In most chapter 7 cases, the debtor does not have to give up any property because all the property they have is exempt, and therefore, protected, under law. However, in certain cases, some debtors may have property that is not protected.
Qualifying for Chapter 7 Bankruptcy in Minnesota
Debtors who make below the median State income for their household size qualify for filing a chapter 7 bankruptcy. The benefit of filing a chapter 7 bankruptcy is that it is a short process, typically lasting about 3 to 4 months from the time the case is filed until the court enters the discharge order, unlike a chapter 13, which lasts 3 to 5 years.
Chapter 7 vs. Chapter 13 Bankruptcy in MN
Another advantage to being in chapter 7 bankruptcy is that the debtor is not required to make payments towards their debts like they would in a chapter 13 bankruptcy case. However, the downside to filing a chapter 7 bankruptcy is that the debtor may have to surrender certain property that is not exempt (protected under law) to the trustee who then “liquidates” the property by converting it into cash and distributing the proceeds to creditors.
In a chapter 13 bankruptcy, the debtor does not lose property but must pay out to their unsecured creditors, at minimum, the amount that those creditors would have received had the debtor filed a chapter 7 case.
Determining Unprotected Property in Chapter 7 Bankruptcy
Property that is not protected can be when a debtor has a lot of money in the bank account, gets a very large tax refund, or owns multiple vehicles and other “toys” (i.e. boats, snowmobiles, ATVs, etc.).
Bankruptcy law is designed to allow debtors to keep essential property such as a modest home, basic household goods and wearing apparel, and a modest car for transportation. To the extent there is excessive equity in the vehicles and/or home and if there is a significant amount of other non-essential property (i.e. an expensive boat), such other property will likely not be exempt.
The Process for Filing Chapter 7 Bankruptcy with Non-Exempt Property in MN
So, what is the process that occurs when a debtor files a bankruptcy with unprotected non-exempt property? Typically, this issue is addressed after the debtor’s 341 meeting (a.k.a. the “creditor’s meeting”) which usually occurs about 4 to 6 weeks after the date the debtor files for bankruptcy. At that meeting, the debtor answers questions asked by the trustee, including questions pertaining to any potentially non-exempt property that may be available to use to pay creditors.
The trustee will typically assess the value of the non-exempt property and offer the debtor the right to “settle” the matter by paying the trustee directly in order to keep their property. Often times, this amount can be negotiated and sometimes the trustee will allow the debtor to settle the matter by paying somewhat less than the property is worth.
Trustees sometimes allow the debtor to make multiple payments when they are unable to pay the entire amount, in full. Upon reaching a settlement agreement, the trustee will present a formal written agreement to be signed by the debtor, and then, filed with the court, which is subject to court approval.
When Debtor and Trustee Cannot Settle in MN
If the debtor and trustee cannot settle the matter in this manner, the debtor will be required to turn-over the non-exempt property to the trustee. The trustee will typically try to handle this through informal requests to turn-over the property but may file a “turnover” motion with the court to compel the debtor to surrender the property to the trustee if need be.
If the trustee refuses to comply with the turn-over motion, there will need to be a hearing in which the judge will have to decide whether to grant the motion and order the debtor to give up the requested property.
Failure to comply with this court order or to cooperate with the trustee can result in negative consequences for the debtor, such as being held in contempt of court, or even resulting in the loss of the debtor’s discharge in some circumstances.
Non-exempt property in the form of cash will be taken by the trustee to directly pay to creditors. Other property not in cash form (i.e. vehicles) will need to be taken to an auction by the trustee to be sold, the proceeds of which will be given to creditors.
CALL NOW FOR A FREE STRATEGY SESSION FROM A MN BANKRUPTCY LAWYER AT KAIN & SCOTT
It is very important to speak with an experienced bankruptcy attorney before filing for bankruptcy to get a good idea of exactly how this process works and to know what property will be non-exempt. Having an attorney will also serve the purpose of ensuring that your rights are protected and that you are treated fairly during your bankruptcy case. See us at kainscott.com!
