The Bankruptcy Reform Act of 2005 and the Means Test

Congress amended the bankruptcy laws effective for cases filed after October 17, 2005. The Bankruptcy Abuse Prevention and Consumer Protection Act established income limits for consumers who file for Chapter 7 Bankruptcy, and established minimum payments for some Chapter 13 plans. The Act also mandated credit counseling, and financial management courses, and significantly expanded the paperwork and documentation requirements for filing bankruptcy.

However, the vast majority of persons who could file for Chapter 7 Bankruptcy before the new law can still file for Chapter 7 now. Statistics show that only 10 to 15 percent of consumers who file for bankruptcy have income subjecting them to the new “means test.” This means that if you are experiencing financial problems, most likely you can still file for bankruptcy.

If you are not eligible to file for a Chapter 7 Bankruptcy, you may have to file a Chapter 13 Bankruptcy, which means you will make payments over a three to five year period. In a Chapter 13 Bankruptcy, you are simply required to pay what you can afford toward your debts, and the rest is discharged. Additionally, if you find you cannot afford the Chapter 13 Bankruptcy payment plan, you may be able to convert your bankruptcy into a Chapter 7 Bankruptcy.

Remember for most people, bankruptcy relief is available. Call Patrick Hayes at 612-821-4817 or email him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it to arrange a free consultation.

How does Bankruptcy work?

Bankruptcy allows a person who is overwhelmed with debt to get a fresh start. By filing for a Chapter 7 or 13 Bankruptcy, creditors and debt collectors are legally prevented from trying to collect your debts. Creditors and debt collectors cannot call you, bill you, threaten you, sue you, or do anything else in an attempt collect a debt from you. Filing for Chapter 7 or 13 Bankruptcy can also stop foreclosure, repossession and garnishment.

Bankruptcy is a powerful tool that can protect you from abusive and harassing debt collectors and creditors. No one wants to file for bankruptcy, but if you are having debt problems, filing bankruptcy can give you a fresh start in life.

Call Patrick Hayes at 612-821-4817 or email him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Chapter 7

If you file a Chapter 7 Bankruptcy, all your debts will be discharged (wiped out) by court order, with the exception of some taxes, some student loans, and alimony or child support as well as some other exceptions to discharge. If you want to keep your home or car, you will have to continue to make payments on your home mortgage and your car loan. Typically, people who file for bankruptcy will wipe out all of their unsecured debts but continue to make payments on their secured debts. This means that credit card debts, bank loans, utility bills, business debts, medical bills, even bad checks are discharged in a Chapter 7 and you get to keep your home and your car.

Normally, when you file a Chapter 7 Bankruptcy, you will not lose any property or personal possessions. Bankruptcy laws, both State and Federal, allow you to claim certain property exempt from creditors and debt collectors. For example, in Minnesota you can have up to $360,000.00 worth of equity and still keep your home if you file for Chapter 7 bankrutpcy. That means, for example, if you own your home free and clear, that is, you do not have a mortgage or home equity loan on your home, you will be able to keep your home, if it is worth $360,000 or less. The exemptions for other property, include, but are limited to, automobiles, wedding rings, retirement accounts and household goods.

Call Patrick Hayes at 612-821-4817 or email him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it and he’ll tell you how a Chapter 7 case could work for you.

Chapter 13

A Chapter 13 Bankruptcy is completely different from a Chapter 7. Instead of having your debts immediately discharged, you commit to a repayment plan that may be between three to five years, depending on your income level. Your debts may be paid in full or you may pay only pennies on the dollar. At the end of your payment plan, the remaining balances on your debts are discharged, except your mortgage, student loans, child support, and some other exceptions. This means that you may be able discharge the remaining balance on your credit cards and other unsecured debts, even if you have only paid a small fraction of the balance owed. Typically, most Chapter 13 cases are partial payment cases. In a Chapter 13, you may be able to keep all of your property and personal possessions, regardless of whether you qualify for any exemptions.

