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Bankruptcy is a helpful and generous provision for citizens that have fallen on hard financial times. It provides a legal framework that protects debtors from ruthless creditors, while also reducing creditor losses from sunk costs.
In Minnesota, Chapter 7 bankruptcy is the most common type of bankruptcy that insolvent citizens file. In fact, some 85% of bankruptcies that are filed each year in Minnesota are Chapter 7’s. The following information will discuss what Chapter 7 bankruptcy is, and how it works.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also known as “straight bankruptcy” or “liquid bankruptcy,” is a method of debt relief in which a court trustee takes some of your assets, sells them, and uses the proceeds to pay off your outstanding debts. At the same time, you are left with enough personal property and assets to start fresh and maintain a decent standard of living.
One reason why Chapter 7 bankruptcy is so popular is that it is, in effect, a clean and simple “wipe-out” of all the debts accumulated by an individual. However, in order to be eligible for Chapter 7 bankruptcy you must first pass what is known as the “means test;” i.e., a comparison of your income with the median income of your state, as well as a comparison of your expenses with IRS Local Standards. If you fail the means test, then in the vast majority of cases you would automatically be disqualified from filing for Chapter 7 bankruptcy.
The Means Test is complicated, but don’t worry, your attorney does it for you. We have specialized software and decades of experience to make it cleanly through the Means Test and qualify for Chapter 7.
How Does Chapter 7 Bankruptcy Work?
A Chapter 7 bankruptcy begins when you file a petition with your local bankruptcy court. As soon as you file for Chapter 7 bankruptcy, you immediately create a legal order (known as an injunction) against any of your would-be creditors. In effect, you prevent creditors from going after you or your personal assets to seek debt repayment, by means of:
- Wage garnishment
- Court judgments against you
- Bank account levies
- Vehicle repossession
- House foreclosure
- Direct communication with you or your family members and friends
Only federal courts hear bankruptcy cases. Once your Chapter 7 bankruptcy has been submitted, the bankruptcy court will examine your portfolio of assets to determine what assets you have, if any, are unnecessary for the maintenance of a reasonable standard of living. (These are usually referred to as “non-exempt items.”) The court may then decide to sell these assets in order to pay off at least a portion of your outstanding debt. Some examples of “non-exempt items” could include:
- A second or vacation house
- A luxury car like a Lamborghini or a Ferrari
On the other hand, debtors who file for a Chapter 7 bankruptcy are almost always allowed to keep all of their most important assets, such as their home, at least one or two vehicles, their retirement account, their household goods, their clothing, and so on.
Furthermore, no creditor is allowed to come to your home, sift through your possessions, and make an evaluation as to which assets are “necessary” for you to maintain a reasonable standard of living. On the whole, bankruptcy law is very generous towards the debtor as to what property and possessions he can legally retain as his own.
A few months after filing, and after the bankruptcy court has determined which of your assets are non-exempt from your creditors and which ones you may keep, you will receive a discharge order from the court. This order will show that you no longer owe any debts to your creditors, and you can go on with your life free of any lingering debt-related fear or anxiety.
Reach Out To The Experts At Walker & Walker
If you have further concerns or questions about Chapter 7 bankruptcy, or are in need of the services of a bankruptcy attorney in Minnesota, reach out to the legal experts at Walker & Walker Law Offices today.