In Debt In Minnesota? Explore Minnesota’s Alternative To Bankruptcy
As of 2021, Minnesota’s total state debt is estimated to be around $15.3 billion. This debt is composed of both general obligation debt, which is backed by the full faith and credit of the state, and revenue debt, which is backed by specific sources of revenue. The state’s debt per capita is estimated to be around $2,700, which is lower than the national average of $4,650. This suggests that Minnesota has been relatively successful in managing its debt burden. In terms of credit ratings, Minnesota has received high marks from all three major credit rating agencies. Moody’s Investor Services rates the state’s credit as Aa1, while Standard & Poor’s and Fitch Ratings both rate it as AA+. These high ratings reflect the state’s strong financial management and stable economy. As of 2021, Minnesota’s bankruptcy filing rate is lower than the national average. In 2020, Minnesota had a bankruptcy filing rate of 2.27 per 1,000 residents, compared to the national rate of 2.46 per 1,000 residents. This suggests that Minnesota residents are generally able to manage their debts and financial obligations better than residents of other states. The number of bankruptcy filings in Minnesota has been on a declining trend in recent years. In 2020, there were 10,156 bankruptcy filings in Minnesota, which was a decrease from the previous year. Chapter 7 bankruptcy, which is the most common form of bankruptcy, accounted for the majority of bankruptcy filings in Minnesota in 2020. Chapter 13 bankruptcy, which involves a repayment plan, accounted for a smaller percentage of filings.
Minnesota’s Bankruptcy Laws
Bankruptcy in Minnesota is governed by both federal and state law. Here are some key points to keep in mind:
- Types of bankruptcy: There are two main types of bankruptcy for individuals in Minnesota: Chapter 7 and Chapter 13. Chapter 7 bankruptcy allows for the discharge of most unsecured debts, while Chapter 13 bankruptcy involves a repayment plan over a period of three to five years.
- Means test: In order to file for Chapter 7 bankruptcy, you must pass a means test. This test compares your income to the median income for a household of your size in Minnesota. If your income is below the median, you may be eligible for Chapter 7. If your income is above the median, you may still be eligible depending on your expenses and other factors.
- Exemptions: Minnesota has its own set of bankruptcy exemptions that determine what property you can keep in a bankruptcy proceeding. Some examples of exempt property include your primary residence, personal property such as clothing and furniture, and retirement accounts.
- Credit counseling: Before you can file for bankruptcy in Minnesota, you must complete credit counseling from an approved agency. This counseling will help you understand your options and whether bankruptcy is the right choice for you.
- Automatic stay: When you file for bankruptcy in Minnesota, an automatic stay goes into effect. This means that most collection actions, such as wage garnishment or foreclosure, must stop while the bankruptcy is pending.
Personal Bankruptcy and Business Bankruptcy
For individuals, the two most common types of bankruptcy are Chapter 7 and Chapter 13 bankruptcy:
- Chapter 7 bankruptcy: This is also known as “liquidation” bankruptcy. In Chapter 7 bankruptcy, a trustee is appointed to sell non-exempt assets to repay creditors, and most unsecured debts (such as credit card debt or medical bills) are discharged. However, certain debts, such as taxes and student loans, cannot be discharged in Chapter 7.
- Chapter 13 bankruptcy: This is also known as “reorganization” bankruptcy. In Chapter 13 bankruptcy, the debtor creates a repayment plan to pay back creditors over a period of three to five years. The debtor is able to keep their assets, but must have sufficient income to make the required payments.
For businesses, there are several types of bankruptcy that can be filed depending on the type and structure of the business:
- Chapter 7 bankruptcy: Like for individuals, Chapter 7 bankruptcy for businesses involves the liquidation of non-exempt assets to repay creditors.
- Chapter 11 bankruptcy: This is a reorganization bankruptcy for businesses. In Chapter 11, the business creates a plan to restructure its debts and operations in order to continue operating and paying back creditors over time.
