Many Minnesota families have excessive credit card debts. Making matters worse, according to one estimate, 60 percent of cardholders struggle just to make the minimum payment. So, every month, the family goes deeper into debt. This downward debt spiral quickly becomes overwhelming.
Many “debt consolidation” firms only make empty promises. But there is a federal debt relief program that’s designed to do away with excess debt and give Minnesota families a chance to start over. But bankruptcy is a very big decision. Before you file your voluntary petition, it’s important to know everything about Chapter 7 bankruptcy.
Do I Qualify for Chapter 7?
Before 2005, everyone automatically qualified for all forms of bankruptcy debt relief. But in that year, lawmakers added an additional requirement. Now, all Minnesota Chapter 7 debtors must complete a means test. Their income must be at or below the average income for that geographic area. In Minnesota, a family of four can earn up to $108,000 and still be eligible for Chapter 7 bankruptcy. That figure is current as of May 2018.
Usually, the means test is not an issue. Frankly, if the debtor’s income is substantially above the threshold, crippling indebtedness is usually not a problem. Substantively, almost everything you need to know about a Chapter 7 bankruptcy is below.
The Automatic Stay in a Minnesota Chapter 7 Bankruptcy
Once the debtor files a voluntary petition, Section 362 of the Bankruptcy Code goes into effect, in most cases. Both public and private moneylenders must obtain special permission from the bankruptcy judge before they undertake adverse actions like:
- Wage garnishment,
- Repossession, and
If the debtor has filed bankruptcy at least once within the past year, the Automatic Stay is sharply limited. However, an attorney can often extend it and make it fully effective.
Typically, the Automatic Stay remains in effect as long as the bankruptcy is active. It applies to all debts, whether or not they are dischargeable as outlined below. It also apples to all communication between moneylender and debtor. That means no more collection calls or threatening letters. That may also mean no more monthly statements. If that happens, it’s important to keep making at least the minimum payments on your auto loan, mortgage, and other secured debts.
Everything You Need to Know About Exempt Assets in a Chapter 7 Bankruptcy
In board games like Monopoly, bankrupt players often lose most or all of their assets. But real life is a lot different. Minnesota bankruptcy debtors may choose between federal or state exemptions. Both these exemptions are very generous. They protect:
- Motor vehicle,
- Retirement nest egg,
- Personal property, and
- Some cash in a bank account.
The value of these exemptions usually depends on whether the debtor elects state or federal exemptions. For example, the federal exemptions protect up to $47,350 in home equity, and Minnesota law protects properties worth up to $390,000. Minnesota law also exempts up to 160 contiguous acres.
Debt Discharge in a Minnesota Chapter 7
About six weeks after the debtor files a voluntary petition, the trustee (person who oversees the bankruptcy for the judge) presides over a brief and informal meeting. The trustee normally requests some financial documents, like tax returns, and asks a few questions related to the bankruptcy’s purpose and the debtor’s identity.
60 days after the meeting with the trustee, the bankruptcy judge usually enters a discharge order and closes the case. The discharge order eliminates the legal obligation to repay most unsecured debts. Some dischargeable debts include:
- Credit cards,
- Medical bills,
- Small Business Association loans,
- Payday loans, and
- Some past-due income taxes and student loans.
Federal and state income taxes are dischargeable if the tax return for the year in question was due at least three years before the bankruptcy case was filed and the debtor meets some other qualifications. Student loans are dischargeable if the debtor paying the student loan would work an undue hardship on the debtor, a phrase that means various things in different contexts.
Some Special Issues in a Minnesota Chapter 7
Most of these bankruptcies are fairly straightforward matters. But sometimes disputes and questions arise, and that’s when you really need an experienced and assertive attorney. At Kain & Scott, we provide everything you need to know about Chapter 7 bankruptcy.
Motor vehicle exemption is sometimes an issue. Federal law exempts one motor vehicle with up to a $3,775 value. The exemption doubles (two vehicles) if the debtors file a joint petition. Most new vehicles have a very high value, but the owner has almost no equity. Conversely, the debtor usually has considerable equity in used vehicles, but they have almost no value. The basic issue involves the as-is cash value of that particular automobile.
An attorney’s advocacy skills are useful in exemption disputes, and an attorney’s advice is useful with regard to reaffirmation agreements. Often, a debtor elects to keep paying on a debt without attempting to renegotiate the terms. Sometimes a reaffirmation is a good idea and sometimes it’s a bad idea. Only an experienced attorney can advise you as to the difference. That’s a service that a do-it-yourself bankruptcy package or a petition preparer cannot offer.
Chapter 7 may be the answer to your debt problems. For a free consultation with an experienced bankruptcy attorney in Minnesota, contact Kain & Scott. Convenient payment plans are available.