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Anoka, Minnesota 55303

(763) 205-3058

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steve@lodgelawoffice.com                                                                                                                                              In historic downtown

Anoka, Minnesota

Chapter 13

Chapter 13 bankruptcy is for individuals who have enough income to have a "Disposable Monthly Income" that they can pay to the trustee for a plan period (usually 5 years). The payments are received by the trustee and reallocated among the unsecured creditors according to their portion of the total unsecured debt. At the end of the plan period, assuming they have made all payments, any portion of the unsecured debt that is not paid off is discharged. Usually the debtor is not required to surrender any assets.

A debtor can be "forced" from Chapter 7 to Chapter 13 if his/her Means Test resulted in enough income that s/he had the "means" to repay some of the debt, and so should rightfully be required to do so by virtue of a Chapter 13 Plan.

The plan must be feasible. In other words, there must be a likelihood that the debtor can actually make the set monthly payments. It must also be in the "best interest of your creditors" - that is, you must pay all your Disposable Monthly Income to the Plan, and it must result in a payout to unsecured creditors that is no less than would have been paid to them if the debtor had liquidated under Chapter 7.
According to a recent appellate court interpretation, if your home's value is depreciated to the point that only your first mortgage is "secured", leaving junior mortgages completely "unsecured", it is possible to "strip" the junior mortgage and discharge it along with your other unsecured debt. You must complete the plan first though.

Chapter 13 is also known as the "wage earners" bankruptcy because it won't work unless you have income. It is the product that historically was used to save the home. To save the home you must be able to remain current on the monthly first mortgage payments. The arrears are repaid as part of the plan.


Considerations:

1. "Disposable Monthly Income" is a defined and calculated figure. Not all of your real monthly expenses count. You may find that the court thinks your DMI is considerably higher than you do. Your DMI thresholds are based on your household size.  Who you can include in your "household" is not entirely resolved in Minnesota at this time, but generally you, your spouse and your dependent children are included.

2. Income is based on a 6-month average of income from any and all sources.

3. The plan payment is based upon your status at the time of filing. If by chance your income improves somewhat during the plan usually there is no increase in monthly payment. If your income drops you can bring a motion to modify the plan accordingly.

4. How much you pay the creditors over 5 years depends upon how small your debt load is and how high your DMI is. Your DMI doesn't change simply because you have less debt to put into the plan.