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Can I keep my home during a Chapter 7 bankruptcy?

For many working families in the United States, it only takes one accident, illness or sudden event to change financial situations. Even if you work hard and keep reasonable balances on your credit accounts, missing work for a week or more could be financially devastating.

Once you fall behind with one account, you can soon find yourself struggling to make ends meet. Fees and penalties, as well as higher interest rates, can leave you unable to make anything more than minimum payments — or maybe not even that.

Once creditors start calling, you will have to make difficult decisions. Sometimes, adjusting the budget for a few months can help you find financial equilibrium. However, for many people, it is impossible to catch up once you fall behind. Instead of letting creditors take you to court, destroy your credit and garnish your wages, you may want to consider bankruptcy. Despite popular myths that you lose all of your assets in a bankruptcy, you may be able to protect some of your possessions, even if you file for Chapter 7 bankruptcy relief.

You may have to liquidate assets for Chapter 7 bankruptcy

The source of the myth that bankruptcy necessitates getting rid of all of your valuable possessions comes from the practice of asset liquidation. For those whose income is at or below the state average, it is possible to pass a means test and qualify for Chapter 7 bankruptcy. In this kind of bankruptcy, you do not have to create a repayment schedule. Instead, the courts review your assets, sell some of them in some cases and then discharge your unsecured debts.

However, that doesn't mean that the courts will seize any and all property that you own. In Minnesota, there are actually quite generous exemptions from the bankruptcy process. These include up to $4,600 of value in a vehicle (or up to $46,000 for those who have special accommodations in their vehicle for a disability), burial lots, any musical instruments you own and household goods worth up to as much as $10,350.

Items that are exempt under Minnesota law will not be liquidated and sold by the courts to repay your creditors. Thankfully, the homestead exemption that applies to your primary residence is also quite generous.

You can protect the equity in your home during Chapter 7 bankruptcy

If you file bankruptcy on your own, you can protect your equity in your primary home and land. In fact, you can exempt as many as 160 acres, with a value as much as $390,000, from liquidation in bankruptcy. If the homestead is primarily used for agriculture, that value increases to $975,000.

Clearly, the law in Minnesota does its best to protect people from losing their homes as part of bankruptcy. Knowing your rights and the state law can help you make an informed decision about whether bankruptcy protections can help your situaiton.

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Dunlap & Seeger, P.A.
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Rochester, MN 55904

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