Understanding Bankruptcy: Automatic Stays and How to Prepare
The average American household carries a debt of $137,063. If you, like many Americans, feel like you're in a hole you can't dig
your way out of, you might consider bankruptcy.
One of the most significant benefits of bankruptcy is the automatic stay
you receive when you file. An automatic stay can stop foreclosure, eviction,
or wage garnishment. It can also stop creditors from pursuing you via
It's important to note that creditors can ask to have the automatic stay
lifted to collect secure debts. A secured debt is a loan the borrower
pledges asset or collateral to "secure," such as a mortgage.
To receive an automatic stay, you only need to file a three-page bankruptcy
petition, a signature declaration, and a list of your outstanding liabilities
(debts) and creditors with the bankruptcy court.
To prepare for bankruptcy in Minnesota and file successfully, you'll need
to take the following steps:
Take credit counseling. Credit counseling courses help you understand the bankruptcy process
and how to manage your credit. You must take a credit counseling course
at some point in the six months before you officially file for bankruptcy.
If you don't take a credit counseling course within 180 days prior to
filing, you won't' be able to file for bankruptcy in Minnesota successfully.
After you take your credit counseling course, you should collect bankruptcy
documents for your case. You need to gather any bills or collection letters you received within
the last 90 days and submit them, along with a list of your creditors,
when you file for bankruptcy. You must also file a copy of your credit
report. A Minnesota bankruptcy attorney can help you make sure you properly
gather and fill out all the necessary documents.
Once you complete the documents, it's time to get your filing fee. If your income is less than 150% of federal poverty guidelines, you can
apply to have the fee waived. Otherwise, you should expect to pay a fee
of $335+ to file.
Finally, it's time to print your bankruptcy forms and formally file for
bankruptcy with your bankruptcy court. Your bankruptcy lawyer in Minnesota can help you understand which court
to file with.
What happens next depends on which Chapter of bankruptcy you file for (more on that in a minute). You will have to complete additional actions
such as attending a financial management course and a creditors meeting
before your bankruptcy judgment can be finalized.
Now that we've covered the basics of bankruptcy, it's time to look at the
two most common types: Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 Bankruptcy in MN
Chapter 7 bankruptcy is also commonly called "liquidation bankruptcy,"
because debtors liquidize their assets to repay creditors.
To qualify for a Chapter 7 bankruptcy, you must complete a means test and
meet certain requirements, such as falling under your state's median income. In Minnesota, the median income is $58,476 for single-earners and $70,315
for two-earner households.
To file for Chapter 7 bankruptcy, you'll need to provide the bankruptcy
court with various documents, such as:
- proof of income,
- a list of your liabilities,
- your assets, and
- any property or assets you claim are exempt from the bankruptcy process
(cannot be claimed by creditors to repay debts).
Typically, essential assets such as your home or vehicle will be exempt
from the bankruptcy process. However, that doesn't mean all your non-essential assets will be claimed
by creditors and used to repay debts.
Many creditors consider common assets worthless, and will simply forgive
debts or ask to set up a payment plan instead of asking you to liquidize assets.
When you file for Chapter 7 bankruptcy, the Office of the US Trustee will
assign a bankruptcy trustee to your case. The bankruptcy trustee acts
as a sort of mediator between the debtor and the creditors.
The trustee will arrange a creditors meeting. At the creditors meeting,
you sit down with your trustee and creditors to discuss your debts. Ideally,
you will work with the trustee and the creditors to determine how to repay
your debts (or which liabilities will be forgiven).
Certain debts, such as delinquent child support payments, student loans,
and owed taxes, are exempt from the Chapter 7 bankruptcy process. You
will need to pay off these loans regardless of your bankruptcy case.
At the end of the case, any creditors that have decided to claim assets
as repayment for debts will do so. Any other nonsecured debts or non-exempt
liabilities you have will be discharged (wiped out) by the bankruptcy court.
A skilled Minnesota bankruptcy lawyer can help you understand the bankruptcy
process more thoroughly and act as an advocate throughout the process,
helping you defend your assets from creditors.
Chapter 13 Bankruptcy in MN
If you don't qualify for Chapter 7 bankruptcy because your income is too
high, you'll probably end up filing for Chapter 13 bankruptcy. To file for Chapter 13 bankruptcy, your debt cannot exceed a certain
limit, and you must possess a steady income.
Unlike a Chapter 7 bankruptcy, your assets and property are completely
safe in a Chapter 13 bankruptcy. Instead, you work with creditors to establish new debt repayment plans.
Like a Chapter 7 bankruptcy, a trustee is assigned to a Chapter 13 bankruptcy
and acts as a mediator. In a Chapter 13 bankruptcy, the trustee works
with the debtor and creditors to draft new repayment plans that allow
the debtor to repay liabilities while still maintaining a good quality of life.
Priority debts (child support, taxes, etc.) and secured debts (mortgage
and car payments) take precedence in the repayment plan. Once those debts are repaid, the debtor then typically moves on to repaying
unsecured debts (any other liabilities).
Chapter 13 repayment plans are often 3-5 years long and can be modified
depending on the debtor's circumstances (for example, if your income increases, you can petition the bankruptcy
court to adjust the repayment plan, so you pay off debts faster).
Will Bankruptcy Hurt My Credit?
Yes and no. Filing bankruptcy is harmful to your credit score, but there
are a couple of things to keep in mind.
First, if you are seriously evaluating a bankruptcy filing, your credit
score might already be low due to missed or late payments, so bankruptcy
can actually help in the rebuilding process.
Second, under bankruptcy law, after a period of years, you cannot be discriminated
against in applications for credit because of the bankruptcy filing. Most
people find it fairly easy to rebuild credit after bankruptcy. You might
be surprised at how quickly your credit profile improves! It seems that
many lenders are more concerned with whether someone has an income rather
than whether they filed a bankruptcy.
Many of our clients receive credit offers just after filing bankruptcy.
So you don’t need to give up on any dreams of car, home, or boat
Speak with a Bankruptcy Lawyer in Minnesota
At Johnson/Turner Legal, we understand how difficult it can be to file
for bankruptcy. That's why
all of our clients get a team consisting of a Minnesota bankruptcy attorney,
two paralegals, a client engagement specialist, and a life coach. We won't just guide you through your case—we'll give you the tools
you need to succeed long after your case is resolved.
Set up a consultation with our firm.
Contact us online or via phone at
(651) 371-9117! We have offices across the Twin Cities area.