Considering Bankruptcy? Contact our Minneapolis Bankruptcy Lawyers First!
When you file bankruptcy, you are filing because you are left with very few other options. Your finances are out of control and bankruptcy acts as a sort of reset button. You aren’t filing for bankruptcy because you are flush with cash, and sometimes, you may not even be flush with assets.
In Chapter 7 bankruptcy, your case will be handled by a trustee. Their job is to sell any expensive luxuries you have that aren’t necessary for a normal middle class lifestyle.
However, this doesn’t mean they will take everything, every state has certain exemptions for assets in bankruptcy that may mean you could get to keep certain assets if they meet the exemption criteria. Most people who file bankruptcy in Minnesota keep all of their assets. This is because the laws in Minnesota are actually quite good! We want everyone to be able to maintain a middle class lifestyle without debt.
Asset or No Asset Chapter 7 Bankruptcy
Chapter 7 bankruptcy is typically split into two categories – asset or no asset bankruptcy. Most commonly, Chapter 7 bankruptcy will be a no asset bankruptcy. This means that everything is protected, and no assets will be gathered or sold to pay creditors. If your case is an “asset” case, it usually means that a portion of your tax refunds for one year will be distributed to creditors. Keep in mind that this is the tax refunds for only one year.
Obviously, you want to keep as much as possible, and if you have very little already, a no asset bankruptcy may be possible. You will want to work with your bankruptcy lawyer to save as many assets as you can. During your bankruptcy case, the trustee will look over your list of assets and the exemption for your state.
As an example, say you own a home worth $650,000. You own $100,000 on your mortgage and Minnesota’s exemptions for homes is $420,000. Since you own an asset above the value of the exemption, you would lose this property. It would be sold off. You would be given $420,000, the amount of your exemption. The mortgage would then be paid off. The rest of the money would go towards sale fees and finally, the remainder would go to your other creditors. Most people have less than $420,000 equity in their houses, however, so it is not sold at all.
However, if an asset is below the state’s exemption limit, you would get to keep it. It could not be sold off to satisfy your creditors. If this were true for all your assets, it would be called a no asset bankruptcy and your creditors would erase your debt with no repayment. However, this is only true is the asset did not have any debt that would be considered secured debt.
Secured Versus Unsecured Debt
For your debt in bankruptcy in comes in secured and unsecured forms. Secured debt means there is collateral down on it. An example of this is a mortgage. Chapter 7 bankruptcy can erase mortgage debt, but you will lose that house to foreclosure. The reason being is that the house itself is collateral for that debt, so if you do not make payments, they will collect the collateral instead.
As for unsecured debt, this means debts like credit cards, medical bills, and other bills that do not have any collateral on them. If your asset does not meet the state exemption for bankruptcy, then it will be sold off and will pay your unsecured creditors. The secured creditors will be paid either when the asset is sold off by the bankruptcy trustee or you may continue to pay that debt yourself if you can keep the asset. If you do not continue payment, they will collect that asset anyway.
Need Help? Contact Walker & Walker Today!
Bankruptcy is an excessively difficult process, but that is why you want to go through it with a skilled bankruptcy lawyer. Even if your think your small amount of assets won’t be taken, you will still need help to navigate this occasionally complex process and know what step you need to take next. If you are considering bankruptcy and need help, contact us today to see what Walker & Walker Law Offices can do for you.