In Minnesota, there's a specific limit on how much money you can keep in your bank account during Chapter 7 bankruptcy. This limit is known as the cash exemption. If you have more than the exemption, you may need to surrender the excess to the bankruptcy trustee.
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Key Points to Remember:
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Cash exemption: This is a specific amount determined by state law.
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Excess funds: If you have more than the exemption, you may need to surrender the excess.
When you file Chapter 7 or Chapter 13 bankruptcy in MN, you must list and value all of your assets at the time of filing. Therefore, when considering bankruptcy in Minnesota, one of the most common questions is, "How much money can I keep in my bank account?"
The answer to this question depends on several factors, including your filing status and the specific bankruptcy chapter you choose. It's best to get specifics from a Minnesota bankruptcy attorney, though an overview is helpful.
Chapter 7 Bankruptcy and Liquidation in MN
Chapter 7 bankruptcy is the liquidation chapter of bankruptcy. If you own anything that cannot be protected by the bankruptcy code’s exemptions, your Chapter 7 trustee’s job is to liquidate the non-exempt assets to pay your creditors.
Liquidation may not be immediate, you may need to pay something to the trustee to keep your assets or will need to surrender certain assets to them that you don’t want to pay to keep. Your bankruptcy attorney will warn you if you have any non-exempt assets prior to filing your case and help explain to you the details on this process.
Understanding Bank Account Freezes During Bankruptcy
When you file for bankruptcy in Minnesota, your bank accounts may be subject to a temporary freeze. This is a precautionary measure taken by banks to prevent the withdrawal of funds that might belong to the bankruptcy estate. Here's what you need to know:
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Automatic freeze: Some banks automatically freeze accounts upon receiving notice of a bankruptcy filing.
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Duration: The freeze typically lasts until the first meeting of creditors, which occurs about 30 days after filing.
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Exemption claims: Your attorney can work to lift the freeze by proving that the funds are exempt.
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Alternative accounts: Consider opening a new account at a different bank before filing to ensure access to funds for living expenses.
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Disclosure: Always disclose all bank accounts to your bankruptcy attorney to avoid complications.
Understanding this process can help you better prepare for the financial implications of filing for bankruptcy in Minnesota.
The Role of Recent Deposits in Bankruptcy Proceedings
Recent deposits into your bank account can significantly impact your bankruptcy case in Minnesota. Here's why they matter:
Lookback period:Trustees typically examine bank statements for the 90 days preceding your bankruptcy filing.
Source of funds:Deposits from wages, tax refunds, or other sources may be treated differently under exemption laws.
Timing considerations:Large deposits close to your filing date may raise questions about asset concealment.
Documentation:Keep records of all significant deposits and their sources to explain them if necessary.
Exemption planning:Your attorney can help you time your bankruptcy filing to maximize the protection of your bank account funds.
Being aware of how recent deposits are viewed in bankruptcy can help you make informed decisions about when to file and how to manage your finances leading up to bankruptcy.
How Bank Account Balances Can Be Protected in Chapter 7
There are often questions about bank account balances and how much can be protected in a Chapter 7 bankruptcy. First, it depends on whether you are filing using federal exemptions or state exemptions. Your attorney will help you decide which one is best for your fact scenario.
Federal Exemptions
If you are a using federal exemptions, your bank accounts are likely protected using 11 U.S.C. Section 522(d)(5) which protects, “any property.” Most federal exemptions cases allow people to protect $13,900 in “any property” under this exemption. Some people can protect less depending on the equity in their home (your attorney will manage that for you). This $13,900 is what is used to protect most bank account balances, tax refunds, and any non-essential household items.
Minnesota State Exemptions
If you are using state exemptions, your bank accounts are likely protected using Minn. Stat. 550.37 subd. 13, which protects 75% of earnings. That means if your bank account consists of earnings (like wages from a job), the statute protects 75% of the balance and the remaining 25% is an asset to be paid over to your Chapter 7 trustee.
What happens to your bank account when you file Chapter 7?
In a Chapter 7 bankruptcy, you're generally allowed to keep a certain amount of money in your bank account without it being seized by creditors. This is known as the "cash exemption." The amount of the cash exemption can vary by state, but in Minnesota, it's typically a relatively small amount.
If you have more money in your bank account than the allowed exemption, you may be required to surrender the excess funds to the bankruptcy trustee. These funds will then be distributed to your creditors.
