Individual Bankruptcy

The purpose of bankruptcy is to provide an orderly method for debtors to deal with debt and creditors by paying some or all of the debt – or discharging many if not all debts and receiving a “fresh start” in their financial lives.  Specifically, bankruptcy may make it possible to: (i) eliminate legal obligations to pay most debts and provide a fresh financial start, (ii) stop foreclosure proceedings and provide an opportunity to catch up on missed payments, (iii) stop repossession of a car or other property, (iv) stop wage garnishment, and (v) challenge claims of creditors who are trying to collect more than they are owed.  However, bankruptcy generally can not eliminate the rights of secured lenders; discharge debts for child support, alimony, most student loans or court restitution orders; criminal fines and many taxes; or debts incurred after a bankruptcy case is filed.

Individuals in Minnesota generally have four options in dealing with unsustainable debt loads: (1) Do nothing and rely on exemption statutes to protect exempt property. This option will not protect secured collateral if the individual falls behind on payments, or stop wage garnishment.

(2) File Chapter 7 bankruptcy, often called “liquidation”. In Chapter 7 an individual surrenders non-exempt property for sale to pay unsecured creditors; chooses to surrender, retain or redeem loans secured by collateral (often houses and motor vehicles); and obtains a discharge of all legally dischargeable debt.
Individuals whose debt is primarily “consumer debt” (generally debt incurred for household purposes) are subject to a “means test” analysis to determine whether they can reasonably pay creditors a portion or all of the debt owed. If so, they will not be allowed to receive a Chapter 7 discharge. Business debt and tax debt are not considered consumer debt and depending on the amount and allocation of the non-consumer debt, may exclude an individual debtor from a “means test” inquiry.

(3) File Chapter 13 bankruptcy. Chapter 13 is a type of reorganization and repayment plan used by individuals to pay a portion or all of their debts over a period of 36 to 60 months using current income. In Chapter 13, an individual may be able to pay off arrearages owed on a home mortgage if they are also able to also pay post-filing payments as they become due. In addition, an individual may keep valuable non-exempt property if they are able to pay the value of the property plus a set interest rate into their Chapter 13 repayment plan. Chapter 13 is subject to debt limitations. Upon
completion of their Chapter 13 plan, the individual will have paid all or a portion of their unsecured debt and discharge the unpaid balance.

(4) File a Chapter 11 bankruptcy. Chapter 11 is a reorganization procedure generally used by business and a few individuals having debts exceeding Chapter 13 limitations.

(5) Family farmers and fisherman may file for bankruptcy under Chapter 12 of the Bankruptcy Code.

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Eastlund, Solstad, Cade, Hutchinson & Ysebaert, Ltd.,  is a debt relief agency helping people file for bankruptcy relief under the Bankruptcy Code since 1992.