A Chapter 13 Bankruptcy may work for you if:

• You are behind on house or car payments, and you do not want to lose your home or car, but you need time to catch up on payments;
• You have valuable property, and you would lose that property if you filed a Chapter 7 Bankruptcy;
• You have filed a Chapter 7 Bankruptcy within the last 8 years;
• You have tax obligations, child support, student loans, or other non-dischargeable debt in a Chapter 7 Bankruptcy; or
• You have a cosigner on a personal debt that is not a part of the bankruptcy.

Call Patrick Hayes at 612-821-4817 or email him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it right now to find out how Chapter 13 would work for your situation.

How does the Bankruptcy Process work?

The first thing to do is call Patrick Hayes at 612-821-4817 or email him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it to talk to him and find out whether a Chapter 7 or 13 Bankruptcy would work for you. He can do that over the phone or you could meet him at his office at 3101 Irving Avenue South, Minneapolis, Minnesota 55408.

Next thing you will want to do is take an approved credit counseling course. United States Trustee’s Office maintains a list of approved credit counseling courses. The credit counseling course will cost you about $30. The course is relatively short and you can take it online. Once you have completed the credit counseling course, you must print off the certificate of completion. The certificate is good for 180 days from the date of completion. Then you will need to get seven months worth of bank statements from all bank or investment accounts that are currently open or have been open during the last seven months. This includes all accounts where your name is listed as a joint account holder or custodian. If you are self-employed you will need the last 12 months of bank statements. You also need seven months of pay stubs from any place where you have worked at during the last seven months and any other income related documents like unemployment checks or Social Security checks. Additionally, you must get your last two years of income tax returns. You must also provide a list of all of your personal assets. This includes, but is not limited to, retirement accounts, boats, household goods and automobiles.

Then, if you decide to file the case, our office will prepare your bankruptcy petition for filing with the United States Bankruptcy Court. A bankruptcy petition will include a list of your monthly income, expenses, your property and possessions, and names and addresses of your creditors.

After the bankruptcy petition is prepared, you must review the petition, sign it, and our office will file the bankruptcy petition with the Bankruptcy Court. Once the bankruptcy petition is filed, that same day, the court will issue an automatic stay which prevents creditors and abusive and harassing debt collectors from contacting your or trying to collect debts under any circumstances.

About four to five weeks after the case is filed, there will be a meeting of the creditors at the U.S. Courthouse. This is a mandatory meeting that you and a lawyer from our office must attend. You must bring your driver’s license and Social Security card. At the meeting, the bankruptcy trustee will ask you to verify that all the information in the court papers is correct. The meeting of the creditors is short and should normally only take about 10 minutes. Within a few days after this meeting, you must complete a financial management course and return the certificate of completion to our office. Once our office receives the certificate of completion, he will file the certificate with the court.

In a Chapter 7 Bankruptcy the court will usually issue a discharge after about sixty days and your debts will be wiped out.

If you have filed a Chapter 13 Bankruptcy the court normally confirms the plan within a few weeks. After the plan is confirmed, you must make monthly payments to the trustee for the three to five years, depending upon the length of your Chapter 13 Bankruptcy plan. At the end of the repayment plan, the court grants a discharge of your debts.

The above information is summary only. You should call Patrick Hayes at 612-821-4817 or email him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it for advice on how your case would likely proceed.

What Documents must you provide

1. Pre-Bankruptcy Credit Counseling Certificate. This must be obtained from an approved credit counseling agency. The United States Trustee’s Office maintains a list of approved credit counseling agencies of its web site.

2. Seven months paycheck stubs, or if self employed, twelve months income records. If you do not have any of your paycheck stubs, as your payroll office for your last seven months paycheck stubs. If you’re self-employed, you need to prepare month-by-month income and expense, or profit and loss, statements covering the last twelve months.

3. Copy of your last year’s federal and state income tax return. This must be a copy of your actual signed return, containing all W-2 forms, 1099 or 1098 forms, and anything else included in the return.

4. Fill out the Client Worksheet. (click here) Please read the questions on the worksheet carefully. The worksheet may take some time but it is necessary to ensure that your bankruptcy case is done correctly.

