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Can You File for Bankruptcy if You’re Unemployed?

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Bloomington Bankruptcy AttorneyPicture this: You lost your job a few months back and are having a hard time finding a new one. Your income is nonexistent, your bills are overdue, and you’re stressed more than ever. Not a pretty picture, right?

Luckily, if you are in this predicament, you can hire a bankruptcy attorney in Bloomington. If you are unfamiliar with the laws that revolve around bankruptcy and unemployment, read on to learn more.

Can You File for Bankruptcy if You’re Unemployed?

The short answer is yes, you can file for bankruptcy if you’re unemployed in Bloomington, MN. In fact, many people do so as the less income you have, the easier it is to qualify for Chapter 7 bankruptcy.

If you are filing for Chapter 13 bankruptcy, being unemployed won’t help you as a steady income is necessary.  The good news is that unemployment compensation benefits can qualify as steady income.

If you are unemployed for a short amount of time, this could be your one chance to wipe out your debt entirely before looking for a new job. Let’s take a look at the differences between these two types of bankruptcy options.

Chapter 7 Bankruptcy

As stated above, those with low income may qualify for Chapter 7 bankruptcy. This means being unemployed can actually aid you in wiping out your debt.

To qualify for Chapter 7 bankruptcy, you’ll need to pass the means test. You can hire a bankruptcy attorney in Bloomington to help you with the process.

The Means Test

The means test will help determine whether or not you qualify for debt relief. During this process, the average monthly income you received within the past six months will be compared to the median income for other households in Minnesota.

Having an income below the median helps you pass the means test. However, you may still be eligible for Chapter 7 if you are over the median income. After deducting your expenses from your income, it will be determined whether or not you have enough money to make payments to creditors. If you cannot afford a Chapter 13 repayment plan, you’ll qualify for a debt discharge under Chapter 7.

Chapter 13 Bankruptcy

If you are receiving unemployment compensation benefits, you must consider carefully whether Chapter 13 bankruptcy is the right solution.  Chapter 13 typically requires that you make debt consolidation payments for at least 3 years.  You should not file Chapter 13 unless it is likely that you will be able to make the payments.  Low-income debtors often choose to file for Chapter 7 to wipe out the debts that qualify.

Chapter 13 bankruptcy is a little different as it has more mechanisms to help those in debt. You’ll need to have regular income to repay creditors under Chapter 13 in Bloomington.

Do You Need a Bankruptcy Attorney in Bloomington?

A bankruptcy attorney in Bloomington can help you file for bankruptcy by explaining your options and helping you fill out the required documents. When you hire a Bloomington bankruptcy attorney, you can also benefit from a redo of your credit report and credit score optimization.

That’s right! Not only are you getting out of debt, but you are also getting a clean credit report and tips on improving your credit score for the future. These tools can help you avoid more debt down the line.

Not sure how to get started with filing for bankruptcy during unemployment in Bloomington, MN? Contact us today to learn how we can help.

Which Type of Bankruptcy Should I File?

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Bankruptcy attorney in BloomingtonIf you have money on your mind, you’re far from alone. One 2019 study found that 56% of all U.S. adults admit to losing sleep over their finances.

When anxiety over your money spirals out of control, the decision to opt for bankruptcy can be a huge relief. Knowing that you’ll be able to manage your debts in a controlled way may even help you sleep better at night.

But a mental commitment to bankruptcy is only the first step. From there, you’ll need to choose which type of bankruptcy is right for your financial situation—which can be a surprisingly difficult decision.

If you’re not sure which bankruptcy method to try, we’re here to help. Let’s take a look at the different types of bankruptcy and how to choose between the most common options.

What Are the Different Types of Bankruptcy?

Bankruptcy is what happens when you owe more than you can afford to pay—but there are many different ways to declare it. Here’s a quick look at the spectrum of options:

  • Chapter 7 bankruptcy: Also called “straight bankruptcy,” this is the most common type of bankruptcy for individuals, as it eliminates most kinds of debts.
  • Chapter 13 bankruptcy: Another common option, this “reorganization bankruptcy” allows you to repay over a period of several years. In most cases only a fraction of the debt need be repaid.
  • Chapter 11 bankruptcy: Often recommended for businesses and corporations, Chapter 11 bankruptcy helps companies keep operating while paying off debts
  • Chapter 12 bankruptcy: Specific to farmers and fisherman, this type of bankruptcy offers more flexibility and higher debt limits
  • Chapter 15 bankruptcy: This type of bankruptcy pertains to international businesses and deals with cross-border bankruptcy issues
  • Chapter 9 bankruptcy: Financially distressed municipalities can use this type of bankruptcy to get protection from creditors.

