Generally, in filing for bankruptcy you can get relief from having to pay unsecured debts, secured debts, and, in some instances, taxes. Examples of unsecured debts would be credit cards and medical bills. Examples of secured debts are, commonly, your home mortgage and car loans.
Upon receiving confirmation your Chapter 7 Bankruptcy has been finalized; you are no longer liable for unsecured debts. They are completely and totally wiped out, tax free. For example, say you incurred $40,000 in medical debt for a surgery you had six months ago. You’ve been trying to make the minimum monthly payments for the past four months, but you’re not getting anywhere. In fact, the debt has been turned over for collection and you know this will never get paid off. Well, bankruptcy might be the best option. If after discussing your options with a Minneapolis Bankruptcy Attorney you decide to file for bankruptcy, the $40,000 will be completely discharged. This means you never have to worry about making another payment towards the medical bill.
Secured debts work the same way as unsecured debts. However, if you wish to keep the property that is attached to the debt, we will need to discuss that in more detail. A common example of this is your car loan. Say you visit with a Minnesota Bankruptcy Attorney and you want to file for bankruptcy on the medical bill mentioned above, but you have a car secured by a loan and you’re scared about losing the car. Well, you’re in luck. There are options available that will let you keep your car and continue making payments.
Another category of dischargeable debts, in some cases, is taxes. In order to be dischargeable in bankruptcy, your taxes must be three years old and you must have filed the taxes at least two years ago. If your tax debts satisfy the two requirements above, you will likely be able to discharge your debt through bankruptcy. However, if the taxes do not satisfy the above requirements, don’t be alarmed. You still have options and we will be happy to discuss those options with you in more detail.
Now that you have a better understanding of which debts can be discharged through bankruptcy, it’s important to talk about debts that cannot be discharged.
Domestic support obligations and criminal fines/penalties are the primary debts that cannot be discharged. Common examples of parties which can be owed money for domestic support obligations are spouses, children, and government entities. Now, just like anything, there are exceptions to every rule. In some instances, student loans may be dischargeable. There is a heavy burden on the individual who is filing to prove there is undue hardship if the individual wishes to discharge their student loan obligations. In extremely rare circumstances student loans become dischargeable. Trust me, I wish it were different.
If you have questions about whether or not your debts can be discharged, please feel free to ask our Minneapolis Bankruptcy Attorneys. The information given regarding dischargeable and non-dischargeable debts in not all-inclusive, but certainly provides a general explanation of the options available to you.
Now that you have a better understanding of dischargeable and non-dischargeable debts, it is important to know what will happen, if anything, to your assets when filing for bankruptcy. Depending on the amount of equity you have in some assets, it may be better to use federal exemptions or Minnesota exemptions to protect your belongings. Choosing between the two generally depends on the amount of equity you have in certain assets.
There are specific differences between a Chapter 7 and a Chapter 13 Bankruptcy. The easiest way to break this down is, in a Chapter 7 Bankruptcy you are entitled to retain assets so long as they satisfy the allowable exemptions (discussed below). In a Chapter 13, you keep everything regardless of whether or not their value exceeds the allowable exemptions. Well, choosing between a Chapter 7 and a Chapter 13 is very fact specific, but we can help you with that. For the most part, if you own assets worth quite a bit of money, a Chapter 13 is generally the better option. For example, say you own a house, boat, trailers, and other recreational toys outright. Each of these assets are not secured by any loans and you don’t want to lose them because you’ve worked a long time to acquire them. Well, through a Chapter 13 Bankruptcy we can make sure you keep these assets.
Although a Chapter 13 Bankruptcy allows you to retain your assets, there may or may not be a price to pay. The general rule is, when you file a Chapter 13 you must pay back your creditors what they would have received had you filed a chapter 7. Huh? It can get a bit confusing, but stick with me. Say you have assets worth $30,000 in total and you want to keep everything. If we file a Chapter 7 Bankruptcy using federal exemptions, there would be about $16,900 in unprotected assets. If we can’t protect the assets, you may have to surrender them for liquidation. Because you want to keep everything, we would likely recommend filing a Chapter 13. Through the Chapter 13, you would have to pay (before additional fees), $16,900 back to your creditors over either a thirty-six month repayment plan or a sixty month repayment plan. At the end of the thirty-six or sixty month plan your unsecured debts will be wiped out, interest free, tax free, forever.
Without getting bogged down in legalese, the main point I want to convey to you is you’re not going to lose everything when Filing Bankruptcy in Minneapolis. Often, our clients don’t lose anything. Unless you own a lot of expensive items, you will likely walk away after filing for bankruptcy without losing a thing. This means your clothing, your tools, your furniture, your jewelry, and many other belongings will likely be protected. Yes, even your pets will likely be protected.
Federal exemptions are beneficial because there is a provision in the Bankruptcy Code which provides you with an extra cushion in the event you have assets worth more than what specific exemptions allow for. Huh? Well, here’s an example that will hopefully clear up any confusion. Say you rent an apartment. Four years ago, you got married and your wedding ring is still worth $5,000. Well, the federal bankruptcy code allows you to protect up to $1,600 in value in your jewelry. However, the Code also provides debtors the ability to use $1,250 towards general property and up to $11, 850 of any unused real property interest (aka wildcard exemption). Since you don’t own real property, this means the $5,000 ring would be protected by the jewelry exemption of $1,600, the $1,250 general property exemption, and part of the $11,850 wildcard exemption.
There are many nuances to the federal exemptions, but we will walk you through your options and help you gain a better understanding of what exactly your specific bankruptcy case would look like.
Minnesota exemptions are similar to the federal exemptions in some aspects and wildly different in others. The majority of time we will recommend Minnesota exemptions when one of our clients has equity in real property that cannot be protected by federal exemptions. Through Minnesota exemptions, we can help protect approximately $360,000 in real property. This amount may vary depending on whether or not the property is used for agricultural purposes. Your specific situation will determine whether or not Minnesota exemptions would be appropriate. Aside from exemptions for real property, there are additional benefits to using Minnesota exemptions. We will get into more detail regarding the additional benefits of using Minnesota exemptions in our future posts.
Struggling with debt can seem overwhelming. If you’re ready to get your life back, contact one of our Minneapolis MN Bankruptcy Attorneys. We are more than happy to answer any questions you may have.
Kain & Scott, P.A.
100 South 5th Street #1900
Minneapolis, MN 55402
612-843-0527