtor will receive a bankruptcy discharge of their remaining debts. Therefore, in a Chapter 13 bankruptcy, typically a debtor does not pay their debts back completely in full. Absent certain exceptions, a debtor will receive a “wipe out” of most of their unsecured debts. Although a Chapter 13 bankruptcy provides a great opportunity for many Minnesotans who are struggling to pay their debts to achieve financial relief, not all Chapter 13 bankruptcy plans are successful. The most common reason for an unsuccessful Chapter 13 bankruptcy is the failure to make consistent monthly payments. Debtors often encounter unforeseen and difficult circumstances that arise after their case is filed. For example, the debtor may experience significant loss in income or a reduction in household income due to a loss of a job or unforeseen expenses. In many of these cases, the bankruptcy court may allow the debtor to file a modified plan based on these changed circumstances, as long as the modified plan still provides the minimum amount that needs to be paid to creditors. 

A Chapter 13 bankruptcy is a three to five year repayment plan, whereby a debtor pays as much as he or she can afford each month and receives a bankruptcy discharge of their remaining debts after successfully completing their plan payments.

A Chapter 7 and a Chapter 13 bankruptcy are great ways for individuals to manage debt and pay down debt that has become untenable and overwhelming. In bankruptcy, most types of debts are dischargeable – this means that once a debtor successfully completes their bankruptcy case, the bankruptcy court will discharge, or legally wipe out the debt forever.

Individuals may file for bankruptcy for themselves or jointly with a spouse. Bankruptcy allows for the discharge of debt. “Discharge” means that the debt becomes legally forgiven and wiped out forever, without the individual paying it. It makes sense for spouses to file together when they each have a lot of debt. For instance, both spouses may have a lot of credit cards in their names individually, or joint credit cards.

The number of dependents a debtor has is significant, as it determines whether the debtor passes the means test and qualifies for a Chapter 7 bankruptcy.

The means test looks at a debtor’s household income from the previous six months prior to the debtor’s bankruptcy filing, and compares it to the median household income of the state the debtor resides in. If the debtor’s household income is above the household median income, then the debtor does not qualify for a Chapter 7 bankruptcy. The number of dependents a debtor has will affect their household size and thus influence whether the debtor passes the means test. Moreover, a debtor filing for bankruptcy must complete Schedule J of their bankruptcy petition and schedules. Schedule J lists all of the debtor’s household expenses. A debtor must provide their number of dependents in Schedule J of the petition and schedules. The number of dependents a debtor has will determine the debtor’s household size, which can impact the value of allowed expenses the debtor’s family may be allowed to have when filing for bankruptcy. 

In a Chapter 13 bankruptcy, a debtor pays as much as he or she can afford each month, in a three to five year repayment plan. Typically, the debtor only pays a fraction of all of their total debt, and upon successful completion of the Chapter 13 bankruptcy, will receive a bankruptcy discharge that wipes out the majority of their remaining debt (with exceptions, such as child support debt or student loan debt).

A Chapter 13 bankruptcy is a great tool to resolve debt issues. In a Chapter 13 bankruptcy, an individual contributes all of their disposable income in a three to five year repayment plan. Upon successfully completing the Chapter 13 plan, the debtor will receive a bankruptcy discharge, which forgives most of their remaining debts. In a Chapter 13 bankruptcy, a debtor only has to make payments to the bankruptcy trustee, and will not have to give up any property. However, in order for the bankruptcy court to confirm a debtor’s repayment plan, the plan must provide that the debtor’s creditors receive at least as much as they would have received if the debtor had filed a Chapter 7 bankruptcy and had to turn over the property to the trustee to pay creditors. This is known as the “best interests to creditors test.”

A Chapter 13 bankruptcy allows a debtor to cure mortgage arrears in a three-five year repayment plan. It is a structured and organized plan in which the debtor typically makes monthly payments to the bankruptcy trustee to pay back a portion of their unsecured debt, and the amount that is not paid off at the end of the plan is simply wiped out, tax free. If a debtor pays mortgage arrears in their Chapter 13 repayment plan, the debtor may also benefit from working with their mortgage company to modify their mortgage.

When a debtor files a Chapter 13 bankruptcy, they are provided significant financial relief from their creditors. In a Chapter 13 bankruptcy, debtors make affordable, monthly payments towards their debts in a three to five year repayment plan. After their Chapter 13 plan is completed, debtors receive a bankruptcy discharge that wipes out their remaining debts. Immediately upon the filing of a Chapter 13 bankruptcy, debtors are protected from their creditors by the automatic stay – this prevents most creditors from taking any legal action in collecting from the debtor for unpaid debts. The automatic stay prevents creditors from calling debtors, sending bills, filing a lawsuit against them, and it also prevents creditors from enforcing court judgments against debtors (i.e. by garnishing their wages or levying their bank accounts).