Understanding the Chapter 7 Cash Exemption Process
The specific rules and amount of cash you can exempt vary, but claiming exemptions starts with identifying the limits and any qualifying criteria. When filing your bankruptcy petition, you'll need to list your assets and claim exemptions for those that qualify. You may need to provide evidence to support your claim, such as bank statements or other documentation.
To calculate your cash exemption in Minnesota, it's crucial to consult with a bankruptcy attorney. They can provide you with personalized advice based on your specific financial situation and the applicable state laws.
Chapter 13 Bankruptcy and Liquidation in MN
In a Chapter 13 bankruptcy, there is no liquidation. Instead, you make monthly payments to your Chapter 13 trustee for 3-5 years. We still need to do the same liquidation analysis in a Chapter 13 case as discussed in the Chapter 7 section above, but it doesn’t result in you losing any assets or turning over a portion of your bank accounts to your trustee.
Instead, an experienced bankruptcy attorney will make sure your Chapter 13 payments balance out the amount that is non-exempt, if any. If you have more in your bank accounts than fits within the $13,900 federal limitations, or 25% of your balances is high in the state limitations, it may cause your Chapter 13 payments to increase.
Best Practices While Spending Down Money Before Filing Bankruptcy
If you're considering filing for bankruptcy and have excess funds in your bank account, it's generally advisable to spend down some of that money before filing. However, it's essential to do so strategically and within the bounds of the law.
Here are some tips to keep in mind:
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Avoid fraudulent transfers: Don't transfer funds to friends or family members in an attempt to hide them from creditors. This could be considered fraudulent and could have serious legal consequences.
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Pay legitimate debts: If you have outstanding debts that are not subject to bankruptcy, such as child support or student loans, it's generally okay to continue making payments on these obligations.
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Consult with an attorney: Before making any significant financial decisions, it's always a good idea to seek advice from a bankruptcy attorney. They can help you with the complexities of the bankruptcy process and ensure that you're taking the appropriate steps to protect your financial interests.
Overwhelmed by Debt?
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Frequently Asked Questions
What happens if I have more money than I can protect with an exemption?
If you have more money in your bank account than the allowed cash exemption, you may be required to surrender the excess funds to the bankruptcy trustee. These funds will then be distributed to your creditors.
How much cash can you keep when filing Chapter 7?
The amount of cash you can keep when filing Chapter 7 in Minnesota depends on the specific cash exemption provided by state law. This amount may vary, so it's crucial to consult with a bankruptcy attorney for accurate and up-to-date information.
Can I use my credit cards before filing Chapter 7?
Using your credit cards before filing Chapter 7 can have significant consequences. It may be considered fraudulent activity and could impact your ability to obtain a discharge of your debts. It's generally advisable to avoid using your credit cards in the months leading up to bankruptcy filing.
Can I open a new bank account after filing for bankruptcy in Minnesota?
Yes, you can open a new bank account after filing for bankruptcy in Minnesota. However, you should disclose this new account to your bankruptcy trustee. Some banks may require you to provide your bankruptcy case number when opening a new account.
How does bankruptcy affect joint bank accounts in Minnesota?
In Minnesota, joint bank accounts can complicate bankruptcy proceedings. If you file individually, your share of a joint account may be considered part of the bankruptcy estate. However, the non-filing account holder's funds are generally protected. It's crucial to discuss joint accounts with your bankruptcy attorney to understand the potential implications.
What happens to automatic deposits and payments during bankruptcy in Minnesota?
When you file for bankruptcy in Minnesota, you should immediately stop automatic deposits and payments from your bank account. This includes direct deposits of paychecks and automatic bill payments. Redirecting your income to a new account and manually managing bill payments during the bankruptcy process can help you maintain better control over your finances and avoid potential issues with the bankruptcy trustee.
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LifeBack Law Firm, P.A. is here to help you regain control of your financial future. Our experienced bankruptcy attorneys know how to protect your assets in both Chapter 7 and Chapter 13 bankruptcy. With our expertise in bankruptcy law, we can guide you through the process and develop a personalized plan to address your unique needs.
If you are interested in learning more about how bankruptcy can help with your debts, please contact us. You can schedule a free consultation by visiting our website or calling 844.277.9650. Let us help you take the first step towards a brighter tomorrow.
