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Factors used in determining the election to use exemptions
In reviewing the issue of exemptions, important considerations are the type of property, value of the property, whether a specific exemption is granted to it under law, and the available dollar amount of the particular exemptions. All of these factors must be considered in deciding whether you may use a particular exemption to preserve ownership in property.
Homestead exemption
All or part of the equity held by a consumer in a homestead may be covered by the available homestead exemption. It is important to review both federal bankruptcy and state homestead exemptions to see which will work best for all of the property owned by the debtor, including a homestead. For example, in the fall of 2009 the federal bankruptcy exemption for a homestead was $20,200.00 for an individual debtor and $40,400.00 for joint debtors. The Minnesota exemption allows individual or joint debtors to exempt up to $330,000.00 of homestead equity. The federal bankruptcy exemptions, however, may allow the debtor to use up to one-half of any unused portion of the available homestead exemption to be added to the so-called “wild-card” exemption that permits a debtor to exempt property that is not otherwise exempt. If an individual debtor’s homestead equity is $10,100.00 or less, then the remaining $10,100.00 can be added to the increase the value of the wild card exemption. Currently, Minnesota’s exemption laws do not permit such flexibility in the use of its exemptions. As can be seen by these two very different exemptions for the homestead category of property, the choice of which set of exemptions to use must be considered not only in terms of the homestead but potential use on other property as well.
Election of use of Minnesota and Federal Exemptions
There are many different exemptions allowed under Minnesota state law and federal bankruptcy law that must be considered before making the election to proceed with either all federal or all state exemptions. A thorough review of all property, its need, value and coverage under law must be done before making an election on the use of exemptions.
Federal exemptions
Depending on the value of the debtor’s property, there are exemptions under federal bankruptcy law that may protect some or all of the equity a debtor has in his or her property, including a homestead, an automobile, some household goods and furnishings, clothing, some jewelry, some tools used in trade, a wild-card exemption that can protect some assets that are not otherwise covered by a specific exemption statute, Social Security benefits, spousal maintenance, child support, IRAs, ERISA pensions, 401(k)s, some life insurance proceeds and some of the cash value in a life insurance policy. While in many situations, all or a substantial part of the debtor’s property may be covered by the federal bankruptcy exemptions, many of the exemptions have limits. It is therefore important to talk with a knowledgeable Minnesota bankruptcy lawyer about your assets and how best to protect them.
Minnesota State Exemptions
Minnesota state law allows exemptions for the homestead, an automobile, some household goods and furnishings, clothing, some jewelry, some tools, some insurance proceeds, some of the cash value of life insurance policies, IRAs, qualified pension plans, 401(k)s, state retirement benefits, Social Security benefits, some child support and some spousal maintenance payments.
Differences between Minnesota and Federal exemptions
In some instances, such as in with the homestead exemption, the difference in the maximum value of the Minnesota homestead exemption compared to the homestead exemption under the federal bankruptcy laws is dramatic. Similarly, there is a significant difference between the maximum equity allowed under the state automobile exemption and the automobile exemption under the federal bankruptcy law. There are significant differences between the Minnesota exemptions and the federal bankruptcy exemptions in many other categories as well. In determining, which exemptions are to be used is important to get the most up to the date standards and not rely on what may be outdated information. For that reason, even consumers who are familiar with researching such issues should meet with a knowledgeable bankruptcy lawyer who can provide the most up to the date exemptions and help to assess their use in the consumer’s particular situation. The proper election in the use of exemptions is very important and should be done using the most up to date data and considering all important factors applying to an individual situation. Consultation with a knowledgeable Minnesota bankruptcy attorney may be of significant help in making a determination of which set of exemptions are best used in a particular situation.
The use of exemptions in a Chapter 7 case versus the use of exemptions in a Chapter 13 case.
A Chapter 7 bankruptcy is also known as a “liquidation” meaning that a debtor’s non-exempt assets are liquidated and the proceeds applied to the amounts owed to the creditors. If all of the debtor’s assets can be protected under the available exemption statutes, then none of the debtor’s property will be liquidated. On the other hand, if the debtor has non-exempt assets, then if he or she qualifies, the debtor may choose to file a Chapter 13 bankruptcy in an effort to preserve more or even all of the debtor’s otherwise non-exempt assets. For instance, if an individual debtor owns a boat, then the debtor may choose to file a Chapter 13 rather than a Chapter 7 bankruptcy to protect the boat from liquidation. A debtor qualifies for a Chapter 13 if he or she has the ability to meet all of his or her basic monthly expenses and establish a Chapter 13 plan that will pay more to the unsecured creditors than the creditor would get by liquidating the debtor’s non-exempt asset(s). When using Chapter 13 to protect otherwise non-exempt assets the exemptions statutes are used to determine which of the debtor’s assets are exempt and which are not exempt. The value of the non-exempt assets then becomes the baseline from which the Chapter 13 plan payment is determined, keeping in mind that the unsecured creditors must be paid more than they would get if the non-exempt assets were liquidated.
Skilled Minnesota Bankruptcy attorneys
The Minnesota bankruptcy lawyers from Neff Law Firm P.A. have decades of experience helping debtors make choices on the election of exemptions in bankruptcy. These skilled bankruptcy lawyers do an evaluation of all property of a debtor and applicable law before helping the client make a final decision on choice of exemptions. By following through in this way, a debtor can file for bankruptcy relief with a feeling that he or she has done things in a well thought out manner.
