You may have heard or seen advertisements claiming that this firm or that firm offers low-cost bankruptcy filing. But do you know what that advertised “low price” will actually cost you?

Typically, if someone else pays a person’s debts, the IRS considers such payments to be taxable income. Prominent exceptions include certain student loan repayments and gift repayments. Based on that analysis, many people think the answer to this question is a resounding “yes.” But it is actually a surprising “no,” because bankruptcy discharge is different from debt repayment.

Last week, I wrote about the nuts and bolts of bankruptcy - how bankruptcy “works.” In doing so, I concentrated on the paperwork any bankruptcy debtor has to file with the court: the bankruptcy petition, schedules and statements.  And I wrote about those documents through the lens of the two goals of bankruptcy: to treat a debtor’s creditors fairly, and to allow the debtor to live with dignity.  This week, I want to take a deeper look at how bankruptcy law attempts to satisfy those two goals.

What happens when the unexpected happens? You are going along and unexpectedly (or perhaps it is expected), your parent passes away without a will, leaving their home to you as the beneficiary. You are now trying to juggle the mortgage payment on your parent’s home in an effort to keep the home in the family, in addition to another mortgage and your own debt. Pretty soon you realize that your parents were behind on their mortgage payments when they passed away and you get that dreaded foreclosure notice. You were barely making ends meet before and now you need to come up with additional money to save the house.

Ok, so you know you need to file for bankruptcy, but still want to know what’s going to happen to your debt?  More importantly, you want to understand what’s going to happen to your belongings?  Well, the annoying answer to these questions is “it depends.”  In Minneapolis, you are fortunate to have the option of using the rules provided for in the federal bankruptcy code or the benefits provided for under Minnesota Statute.  Depending on your specific situation, it may be more advantageous to use one set of rules over the other.  Before we dive into the discussion about your assets, we’ll take a look at what type of debts you can discharge through bankruptcy.

Have you ever had the experience of buying a piece of furniture that was in a box, not yet assembled? Oh how I hate and I mean HATE assembling furniture. You take everything out of the box, lay it on the floor, and think well this doesn’t look that complicated. So, without further ado, you start screwing this together, and that piece with this piece and things are going fairly well. And then it happens, you are 2/3 finished when a piece of the furniture remains and the furniture just doesn’t quite look right- right?