- Chapter 13 bankruptcy: This type of bankruptcy is generally only available for sole proprietors, and involves a repayment plan similar to Chapter 13 bankruptcy for individuals.
- Chapter 12 bankruptcy: This type of bankruptcy is specifically for family farmers or fishermen, and is similar to Chapter 13 bankruptcy but with specific provisions for their unique circumstances.
Considering Business Bankruptcy? What You Should Keep In Mind
If you are considering business bankruptcy in Minnesota, there are several things you should keep in mind:
- Explore all options: Bankruptcy should be considered a last resort. Before filing for bankruptcy, you should explore all other options for dealing with your business’s financial difficulties, such as negotiating with creditors or selling assets.
- Understand the types of bankruptcy: As mentioned earlier, there are different types of bankruptcy for businesses, and each has its own requirements and procedures. It’s important to understand the differences between Chapter 7, Chapter 11, and Chapter 13 bankruptcy before making a decision.
- Work with a qualified bankruptcy attorney: Bankruptcy law can be complex, and working with an experienced bankruptcy attorney can help ensure that you understand the process and make informed decisions.
- Consider the impact on employees: Filing for bankruptcy can have a significant impact on your employees, including potential job loss. It’s important to consider the potential consequences of bankruptcy for your employees and take steps to minimize their impact.
- Prepare for the future: Bankruptcy can have long-term consequences for your business’s credit and reputation. It’s important to have a plan for rebuilding your business after bankruptcy and getting back on solid financial footing.
- Be honest and transparent: In bankruptcy proceedings, it’s important to be honest and transparent about your financial situation. Failing to disclose assets or income can result in serious legal consequences.
Does Bankruptcy Discharge All Debts?
While bankruptcy can provide relief from many types of debt, there are certain debts that are generally not dischargeable. Here are some examples:
- Tax debts: Most tax debts, including federal, state, and local taxes, cannot be discharged in bankruptcy.
- Student loans: Generally, student loan debts cannot be discharged in bankruptcy, except in cases where the debtor can show that repaying the debt would cause undue hardship.
- Child support and alimony: Debts related to child support or alimony cannot be discharged in bankruptcy.
- Debts incurred through fraud or willful misconduct: Debts that were incurred through fraudulent activity, such as obtaining a loan through false pretenses, or willful misconduct, such as intentionally causing damage to someone’s property, cannot be discharged in bankruptcy.
- Fines and penalties: Fines or penalties imposed by government agencies or courts, such as traffic tickets or criminal fines, cannot be discharged in bankruptcy.
- Debts for personal injury caused by drunk driving: Debts for personal injury caused by driving under the influence of drugs or alcohol are generally not dischargeable in bankruptcy.
Does Bankruptcy Affect Credit Score And The Ability To Get A Loan?
Bankruptcy can have a significant impact on your credit score and ability to get a loan in the future. First, filing for bankruptcy will generally have a negative impact on your credit score. The bankruptcy filing will appear on your credit report for up to 10 years, and can result in a significant drop in your credit score. Additionally, bankruptcy can make it more difficult to obtain credit in the future. Many lenders are hesitant to extend credit to someone who has filed for bankruptcy, as they may view the borrower as a higher credit risk. If you are able to obtain credit, you may face higher interest rates and less favorable loan terms.
How Are Tax Debts Affected?
Bankruptcy can affect tax debts in Minnesota in different ways depending on the type of tax debt and the type of bankruptcy filed. First, it’s important to note that not all tax debts can be discharged in bankruptcy. Generally, income tax debts that are more than three years old can be discharged in bankruptcy, as long as certain other requirements are met. However, recent income tax debts, as well as most other types of tax debts, cannot be discharged in bankruptcy.
What Happens To Your Car and Home in Bankruptcy?