5. List of debts. Include every debt you have. This includes debts that you owe to a relative or a friend. You do not want to leave a debt off of your bankruptcy papers. You must report all of your debts, and this includes the debts that you plan on continuing to pay. You can estimate the amount if necessary, but not on mortgages or car loans. You must provide the balance, interest rate and number of payments on any car loan that you have.

6. Bank Statements. You must provide your last seven months of bank statements. You must provide the current balance of your accounts on the day that you file for bankruptcy.

7. Attorney fees. Bankruptcy law requires that you have a written agreement with your attorney.

Exempt Property

Bankruptcy law allows you to claim certain types of property up to certain amounts as exempt. An exemption means you will not lose the property if you file a Chapter 7 bankruptcy. In Minnesota, you can choose to use the Federal Exemptions or the State Exemptions. You cannot use both the State and Federal Exemptions. The following is a list of both State and Federal exemptions.

This is only a summary of property that is exempt under bankruptcy law. Some of these numbers double if you file a Chapter 7 Bankruptcy with your spouse. Please call Patrick L. Hayes at 612-821-4817 or email him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it for more information on what property you can keep if you were to file a Chapter 7 Bankruptcy.

Are you behind on your Mortgage or are you in Foreclosure proceedings?

Is your mortgage going into foreclosure because you are behind on payments? If so, you can stop the foreclosure and get time to catch up by filing a Chapter 13 plan. Congress intended to give homeowners a chance to catch up on their mortgage by filing a Chapter 13 Bankruptcy. Filing a Chapter 13 Bankruptcy gives homeowners a chance to keep their homes while requiring your lender stop any foreclosure proceedings while you catch up on payments you’ve missed.

Filing a Chapter 13 Bankruptcy prevents a foreclosure from going forward, even if the foreclosure has already been scheduled for a sheriff’s foreclosure sale. After filing the Chapter 13 Bankruptcy, you start to make the regularly scheduled future mortgage payments, in the mount of the usual payment, and the lender is legally required to start accepting the payments again. Then your lawyer puts together a payment plan to ensure that you get caught up the back payments on your mortgage.

Even if you’re not sure whether or not you can successfully complete the payment plan or continue to make payments because of your income, filing a Chapter 13 Bankruptcy can help you stay in our home for the time being. You can almost always extend the time you get to stay in your home by about almost a year by filing Chapter 13 Bankruptcy, regardless of whether or not you make any payments at all on the mortgage after filing a Chapter 13 Bankruptcy. Of course, the goal is to successfully complete the plan payments and keep your home. The law requires that we show the court a reasonable plan you can successfully complete.

Call our office to find out how Chapter 13 can help you keep your home, by having a free consultation with an attorney. There's no obligation, and it’s certainly a good idea to know what your rights are regarding your home mortgage.

How will a Bankruptcy affect my credit?

A bankruptcy will be removed from your credit bureaus ten years after the day that you file for bankruptcy. Some credit bureaus will remove a bankruptcy from your credit after seven years.

For the most part the law does not restrict your ability to obtain credit after you have declared bankruptcy. Federal law prohibits discrimination by an employer, or government agency, based on a bankruptcy filing pursuant to 11 U.S.C. § 525. However, there are some exceptions. You cannot qualify for a First Time Homebuyer Mortgage (FHA) until the bankruptcy is 18 months old. For a Veterans Administration mortgage (VA), you must wait twelve months.

You will find that if you have a stable job, most creditors will not be concerned about your bankruptcy after about one year. In some instances, credit card solicitations will occur the day the bankruptcy discharge is issued. Remember you are not the only person in America who has had financial trouble. For example: 1.6 million bankruptcy cases were filed in 2004; 2 million in 2005; 617,000 in 2006; 850,000 in 2007; and 1 million in 2008. According to the American Bankruptcy Institute, one in ten American households has filed bankruptcy.

*We are a debt relief agency. We proudly assist people who are seeking relief under the United States Bankruptcy Code.