There is usually a negative stigma surrounding bankruptcy and those who utilize it to correct their finances. Many think that bankruptcy is a mark of failure, an “I couldn’t do it” badge, or an acceptance of defeat where the creditors have seemingly won. In reality, bankruptcy is none of those things. Bankruptcy is a way for individuals or families struggling to get with debt due to unforeseen circumstances as a way to get back on their feet. It’s not your fault you were laid off, got hit in a car accident, or developed a serious illness. If you are dealing with creditor harassment, or served with a judgment, or even find yourself behind on your mortgage, a Chapter 7 bankruptcy can help you resolve these issues.
What is Chapter 7 Bankruptcy Exactly?
Bankruptcy refers to a process in which debtors are either discharging their debts or reorganizing them to pay them off in a better, more efficient manner. A Chapter 7 bankruptcy is also referred to as a “liquidation” bankruptcy in that all assets and debts are liquidated and either dismissed or exempt from bankruptcy. This allows a debtor to start over, with minimal debt, regaining a firm financial footing.
Those who file for bankruptcy must have a need to do so. In 2005, Congress passed an act called the Bankruptcy Reform Act. These laws state that each debtor must pass the means test and/or fall under the median income for the state that he/she lives in. So in order to qualify in Minnesota, an individual or family must show economic hardship and fall at or below these income levels based on family size:
- Single individual— $45,760
- Family of 2—$61,690
- Family of 3—$74,082
- Family of 4—$85,146
Additional family members—debtors must add $7,500 per additional dependent to the base income level. Note that these numbers can change annually to reflect changes to inflation.
If you talk to your Minnesota bankruptcy attorney and he find that your income level exceeds the average amount for the state, your next option is to prove financial difficulty through the means test. This is a process that mathematically compares your assets with your debts to see if you cannot reasonably pay back everything you owe.
What Do I Need to File?
Once you have met with your attorney and have determined that a bankruptcy will help your situation the next step is to file a petition. This document outlines all of your finances, listing your debts, assets and other information. It is submitted to both your creditors and the Bankruptcy Court. It is essential to supply the correct information about your finances, as misrepresented documentation can cause your bankruptcy case to be dismissed or worse, cause fraudulent charges.
Will I Lose my Home and Property in a Bankruptcy, Chapter 7?
Every state allows for certain exemption of personal items, some assets, and physical property. In Minnesota and in other states, you are allowed to choose between state and federal exemption laws. This means that debtors have more options when it comes to reserving specific assets in a Chapter 7 bankruptcy. You won’t lose your home or property when you are in a Chapter 7, but you may have to surrender certain assets if they are over the exemption amount. The Minnesota exemption laws include:
- House exemption – Your home is exempt up to $360,000. If you have land that you use for farming, up to 160 acres or $900,000 is exempt.
- Mobile home – 100% exempt. Must be a primary residence.
- Household items
- Books – Including family bible, personal library, and musical instruments are exempt
- 100% of wearing apparel, 1 watch per person
- $9,900 or less of household furniture, utensils, appliances, televisions, and food
- $2,695 worth in wedding or engagement bands
- 100% of burial ground plot
- Vehicle – Up $4,400 in value, or $44,000 if used for a physical disability
- Benefits and Insurance
- 100% ERISA benefits
- 100% Crop insurance proceeds
- 100% Federal civil service retirement benefits
- 100% Worker’s compensation benefits
- 100% Unemployment benefits
- 100% Benefits for all – teachers, police department, fire fighters, public employees
- Insurance benefits for surviving family members of decease individuals up to $44,000.
- Up to $8,800 of un-matured life insurance
- 100% of accident or disability insurance benefits
- 100% of Veterans Administration benefits
- 100% Social Security benefits
- Interests in pensions for CIA employees
- Medal of Honor pension (for individual in the Army, Navy, Coast Guard or Air Force)
- Veteran’s pension benefits
- Up to $66,000 in simplified employee pensions or similar plan due to illness disability, age or death
- Wages – 75% of all wages are exempt not including taxes
The amount that Minnesota allows for each exemption may change every year. Contact your Minnesota bankruptcy attorney to find the most up to date exemption laws. Also your attorney will have specific information on how to apply federal exemptions with state exemptions. The combination of these laws can allow Minnesota residents to retain more assets from a Chapter 7 bankruptcy. While everything must be listed on the bankruptcy, not everything will be liquidated.
You don’t need to handle a barrage of creditor phone calls, or an impending foreclosure on your own. Get a hold of local Minnesota bankruptcy attorney now about filing for Chapter 7. It may make a difference between enjoying your life and having one filled with anxiety and pain.
Minnesota Bankruptcy Courts
Gerald W. Heaney Federal Building and
United States Courthouse
515 West First Street, Suite 416
Duluth, Minnesota 55802
Phone: (218) 529-3600
United States Courthouse
300 South Fourth Street, Room 301
Minneapolis, Minnesota 55415
Warren E. Burger Federal Building
316 North Robert Street
St.Paul, Minnesota 55101