The Minnesota Homestead Exception: Chapter 7 v. Chapter 13 | LifeBack

As a general matter, homestead exemptions are to be liberally construed in favor of the exemption. All presumptions are to be made in favor of preservation and retention of the homestead. This is good news for a bankruptcy filer who wishes to protect/exempt their homestead when filing bankruptcy.

The effect of claiming an exemption is to technically exclude property from the bankruptcy estate.

How Exemptions Affect Chapter 7 and Chapter Differently

Exemptions play a significantly different role in a Chapter 13 case and Chapter 7 case, particularly with regard to the homestead exemption. In a Chapter 7 case, exempt property is retained by the debtor, however, the debtor's nonexempt assets are sold by the trustee. If the sum of the mortgage balance and homestead exemption exceed the property value, the Chapter 7 Trustee will abandon the residence from the bankruptcy estate.

Homestead Exemptions in Chapter 7

In a chapter 7 bankruptcy filing, the Trustee is tasked with obtaining the greatest benefit from the debtor’s estate to distribute to the unsecured creditors. Therefore, if a portion of the homestead is not secured and not exempted, the Trustee will liquidate the homestead.

Homestead Exemptions in Chapter 13

The purpose of listing exempt property in a Chapter 13 case is to permit creditors to analyze the Chapter 13 plan to determine whether they will be paid as much as in a Chapter 7 case. Because the purposes and consequences of exemptions differ so much in Chapter 13 and Chapter 7, carefully selecting the bankruptcy chapter that will be most beneficial to your case requires careful consideration.

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Whether filing a Chapter 7 or a Chapter 13 bankruptcy petition a debtor can exempt their qualifying homestead. Contact the attorneys at LifeBackLaw and see us at www.LifeBackLaw.com to determine which bankruptcy filing is right for you.