The 2005 bankruptcy reform act significantly changed parts of the pre-filing process. Supposedly, banks approached then-President George W. Bush about such a measure shortly after he took office in 2001. But because of the proposal’s harshness, he said he would not sign it until his second term. The 2005 law made a number of changes which were designed to make it harder to file Chapter 7. These changes are outlined below.
Other parts of the pre-filing process are unchanged. That include the initial consultation with your Minnesota bankruptcy attorney. At Kain & Scott, we believe in very thorough consultations which review all your bankruptcy and non-bankruptcy debt relief options. An extensive consultation also helps clients understand what happens when they file bankruptcy. That is a tremendous advantage for everyone.
The Initial Bankruptcy Consultation in Minnesota
Bankruptcy petitions and schedules are quite detailed. So, your initial meeting will be quite detailed as well. In the old days, debtors always had to collect all their bills, so their attorneys could enter the information into the schedules. But now, it’s often possible to import all this information directly from the debtor’s credit report.
Legal obligations dictate some parts of the consultation. For example, the law requires Kain & Scott attorneys to go over the differences between Chapter 7 and Chapter 13, even if the debtor already fully knows what happens when you file bankruptcy.
Other parts of the consultation involve non-bankruptcy options. Sometimes, a Minnesota attorney can negotiate with a moneylender for more favorable repayment terms. Most creditors are entirely unwilling to forgive part or all of the debt outside bankruptcy. They do not even care if there is clear evidence of lender fraud, predatory loan practices, or other misconduct.
This part of the consultation is usually brief and may only apply if the debtor has one or two outstanding obligations. Bankruptcy is a last resort for most Minnesotans. So, by this time, extra-bankruptcy repayment alternatives are probably not an option.
What Happens After You File Bankruptcy: Credit Counseling
For similar reasons, the new credit counselling requirement often serves little or no purpose. Contrary to what banks want people to believe, most debtors file bankruptcy due to divorce, job loss, and other circumstances largely beyond their control. Credit misuse is not usually a major factor.
However, the 2005 law’s requirement is quite clear. And, judges never grant exceptions. So, it must be done.
The good news is that the initial credit counselling course can be completed online, only takes a few minutes, and only costs a few dollars. Before taking a class, be sure that the United States Trustee Office has approved the course provider. A certificate from an unapproved course will not derail the bankruptcy. But you will have to retake the class, and that is a nuisance that you do not need.
The Bankruptcy Reform Act also added another class which debtors must take before the judge issues a discharge order. These classes are also available online, or can be filled out in paper form.
What is the Means Test in Minnesota?
Income requirements were also part of the Bankruptcy Reform Act. Technically, the means test only applies in a Chapter 7. However, it’s also a useful exercise in a Chapter 13. So, the means test calculation usually happen when you file bankruptcy.
Basically, to be eligible for Chapter 7, the debtor’s annual household income must be below the average for that geographic area. As of May 2018, that amount is $107,902 for a family of four. The amount changes three or four times a year.
That figure is not an absolute requirement. A Minnesota bankruptcy attorney can use specific calculations based on your particular situation. The results are often far different from the standard income guideline. These requirements are quite technical, so they will add some time to the bankruptcy process.
In terms of household income, Chapter 13 basically has the opposite requirement. The debtor must have sufficient disposable income to make a monthly debt consolidation payment. This payment includes not only past-due secured debt, but also a 10 percent trustee surcharge. The more disposable income the family has, the easier it will be to make the bankruptcy payments without making significant sacrifices.
If debtors find that they cannot afford the monthly payments, they may usually convert from Chapter 13 to Chapter 7 at any time. That move ends the debt payment obligation and gives filers a fresh start much sooner than they could receive in a Chapter 13.
Careful attention to pre-bankruptcy activities sets you up for success. For a free consultation with an experienced bankruptcy attorney in Minneapolis, contact Kain & Scott. Our clients are eligible for free post-bankruptcy credit repair service.