I have pity for humans who try to avoid the “b” word because they want to pay their debt. We all want to pay our debt. The issue is this: who comes first, your family or your creditors? Your family has to come first.

Welcome back to our series of blog posts on the history and philosophy of the economy, bankruptcy, and debt – today we continue to discuss public benefits in the 21st century. Finally, we finish off our round up of public benefits by discussing workers’ compensation and unemployment benefits.

Bankruptcy law allows debtors to file a personal chapter 7 or 13 bankruptcy case either by themselves, individually, or jointly with their spouse. Typically, when both spouses have a substantial amount of debt, it makes good sense for them to file a joint case together. That way, both spouses can wipe out all of their debt, at the same time, without having to go through the additional time and cost of filing two separate cases (debtors don’t have to pay twice for attorney fees and court filing fees).

If you are thinking about filing for bankruptcy, you may be deciding between whether a Chapter 7 or a Chapter 13 would be better for you. While a Chapter 7 bankruptcy is known to give you a quick refresh button by wiping out all of your unsecured debt in 3-4 months, there are advantages to a Chapter 13 bankruptcy too. A Chapter 13 bankruptcy also provides benefits that a Chapter 7 cannot. 

Chapter 13 bankruptcies are repayment plans based on the debtor’s ability to pay. When meeting with your attorney you will discuss your monthly budget: income and expenses, and determine a proposed monthly payment. Once the petition is filed, a creditor’s meeting and confirmation hearing will be scheduled.  Prior to the confirmation hearing, the creditors can objection to the confirmation of the plan.

A chapter 13 bankruptcy case is a three to five year repayment plan wherein the debtor makes monthly payments towards their debts. After successfully completing their repayment plan, the debtor’s remaining unsecured debts are discharged, with some exceptions (i.e. student loans). Once the bankruptcy court “confirms,” or officially approves, the debtor’s repayment plan (typically a few months after their case is filed), the debtor is bound to contribute all of their disposable income towards their monthly payments.

One of the benefits of a Chapter 13 bankruptcy is the ability to pay mortgage arrears, past due house payments, through a Chapter 13 payment plan. But, can second mortgages be removed in a Chapter 13 bankruptcy? Many people have multiple liens on their house, because they have taken out a second or a third mortgage. Often times, people take out a subsequent loan against a house that is already mortgaged, in order to pay for large expenses, such as buying a second house, or paying for a wedding.

A chapter 13 bankruptcy repayment plan is not designed to be easy but it is almost always worth the effort. This is due to the fact that a person who files a chapter 13 bankruptcy case (aka the debtor) gets to keep all of their property, is protected from the direct collection efforts of their creditors (absent limited circumstances), and usually pays back only a fraction of their debt before receiving a discharge of any remaining debt at the end of the plan.  

A chapter 13 is a reorganization bankruptcy where you establish a repayment plan that usually lasts 5 years.  Typically, the repayment plan is based on a budget that is created by looking at your net income and then your expenses.  

Here is what CAN occur in a Chapter 7 Bankruptcy:

 In a chapter 13 bankruptcy case, the debtor must pay all of their disposable income towards their debts in a three to five year repayment plan before their remaining debts are discharged. Disposable income is the income remaining after paying the debtor’s normal monthly expenses. This differs from a chapter 7 bankruptcy case, in which the debtor is not required to make payments towards their debts before receiving a discharge a few months after their case is filed.

It is that time of year, again. Tax filing season is upon us. If you find yourself in a Chapter 13 Bankruptcy in Minnesota, you may be wondering if you are able to keep your tax refunds. The answer to this question is determined by what your specific plan calls for. If your Chapter 13 plan is silent as to tax refunds, presumably you are allowed to retain possession of 100% of your tax refunds. However, if your plan has specific provisions dealing with excess tax refunds, you must comply with them.

When filing a personal bankruptcy, you have to choose the bankruptcy chapter that will work best for your situation. Your attorney can help advise you on selecting the appropriate chapter. Although, some debtors are not eligible for filing a chapter 7, and will have to select a chapter 13 filing, others will voluntarily select to file a chapter 13. There are several reasons a debtor may choose a chapter 13 filing over a chapter 7, but once you have decided a chapter 13 is the right choice for you-you will next consider the length of the commitment period.

Typically, you can’t get rid of tax debt in a Chapter 7 bankruptcy.  But, if you can afford the payments, then a Chapter 13 bankruptcy is a great tool to help you with this type of debt.  This is because you’re allowed to pay your tax debt through a Chapter 13 repayment plan, which lasts 3 or 5 years.  Even if your tax debt is considerably large, filing a Chapter 13 may still make financial sense, since you’re not incurring interest and penalties during your bankruptcy.  Plus, you’re not paying back your credit credits, unsecured loans, and medical bills, and those debts will go away once you’re finished with your Chapter 13 plan! 

Bankruptcy has a wide variety of interesting facts. A few are listed below:  

A chapter 7 bankruptcy is a liquidation bankruptcy, consequently non-exempt assets in a chapter 7 bankruptcy are liquidate or debtor may be able to purchase their non-exempt assets back from the bankruptcy estate. In a chapter 7 bankruptcy, the debtor has a limited amount of time to purchase back their non-exempt assets or relinquish the assets to the bankruptcy estate. If a debtor is unable to purchase back their assets from the estate or is unwilling to give up their non-exempts the debtor may consider filing a chapter 13. (Your attorney will let you know which assets in your case are non-exempt).