Minnesota bankruptcy law works hand-in-hand with U.S. federal bankruptcy law. For this reason, the information provided here explains federal and Minnesota bankruptcy laws as they generally apply to Minnesota residents and Minnesota business owners.
This bankruptcy information is provided for general educational purposes only. If you are contemplating bankruptcy, you should obtain advice from a Minnesota bankruptcy lawyer who can advise you regarding your specific situation.
Table of Contents
What is Bankruptcy?
Are you contemplating filing for bankruptcy in Minnesota? Bankruptcy is a way to control your debt. It can discharge, or eliminate, certain types of debt. Bankruptcy may leave a person free to begin fresh and pay new bills without the previous outstanding bills to be paid also. A person can also begin rebuilding his or her credit.
How Can a Chapter 7 Bankruptcy Help?
Chapter 7 Bankruptcy can help people in debt in the following ways:
- Discharge unsecured debts such as credit cards and store cards
- Discharge unsecured bank loans
- Get rid of unpaid medical bills
- Eliminate court judgments
- Stop harassing creditors and collection calls
- Stop wage garnishments immediately
- Unfreeze frozen bank accounts
- Halt foreclosure proceedings
- Give you a fresh start
Who Should File for Bankruptcy?
If your debt is burying you, you may be considering filing for bankruptcy. People who file for bankruptcy are often facing one or more of the following: more credit card, medical, and utility bills than they can pay, money judgments against them, job loss or garnishment of wages, relentless calls from collection agencies. It can happen to anyone. It doesn’t mean you have been irresponsible with money. Hard circumstances befall us all in different ways, and for many people it is hard financial circumstances. By discharging much of the debt owed, people who file for bankruptcy are given an opportunity to get back on their feet with a fresh start. Beware, however, if you attempt to defraud your creditors and hide your assets within one year before filing for bankruptcy, you may not be allowed to file for bankruptcy, or the bankruptcy court may recover the property you tried to hide. When you file for bankruptcy, an automatic stay is placed on your creditors’ attempts to collect debts.
What Is a Bankruptcy Discharge and How Does It Operate?
One of the reasons people file bankruptcy is to get a “discharge.” A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for–
- most taxes;
- child support;
- most student loans;
- court fines and criminal restitution; and
- personal injury caused by driving drunk or under the influence of drugs.
The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, a debt from fraud may not be discharged.
It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order.
You can only receive a chapter 7 discharge once every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement (see below) or any other kind of document to do this.
Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.
What Types of Debts are Dischargeable in Bankruptcy? What Debts are Not?
Credit card debt is dischargeable in bankruptcy. Child support, alimony, tax debt, and student loans are usually not discharged, or eliminated, in bankruptcy.
How Much Does Bankruptcy Cost?
The filing fee and bankruptcy attorney’s fee is usually charged as a flat fee.
In addition, there are counseling requirements in bankruptcy. Prior to filing Chapter 7 or Chapter 13 bankruptcy you must complete an informational consumer credit counseling program and show a certificate of completion. Prior to discharge, there is another required course. These are courses for which you must pay.
What are the Consequences of Filing for Bankruptcy?
Filing for bankruptcy is not supposed to be fun. It’s not a reward. But it is an end to endless creditor calling, relentlessly tracking you down, and sleepless nights trying to figure out how to make money go further than it reasonably can. You get to start over without debt. However, there will be negative effects on your credit score. The fact that you filed for bankruptcy will be found on your credit report for 10 years. You will have to rebuild your credit – a phrase I’m sure you’ve heard. You can rebuild your credit by establishing new credit card accounts, and making payments on time or in full each month.
How Much of My Own Stuff Can I Keep When I File for Bankruptcy?
Certain property is considered exempt from being taken in bankruptcy. Exempt property or assets may include your primary home, one car, work equipment, a limited amount of jewelry, basic necessities like clothing, furniture, and appliances. Exempt property or assets may include pension payments, social security benefits, workers’ compensation benefits, retirement accounts, insurance payouts, unemployment payments, as well as many other types of property and assets. What property and assets are exempt will depend on whether you are using the federal or state exemption list. Fortunately, in Minnesota all residents who have lived in Minnesota for over 2 ½ years, and some that haven’t, are allowed to claim as exempt all property listed as exempt under federal law, or in the alternative, under Minnesota law. States may chose if they wish to include an option to use the federal list of exempt property as exempt in their state, and Minnesota has chosen to do so. You must choose to use one list or the other. You may not choose both. The federal list usually provides for more protection due to a catch-all provision. However, if you have a lot of equity in your home, the Minnesota list probably provides you with more protection. If you have non-exempt property or assets, they will be liquidated, or sold, by order of the court. The money from the liquidation, or sale, is then used to pay back your creditors, proportioned to each based on the amount available and the amount owed. However, many people filing for bankruptcy do not have non-exempt property, and therefore, there is nothing to sell. Do not try to hide assets prior to filing for bankruptcy. If the court finds out you hid assets prior to filing for bankruptcy you may not be allowed to file for bankruptcy, or the bankruptcy court may recover the property you attempted to hide.
