Are you contemplating a Chapter 7 bankruptcy but worried about losing property? If you’re like most people, there’s little reason to be.
Most people do not lose any property when they file for Chapter 7 Bankruptcy Relief. When a person files a Chapter 7, otherwise known as a complete bankruptcy or liquidation, that person is allowed to keep a certain amount of property.
There are laws which define what a person may keep when filing a bankruptcy, called exemptions. If a person has been a resident of Minnesota for at least two straight years, he or she may chose between the federal exemptions or the Minnesota exemptions. The federal exemptions are typically chosen by individuals who do not own real estate or have very little equity in their real estate; whereas the state exemption are typically chosen by those who have a substantial amount of equity in their homes.
The federal exemptions are not as generous with the amount of equity one may keep in a house, but are quite generous regarding the amount of personal property an individual may keep, while the Minnesota state exemptions are essentially the opposite. In most cases, the exemptions are large enough to protect the assets which the person
filing owns; however, sometimes there are nonexempt assets. If an individual has non-exempt assets, he may still be able to keep the property if he is able to pay for the difference in the value of the asset and the amount that he can claim as exempt.
The exemptions are defined by valuations of property. A person is allowed to keep $X amount of equity in property under the exemptions. For example under the Minnesota state exemptions, a person may retain $4,400 in equity in any one automobile. If a person owns a vehicle worth $4,500, then that person would not have enough of an exemption to cover the vehicle.
This means that the person will either have to surrender the vehicle and allow the trustee assigned to their case to liquidate it or that person would need to pay the difference between their exemption and the amount of equity in the vehicle to the trustee. If the person elects to surrender the vehicle, the trustee would then sell the vehicle. The filer would receive the first $4,400 from the sale and the rest would go to the trustee to distribute amongst the debtor’s creditors.
Kris Whelchel, Esq.