When people start to consider bankruptcy, they often imagine themselves losing their home and everything that they own. Often bankruptcy is caused by an illness or business failure that the debtor has little control over. Fortunately, bankruptcy laws are compassionate enough to let debtors keep certain kinds of assets. These assets are referred to as “exempt” assets.
Bankruptcy exemptions vary from state to state. Here are a few of Minnesota’s most important bankruptcy exemptions:
Most types of pensions and retirement funds are exempt in bankruptcy. 401ks, defined benefit pension plans, 403bs and other types of retirement vehicles that are held by an employer are sometimes referred to as ERISA accounts. Any amount of money in an ERISA account is exempt.
In 2005, Congress made up to $1 million of each debtor’s funds in Traditional IRA and Roth IRA accounts exempt as well. Since 2005, the $1 million exemption has been scaled with inflation and now sits at about $1.3 million.
Bankruptcy law gives special status to the home that you live in. Minnesota has a homestead exemption of $390,000. This means that the court will not sell your home to satisfy your creditors if you have less than $390,000 in equity. If you have more equity than this, the court may sell your home, but you will receive $390,000 to keep.
The people who wrote the bankruptcy laws knew that it would be a bad idea to strip debtors of the ability to drive to their jobs. Minnesota allows you to keep a car worth up to $4600. If a vehicle has been modified to carry a wheelchair-bound person, you can keep it if it is worth less than $46,000.
Tools and Personal Effects
Your personal effects, appliances, furniture and wedding rings are important to you. Similarly, your tools may be critical to your ability to restart your life when the bankruptcy proceedings are over. Minnesota allows you to keep the following:
$10,350 worth of clothing, furniture and appliances;
$2,817 worth of wedding rings;
and $11,500 worth of tools in bankruptcy.
There are also provisions that let debtors keep the proceeds of insurance policies and some types of government benefits.
Bankruptcy does not mean losing everything. If you are considering filing for bankruptcy, you need a lawyer who can help you to identify exempt assets. This article is not legal advice; if you need legal advice, please contact us.