Filing a personal bankruptcy case is a great way for Minnesotans to manage, and eliminate, large amounts of debt. When a person successfully completes a chapter 7 or chapter 13 bankruptcy case, they receive a discharge from the bankruptcy court, legally forgiving all of their debts, with certain limited exceptions (ie most types of tax debt, child support, student loans, and etc.)
The bankruptcy discharge eliminates a person’s legal responsibility to pay both secured and unsecured debts alike. Secured debts, such as car loans and home mortgages, give the creditor the right to take back the property secured by the debt as collateral if the debtor does not pay back the loan. Unsecured debts are not connected with any property to serve as collateral to ensure repayment of the loan, such as medical debt and credit cards.
In bankruptcy the debtor (what you call someone who files a bankruptcy case) essentially gets to decide what to do with the property which serves as collateral for their secured debts. If the debtor desires to keep their home and/or car they can, so long as they continue to make their car and mortgage payments. If the debtor fails to make payments, the creditors can repossess the collateral, due to the fact that the creditor retains their lien on the property, but the creditor cannot take any further action to collect upon the outstanding debt due to the discharge. The debtor also has the right to “walk away” from their secured debts by “surrendering” the collateral to the creditor. Again, the creditor may take back the property and dispose of it how they desire (ie sell it to someone else) but may not pursue the debt owed upon the loan as a result of the bankruptcy discharge.
Many times, people purchase household goods, such as furniture and electronics, on credit. They often pay for these goods in an installment contract. The contract usually contains a provision that the store retains a security interest in the property (another term for a “lien”), which gives the store/creditor the right to repossess the household goods in the event payments are not made. Just like any other secured debt, the debtor must decide what to do with this secured debt. The reality is that is virtually unheard of for a store to actually exercise their right to repossess basic household goods unless the goods are extraordinarily expensive. This is because most household goods have very little resale value. This is obvious from the fact that you may have to pay over $1,000 for a brand new high definition TV in the store, but could probably only sell the same TV for less than a few hundred bucks on Facebook Marketplace, or EBay, months after buying the television. Outside of bankruptcy, the store may be tempted to repossess the goods, in the event payments are not made, due to the fact that they can not only resell the goods, but may also sue the purchaser for the balance. This is not so in bankruptcy, because the debt is discharged. For this reason, the best strategy for the debtor is usually to treat the debt like it is unsecured and simply not make payments on the goods. The debtor will almost certainly be able to retain possession of the goods and walk away from the debt. It’s a win-win!
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When considering filing for bankruptcy, a person is always well advised to first consult with an experienced bankruptcy attorney. LifeBack Law Firm now has an office located at 370 Selby Ave, Suite 224, Saint Paul, MN 55102 in the beautiful historic Cathedral Hill neighborhood. Come visit us there or online at lifebacklaw.com!
