The most important aspect of filing bankruptcy is your exemptions. Exemptions are the laws that protect your property from being seized by the court and liquidated to pay your creditors. Having your MN Bankruptcy Lawyer understand what property you own and the laws in place to protect it is critical. If you don’t disclose your property and its value correctly, then your lawyer will not be able to analyze your case properly, and it could have negative consequences such as losing property or having to pay into the court to keep property.
Why You Must Disclose Everything You Own In A MN Bankruptcy
When you file bankruptcy you are required to disclose what property you own. Everything from real estate, vehicles, and bank accounts, down to furniture, jewelry and pets. The bankruptcy court can provide you relief from your creditors but in turn you must be truthful and honest in disclosing your property. Most clients when they File Chapter 7 Bankruptcy get to protect all or most of their property. In Minnesota you have a choice of filing under Federal Bankruptcy Law or Minnesota Bankruptcy Law.
How To Determine Which Homestead Exemptions To Use... State or Federal?
If you own a home in Minnesota, that is usually your largest, most important asset to protect. To protect your home in bankruptcy it must be your homestead, where you actually reside. If you own a cabin, rental property or other type of real estate with equity we will have a harder time protecting the property from creditors.
As property values have risen in the last couple of years so has equity in many people’s homes. Home values are currently at some of their highest numbers we have seen since before the market collapse. When you own a home one of the first things we will want to determine is equity. Equity in your home is one of the biggest factors in determining whether you file under federal law or Minnesota law. If you have little to no equity in your home, your case will most likely be filed under federal exemptions. To file under federal exemptions your home must have under $23,675 in equity.
We determine equity by looking at what you realistically think the house is worth and subtracting your mortgage obligations from that number. One starting point in determining a house value is to look at the current year’s property tax statement. If you have had an assessment done in the last two years for a loan modification or refinance that is most likely going to be the most accurate number for house value. Talking to a realtor and getting a market analysis is free way to determine your home value and usually pretty accurate. Online on website such as Zillow will have ranges for your property values as well but may not be as accurate.
MN Homestead Exemptions Are generous For Homeowners with A lot of Equity
If we determine your house has equity over $23,675, we would want to file under Minnesota Bankruptcy Exemptions to protect your house from your creditors. In Minnesota you can have as much as $390,000 worth of equity and still be able to protect your home. That is a very generous exemption amount! Minnesota law is very generous in terms of protecting home equity but is not as generous in other categories.
Usually when a case is filed under Minnesota Bankruptcy Law there is always some amount of assets we can’t protect. This is because under federal law there is something called the wildcard, and in Minnesota law there is not. The wildcard under federal law is $1250 and any unused home equity up to $11,500 that can be used to protect any type of property. That means you can potentially protect up to $12750 of any type of property. The wildcard can protect bank accounts, a motorcycle, an upcoming tax refund, an Arabian horse---anything up to the wildcard value.
Under Minnesota law we have no wildcard, which means we can’t protect a motorcycle with equity, upcoming tax refund or that Arabian horse. We can protect bank accounts up to 75% but only if that 75% is made up of wage deposits. If the money came from friends or family, lottery winnings, tax refunds etc. it can’t be protected.
What Happens If Something Can't Be Protected By A Bankruptcy Exemption
When something can’t be protected by exemptions, it means you have to turn it over to the court or try to negotiate to keep it. Most people will come up with some amount to offer in order to keep their property in a Minnesota exemptions case.
Let's say hypothetically speaking, you own a house worth $150,000. Your mortgage balance is $100,000. You have $50,000 worth of equity. In this case you will be filed under Minnesota exemption law to protect your home. But you also own a motorcycle with no loan, worth $2000 and you have a bank account with $1000 in it that has come from direct deposit of wages on the day of filing bankruptcy.
In Minnesota we can protect 75% of the balance. When the trustee looks at your case they will see that you have unprotected assets that total up to $2000 for the motorcycle and $250 from the bank account. You could write a check for $2250 to the trustee to keep your property or turn over your motorcycle to the trustee and write a check for $250 or try to reach a settlement for a lesser amount.
This is just one example of the many different scenarios we come across at Kain & Scott. Exemptions can be complicated that's why you want to make sure your MN Bankruptcy Lawyer uses them correctly to ensure that you get to keep all the property you legally are entitled to protect when you file bankruptcy.