Whether you will lose your home or car in bankruptcy in Minnesota depends on several factors, including the type of bankruptcy you file, the amount of equity you have in the property, and whether you are current on your payments. In Chapter 7 bankruptcy, also known as liquidation bankruptcy, non-exempt assets may be sold to pay off creditors. However, many states, including Minnesota, have exemptions that protect certain assets from being sold in bankruptcy. In Minnesota, there are homestead exemptions that protect up to $420,000 of equity in your home, and exemptions that protect up to $5,000 of equity in your car. If you have more equity in your home or car than the exempt amount, the bankruptcy trustee may be able to sell the property to pay off your creditors. However, if you are current on your payments and can continue to make your payments after bankruptcy, you may be able to keep your home or car. In Chapter 13 bankruptcy, also known as reorganization bankruptcy, you can keep your property as long as you make payments on your debts according to a court-approved payment plan. This may allow you to catch up on missed payments and keep your home or car.
Statute of Limitations For Collections in Minnesota
In Minnesota, the statute of limitations for collections on most types of debts is six years. This means that if a creditor or debt collector tries to collect on a debt that is more than six years old, you may have a legal defense to prevent them from collecting the debt. It’s important to note that the statute of limitations may vary depending on the type of debt. For example, the statute of limitations for contracts in Minnesota is six years, while the statute of limitations for open accounts, such as credit card debt, is also six years. However, the statute of limitations for judgments is ten years. Additionally, it’s important to understand that the statute of limitations can be “tolled” or paused in certain situations. For example, if you make a partial payment on a debt, the statute of limitations may restart from the date of the payment.
Cons of Bankruptcy in Minnesota
While bankruptcy can provide relief from debt and a fresh financial start, there are also some potential cons to consider before filing for bankruptcy in Minnesota. These include:
- Damage to credit score: Filing for bankruptcy can have a negative impact on your credit score, which can make it more difficult to obtain credit in the future and may result in higher interest rates and less favorable loan terms.
- Loss of assets: In Chapter 7 bankruptcy, non-exempt assets may be sold to pay off creditors. This may include your home or car if you have more equity than the exemption amount. In Chapter 13 bankruptcy, you must make payments according to a court-approved payment plan, which may require you to give up some of your disposable income.
- Public record: Bankruptcy is a public record, which means that anyone can find out that you filed for bankruptcy. This can be a concern for individuals who value their privacy.
- Potential employment and housing issues: Some employers and landlords may view bankruptcy as a negative mark on your financial responsibility, which could impact your ability to obtain employment or housing in the future.
- Emotional stress: Filing for bankruptcy can be a stressful and emotional experience, as it involves admitting that you are unable to pay your debts and may involve giving up assets.
Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy
Will You Regret Filing Bankruptcy?
People may regret filing for bankruptcy for a variety of reasons, including:
- Emotional impact: Filing for bankruptcy can be a stressful and emotional experience. It may feel like a failure or a loss of control over one’s finances.
- Stigma: Despite the fact that bankruptcy is a legal process, there is still a social stigma attached to it. Some people may feel ashamed or embarrassed to admit that they filed for bankruptcy.
- Long-term consequences: While bankruptcy can provide immediate relief from debt, it can also have long-term consequences. It can impact your credit score for several years and may make it more difficult to obtain credit or loans in the future.
- Loss of assets: Depending on the type of bankruptcy filed, people may have to give up non-exempt assets, such as their home or car, in order to pay off creditors. This can be a difficult and emotional experience.
- Potential legal issues: Filing for bankruptcy does not necessarily resolve all financial issues. If there are ongoing legal disputes, such as lawsuits or liens, these may still need to be addressed.
What Happens If You Do Not Qualify For Bankruptcy In Minnesota?
If you do not qualify for bankruptcy in Minnesota, it may be because you do not meet the eligibility requirements for Chapter 7 or Chapter 13 bankruptcy. In that case, you may need to explore other debt relief options, such as debt settlement. There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.
- No BK on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
- Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
- Emotional Impact: People report horror stories of the negative emotional impact of BK.
- With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
- Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
- Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.
CuraDebt – An Alternative To Consider
CuraDebt, a professional debt settlement firm, is a great alternative to bankruptcy. We have a team of debt professionals who are ready to help you better understand and potentially eliminate your debts. Contact us today for your free consultation. 1-877-850-3328