Filing for Chapter 7 bankruptcy in Minnesota lets you wipe out your debts and start anew, but what happens to your assets? Which ones can you protect and which ones will you lose? Most assets for most people are protected, but there are limits to what a person can keep when filing bankruptcy. This is complicated, so it is best to work with a lawyer to make sure that everything gets covered.
If something is protected in Chapter 7, then it is called “exempt.” If it isn’t protected, then it is called “non-exempt.”
Since Chapter 7 bankruptcy is essentially a liquidation in which a court-appointed trustee is appointed to double check your assets, and then sell non-exempt ones to pay towards debts, which assets you keep and which ones you lose depends on their status as exempt or non-exempt. What you keep or lose also depends on whether you follow federal bankruptcy exemption laws or Minnesota bankruptcy exemption laws.
So what is the difference exempt and non-exempt property, and how do Minnesota exemption laws and federal exemption laws differ?
Exempt vs Non-Exempt Assets
According to federal law, exempt property is “property that a debtor is allowed to retain, free from the claims of creditors who do not have liens on the property.” These are protected assets that the trustee cannot sell to settle your debts.
On the other hand, non-exempt assets are those that the trustee can take and sell. Proceeds from the sale are then distributed to creditors who have filed a claim against the bankruptcy estate.
Minnesota Exemptions vs Federal Exemptions
Whether you chose to follow Minnesota bankruptcy exemption laws or federal bankruptcy exemption laws generally depends on whether or not you own a home and how much equity you have in it. If you do not own a home or if you have less than $25,000 in equity in it, then you will usually follow federal laws. If you have more than $25,000 in equity in your home, you will usually follow Minnesota laws because they are more generous than federal laws. See below:
- $420,000 homestead equity
- $10,800 household goods and clothing
- $4,800 motor vehicle equity
- $2,940 wedding bands and symbols
- 75% of wages earned
- IRA, 401(k) and pensions
- Public benefits up to $72,000
- $13,000 tools of the trade
- $25,150 homestead equity
- $13,400 household goods and clothing
- $4,000 motor vehicle equity
- $1,700 jewelry
- IRA, 401(k) and pensions
- Public benefits
- $2,525 tools of the trade
Keep in mind, too, that Bankruptcy Code § 104(b) states that exemption amounts must be adjusted for inflation every three years. The Minnesota legislature also adjusts exemption amounts in even-numbered years as long as the amounts have changed at least 10%.
The above federal and Minnesota bankruptcy exemption lists are not complete, but anything that does not fall under federal or state exemption laws is considered non-exempt and can be seized and sold. Some examples of non-exempt property include:
- Property that is not your primary residence
- A newer model vehicle with equity
- Expensive artwork
- Valuable musical instruments that you do not use in your business
- Expensive clothing
- A valuable coin collection
While the most likely scenario in a Chapter 7 bankruptcy case is that the trustee will sell your non-exempt assets to settle your debts, you also have the option to buy back your non-exempt property from the bankruptcy estate if you can afford to do so and then give that money to the trustee to pay your creditors. In this scenario, your creditors are paid and you keep your assets.
It is also possible that recovering and selling your assets will not be worth the cost involved. In this case, the trustee will abandon your property and it will yours to keep.
Contact Walker & Walker Today
Filing for Chapter 7 bankruptcy is a good way to wash away your debts and get a fresh start. It is also important to know what assets you will lose and what assets you will keep. The best way to do this is by having a skilled bankruptcy attorney on your side, someone who can guide you through the bankruptcy process. We are here to do that. Please contact us today.