Chapter 7 bankruptcy is means by which a debtor can liquidate non-exempt, or unprotected, assets in order to pay down or erase many forms of consumer debt, allowing the debtor to start fresh. However, there are some debts that cannot be erased through chapter 7, such as child or spousal support, tax debt, and most student loans.
In addition, federal laws allow a certain value of various property types to be exempt from liquidation. Every state also has their own laws about exemptions, which may vary. In Minnesota, you may choose to use federal exemption laws or state laws, but you cannot use a mixture of both. Exempt property generally includes a limited vehicle exemption, a limited amount of homestead exemption, clothes, furniture, and some amount of personal property. However, married couples filing jointly can double their exemptions in the state of Minnesota.
How to Keep Your Car
State and federal exemptions differ in this area:
- Federal exemption - $3,225
- Minnesota state exemption - $4,200, or up to $42,000 if that vehicle was modified for use by a disabled person.
That means that if someone’s equity in a car is above those amounts, the chapter 7 bankruptcy trustee may require you to sell the car, allowing you to keep the exempt amount and use the rest to satisfy creditors. If the equity is less than that amount, you may keep your car.
How to Keep Your Home
- Federal homestead exemption - $20,200
- Minnesota state homestead exemption - $200,000 for real property, mobile homes, or manufactured homes ½ or less in the city limits or 160 acres elsewhere
- For primarily agricultural property - $500,000
In addition, Minnesota allows exemptions for other forms of personal property:
- Appliances, furniture, radios, phonographs, and TVs – up to &7,200 in value
- Bible, books, and musical instruments
- Burial plots, church pews or seats
- Clothing (which includes watches), food, and utensils
- Tools of the trade – total cannot exceed $13,000, excluding teaching materials
For those who can claim an exemption for the equity in their home, they must continue making payments on this debt or face foreclosure, even if they have filed for chapter 7 bankruptcy. While the mortgage can be erased, the lien on the property cannot.
Filing Schedule C of a Bankruptcy Petition
Every item of personal property that you wish to exempt under your chapter 7 bankruptcy must be listed in this section, with the following additional information for each item:
- Name the property
- Provide the legal justification for that exemption, either in state or federal law, whichever you have chosen to use
- Provide the value of the exemption
- Provide the current value of the property, which is the assessed value of the property, not the market value, less what you owe
Always Talk to a Bankruptcy Lawyer First
While filing for chapter 7 bankruptcy can be a powerful asset in clearing a bad credit record and erasing unmanageable debt, it is a complex legal process. If it is not filed correctly and if the exemptions are not taken appropriately, they could be disallowed and a family could end up losing their assets rather than saving them. Done right, with the help of an experienced bankruptcy attorney, chapter 7 can be the fresh start a debtor needs.