What Types of Bankruptcy are There? (Chapter 7 and 13)
There are different types of bankruptcy. You may have heard of “Chapter 7 bankruptcy,” “Chapter 11 bankruptcy,” or “Chapter 13 bankruptcy.” Less common is “Chapter 12 bankruptcy.” These phrases refer to the Chapters in the United States Bankruptcy Code, the federal law that governs bankruptcy.
Chapter 7 – Chapter 7 bankruptcy discharges unsecured debts. Unsecured debts are debts that are not backed by collateral. Credit card debt is unsecured debt. This is the most common chapter under which people file for bankruptcy in Minnesota. Not only people can file for Chapter 7 bankruptcy. Businesses can file for Chapter 7 bankruptcy as well. Credit counseling is required.
Chapter 13 – Chapter 13 bankruptcy is intended to rehabilitate the debtor. You must have some regular source of income to qualify for Chapter 13 bankruptcy. Payment to some or all creditors is still required, but the terms are usually changed. Payments may be made with no interest, or lower interest for up to 5 years. Your assets then do not need to be liquidated, or sold, to pay creditors in a Chapter 13 bankruptcy, because you continue to pay creditors. At the end of a successfully completed payment plan, you are issued a discharge for debts that are considered dischargeable, which will often release you from the remaining debt left after completion of those payments already made. An analysis of exempt property and assets must still be completed just like in a Chapter 7 bankruptcy, because the payments to be made under a Chapter 13 payment plan must be equal or greater than what creditors would receive if you filed for Chapter 7 bankruptcy. A Chapter 13 bankruptcy is helpful to the person who can’t pay their bills but does have some steady income. A trustee is appointed. You pay the trustee, and the trustee pays the various creditors. This may create peace of mind as well, because you now only have to deal with the trustee, and not the many creditors who were relentlessly calling before. The trustee deals with the creditors, and the court orders the creditors efforts to collect from you to cease. You will propose to the court the terms of your repayment, and the court will make the ultimate determination as to these terms. Credit counseling is required. Chapter 13 may be the solution for those who receive an income that is too high to qualify for Chapter 7 bankruptcy, those who have non-exempt assets they do not want to lose in Chapter 7 bankruptcy, and those who have non-dischargeable debt such as tax debt or student loans and very little unsecured debt. You may not receive a Chapter 13 discharge within 4 years of receiving a Chapter 7 discharge.
Chapter 12 – Like chapter 13, but it is only for family farmers and family fishermen.
Chapter 11 – This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the court must approve a plan to repay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property.
If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter.
What Is a Reaffirmation Agreement?
Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements–
- must be voluntary;
- must not place too heavy a burden on you or your family;
- must be in your best interest; and
- can be canceled anytime before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.
If you are an individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the court approves it.
If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.
More Information on Minnesota Bankruptcy Law
In the future, we plan to provide this additional information about Minnesota bankruptcy law topics:
- Minnesota Bankruptcy Exemptions vs. Federal Bankruptcy Exemptions
- Minnesota Bankruptcy Courts (phone, address, and contact information)
- Minnesota Bankruptcy Forms (Minnesota court bankruptcy forms)
- Minnesota Bankruptcy Laws (Minnesota bankruptcy statutes and court rules)
- Minnesota Bankruptcy Filing – Step by Step Process
- Minnesota Bankruptcy – Chapter 7 Bankruptcies (overview of Chapter 7 bankruptcy law)
- Minnesota Bankruptcy – Chapter 11 Bankruptcies (overview of Chapter 11 bankruptcy law)
- Minnesota Bankruptcy – Personal Bankruptcies (overview of personal bankruptcy in Minnesota)
- Minnesota Bankruptcy – Business Bankruptcies (overview of business bankruptcy in Minnesota)