Starting on April 1, 2023, new median income figures will be used to determine whether a debtor qualifies for a Chapter 7 bankruptcy. Median household income has recently increased due to several factors, including an increase in wages. A debtor filing a Chapter 7 bankruptcy must pass the means test, in order to qualify for a Chapter 7 bankruptcy. The means test looks at a debtor’s income from the previous six months prior to the time of their bankruptcy filing, and the debtor’s income must be under the state’s median household income in order to qualify for a Chapter 7 bankruptcy.

Filing a Chapter 13 bankruptcy is a helpful tool to deal with overwhelming debt. A Chapter 13 bankruptcy allows a debtor to pay as much as they can afford in a three to five year repayment plan. After three to five years, a debtor will receive a bankruptcy discharge of their remaining debts. How much a debtor pays each month, is impacted by their monthly expenses and the deductions from their paystubs. A debtor must pay all of their disposable income each month as a payment to their creditors in a Chapter 13 bankruptcy. A debtor’s disposable income is calculated by taking their gross income and subtracting their deductions, including taxes, and all of their other monthly expenses. Disposable income is the amount that remains. 

Debtors filing for bankruptcy often wonder whether they should keep making payments on furniture they are financing. Prior to filing for bankruptcy, many people purchase household goods and items, such as furniture, television, and electronics on credit. Generally, the agreement is that the store will allow them to purchase the household good, so long as they continue to pay through an installment agreement, whereby they make monthly payments until the purchase price is paid in full. The amount still owed on the loan at the time the debtor files for bankruptcy is also considered a debt. The debt is a secured debt, because the household good was purchased on credit and the store has a security interest in the household good as collateral. If the buyer fails to make payments, the store has the legal right to repossess the furniture. 

A Chapter 13 bankruptcy provides a debtor with a fresh start by allowing the debtor to make monthly payments to the bankruptcy trustee in a 3-5 year repayment plan to pay back a small portion of their debts, after which they will receive a discharge of the remaining debt that remains unpaid. A Chapter 13 bankruptcy allows a homeowner to cure mortgage arrears (past due mortgage payments). However, debtors must pay future monthly mortgage payments on time during a Chapter 13 bankruptcy, in order to avoid a foreclosure of their house.

A Chapter 13 bankruptcy allows a debtor to cure mortgage arrears, keep all nonexempt property without paying the trustee additional cash, and pay priority tax debt in their Chapter 13 plan. Priority tax debt is tax debt that was incurred by a debtor in the previous 3 years prior to the filing of their Chapter 13 bankruptcy. Priority tax debt would otherwise be nondischargeable in a Chapter 7 bankruptcy. A Chapter 13 bankruptcy allows debtors in a challenging financial situation to repay a portion of all of their debts in a structured and organized way, by making affordable monthly payments to the Chapter 13 trustee’s office.

After a Chapter 13 bankruptcy is filed, it must be confirmed at the Chapter 13 confirmation hearing. A Chapter 13 confirmation hearing is a hearing in which the bankruptcy judge formally approves the debtor’s Chapter 13 plan, and determines whether the plan meets the Chapter 13 requirements. Debtors do not need to attend this hearing. The confirmation of a Chapter 13 plan is important, as after the Chapter 13 plan is confirmed, debtors may start to rebuild their credit and it will be easier for debtors to obtain new financing, such as for a new vehicle. In order for a debtor’s Chapter 13 plan to be formally confirmed by the court, it is crucial that debtors in a Chapter 13 bankruptcy, file all required tax returns for tax periods ending within 4 years of their Chapter 13 filing. This is a requirement dictated by the Bankruptcy Code. Additionally, the Bankruptcy Code also requires that debtors must continue to pay all current taxes as they become due and continue to file all required tax returns timely throughout their Chapter 13 bankruptcy. A debtor’s failure to file tax returns or pay current taxes during a Chapter 13 bankruptcy may result in their case being dismissed, or may result in their Chapter 13 plan not being formally confirmed by the court. The Chapter 13 trustee will review the debtor’s Chapter 13 plan, and will look for changes in income. The trustee will also review the debtor’s tax returns each year, to determine if there is a change in income that is significant enough to require a modification in the debtor’s monthly Chapter 13 payment plan. The trustee will also review the debtor’s tax returns to determine if the debtor will receive any tax refunds that must be turned over to the trustee. In Minnesota, the Chapter 13 trustee’s office allows joint tax filers to keep $2,000 of their tax refund and allows single tax filers to keep $1,200 of their tax refunds each year in the Chapter 13 bankruptcy. The Chapter 13 trustee also allows the debtor to keep any portion of their state and federal refund that derives from the federal earned income credit and Minnesota working family credit, in addition to these amounts. Any portion of the debtor’s tax refunds that the trustee does not allow the debtor to keep, will generally have to be turned over to the trustee. These funds would be used to pay the debtor’s creditors.