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Chapter 7 Bankruptcy Filing Declining in Minnesota

The first quarter of 2013 saw a plunge in both Chapter 7 bankruptcy and Chapter 13 bankruptcy filings in Minnesota and throughout the United States. This is great news considering the thousands on top of thousands of filings that occurred after the economy collapsed. The changes to bankruptcy law occurred just in time so that abuse of the system would stay at a minimum while people were filing in droves.

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Acts were put in place and enforced. Many of the previous factors applied, but the income versus debt requirements and a credit counseling requirement were added. There was also the requirement of the means test under certain conditions. While attorneys had previously conducted a test to see what a person’s ability to pay was, some rules surrounding the test were different. For instance, the means test applies to consumer bankruptcies only.

However, a means test may not be done depending on how income compares to the median income within the state. For instance, the median income for a family of 5 in Minnesota is $105,325, according to the April 1, 2013 update that was based on data from the U.S. Census Bureau. If the income is below the median, then there should be no problem filing Chapter 7 without having to do a means test.

As for why there were so many Chapter 7 bankruptcy filings after the economy went flat, many individuals lost income. They lost jobs or their hours were cut down to the point they could no longer pay their bills. The burden fell on many and bankruptcy became their only option. Because of the reductions in income, many families fell below the median income for their household size and they fell fast.

As a result, the credit counseling agencies were very busy. Credit counseling is a bankruptcy requirement and a certificate of completion has to be awarded before moving forward with bankruptcy. These counseling sessions are 90 minutes long and can be conducted over the Internet, the telephone, or in-person.

Once a person filed, appeared for their 341 hearing, or meeting of creditors, and the debts were discharged, they were able to breathe easier and move forward with their new lives. Life had changed as they knew it, but they were able to start with a clean financial slate for when the economy began to improve and their incomes started to grow once again. Because these conditions are improving, new filings are on the plunge.