Money — 2 years ago

Minnesota Bankruptcy Laws

by Garry S.

Minnesota Bankruptcy Laws, Bankruptcy Laws Minnesota

Minnesota bankruptcy laws: What are the Laws Regarding Bankruptcies in the State of Minnesota

Bankruptcy affects both business and individuals. In both cases, the debtor fails to pay his/her debt to the creditors. The creditor is paid by liquidating the current assets of the debtor. Different laws govern different states in the United States.

Who should file for bankruptcy?

An individual may need to file for bankruptcy if the following statements apply

  • If the individual is unable to meet debt obligations with the current income.
  • If the ratio of debt to annual income is more than 40%
  • If the individual fails to control spending even after visiting the credit counselor and trying to follow the debt consolidation plan
  • If the individual’s attempt to work with the creditors to set up a debt repayment plan has failed

While filing for bankruptcy, the debtor has to be cautious of fly-by-night bankruptcy filers who take money promising to file a petition but fail to offer sound legal advice.

Laws Regarding Bankruptcies in Minnesota

Bankruptcy is the legal term used when an individual or a business fails to pay their outstanding debts. The bankruptcy process starts with filing a petition under the Bankruptcy Code at the Minnesota district bankruptcy court. The petition is filed after the debtor, or the appointed attorney gathers all the necessary paperwork. The petition is filed under chapter 7 or chapter 13 which is determined by the ‘means test.’

Minnesota Bankruptcy Laws

Bankruptcy means test in Minnesota

Under the Bankruptcy act of 2005, the means test determines how a debtor has to file for bankruptcy. The debtor’s income and expense are analyzed to determine whether the debtor has to file under chapter 7 or chapter 13. To apply the means test, the court will compare the debtor’s average income with the state’s median income. If the debtor’s average income is below the state median income, the debtor has to file for bankruptcy under chapter 7. If it is above the state median income, then the debtor has to file under chapter 13. If the debtor files under chapter 7 instead of chapter 13, the petition is rejected, and the debtor is asked to file again.

Chapter 7 of bankruptcy in Minnesota

Chapter 7 bankruptcy petition is an opportunity to start fresh. Under chapter 7, a trustee is appointed by the court to liquidate the debtor’s assets. The amount gained from liquidation is distributed to the creditor and also to the debtor to start fresh. A part of the liquidated amount is taken by the trustee as a commission for the service rendered. Certain debts can be discharged under chapter 7 which include

  • Alimony
  • child support
  • fraudulent debts
  • certain taxes
  • student loans
  • certain items charged
  • credit card debts
  • unsecured bills

In the majority of cases falling under chapter 7, all debts mentioned above are completely eliminated by bankruptcy.

The debtor can secure certain secured debts such as house, car or furniture by reaffirming those debts by signing a voluntary ‘Reaffirmation Agreement.’ This secured debt cannot be bankrupted again for eight years. The debtor will still owe the debt and must continue to pay.

Bankruptcy Laws Minnesota

Chapter 13 bankruptcy in Minnesota

Under chapter 13 bankruptcy, the debtor proposes to pay the creditors. The debtor makes a repayment plan, promising to pay a part or whole of the debt from the debtor’s future income.

Chapter 13 bankruptcy

  • prevents foreclosure of a house
  • makes up for missed car or mortgage payments
  • helps pay back taxes
  • stops interest from accruing on tax debt
  • allows the debtor to keep valuable non-exempt property

If the debtor doesn’t fail the terms of the repayment agreement, the remaining dischargeable debt is released at the end of the term. The amount to be repaid is determined based on the debtor’s income and other factors. The total amount paid to the creditor must be at least as much as the creditor would have received if the petition was filed under chapter 7. Chapter 13 bankruptcy is mostly used by debtors who would want to keep secured assets such as home, car or furniture.

The bankruptcy process is a difficult, tedious task. But it gives the debtor a window of opportunity to start new.


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