Although there are six types of bankruptcy, Chapter 7 and Chapter 13 are the most common among individual filers. Though both of these options offer debt relief, they do so in different ways, so it’s important to understand when to file each.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy often provides an easy way to get out of debt fast, making it the more popular bankruptcy option for many individuals. With Chapter 7, you can eliminate most unsecured debt and some secured debts. You can keep your property if it is exempt. Most people are able to exempt all or most of their property.

When to File Chapter 7 Bankruptcy

The ideal candidate for Chapter 7 will meet a few key requirements.

First, your property will be mostly or completely exempt from creditors. In addition, the majority of your financial issues will revolve around unsecured debts like credit card debt, medical bills, and personal loans. Finally, your household income must not exceed Minnesota’s state median for the size of your family, except in certain circumstances. To understand if you’re a good candidate, you’ll need to take a means test to see if you qualify. As you might expect, unemployed filers often have better chances of qualifying for this type of bankruptcy.

Advantages of Chapter 7 Bankruptcy

If you do qualify for this type of bankruptcy, there are a few reasons you may want to choose it over Chapter 13 bankruptcy.

As mentioned above, it can be relatively fast, taking just three to six months in many cases. In addition, because many of your qualifying debts will be wiped out, you won’t need a repayment plan. In some cases, you can even protect your property or car—though this depends on your financial situation.

Chapter 13 Bankruptcy

In certain circumstances, Chapter 7 isn’t the right move. Instead, Chapter 13 bankruptcy can be an effective legal tool to help you reorganize your debt while protecting your assets.

When to File Chapter 13 Bankruptcy

Because you’ll need to commit to a repayment plan, only those with a steady income should consider Chapter 13 bankruptcy. You’ll need to pay your disposable income, meaning the amount of income remaining after considering bankruptcy expenses, to your creditors. This will continue for a set period of three to five years.

In some cases, filers with a high income may find that Chapter 13 bankruptcy is the only option available to them.

While Chapter 7 bankruptcy discharges common debts like medical bills and loans, it doesn’t wipe out every type of debt. This is where Chapter 13 can help: those with student loans, and tax debt, although most student loans are not forgiven, they cannot be collected while a ch. 13 plan is in effect.

Advantages of Chapter 13 Bankruptcy

While many people hope to avoid Chapter 13 due to its mandated repayment plan, this option has one key advantage: it doesn’t require asset liquidation. This means you can hold onto more of the belongings you treasure. This includes avoiding the foreclosure of your home, in most cases.

How to File for Chapter 7 or Chapter 13 Bankruptcy

There are two ways you may find yourself in bankruptcy. First, you may choose to declare bankruptcy of your own volition. Alternatively, your creditors may appeal to the local courts to order you into bankruptcy.

If you are filing of your own volition, the first step is to decide which of the options above is right for your needs. While a means test can help you understand whether or not you qualify, it may also be a good idea to reach out to an attorney as well. An expert can help you understand which of your debts can be discharged and which must be repaid.

A lawyer can also help you through the next steps for filing bankruptcy. This includes prompting you to take certain steps according to court deadlines, as well as helping you fill out documentation while avoiding common mistakes.

With Chapter 13 bankruptcy in particular, you will almost always need to work with an attorney. Because this option is more complex, it helps to have expert advice on determining a repayment amount and submitting a repayment plan to the Minnesota courts.

Hire a Bloomington Bankruptcy Law Firm

While a broad overview of the common types of bankruptcy can help, it’s important to consider your financial situation in full before making a decision. This is where a good lawyer comes in: the right support can help you secure the best bankruptcy terms as you make a fresh start.

When you’re seeking bankruptcy, Gregory J. Wald has a wealth of experience helping clients navigate the Minnesota bankruptcy process. To move forward with less stress and overwhelm, contact us today to get the support you need.

Determining Chapter 13 Payment Amount

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Determining Chapter 13 Payment AmountDid you know that over twelve years more than four million people filed for Chapter 13 bankruptcy? Chapter 13 bankruptcy is a great alternative to Chapter 7 if you have significant property equity and a regular income. Unfortunately, finding out the payment amount that you owe is a complicated process.

Luckily, in this article, we’ll be discussing how a Bloomington, Minnesota attorney can help you determine how much you owe. We’ll also be going into the effect that the COVID pandemic has had on bankruptcy payments. Let’s get started! 

What is Chapter 13 Bankruptcy? 

Chapter 13 is one of the many different types of bankruptcy relief. With this type of bankruptcy, the courts supervise a reorganization of the debts you owe. Over the course of three or five years, you will pay to pack a portion, or all, of the money you owe. You are typically allowed to keep your property during Chapter 13.

As such, it benefits people who have a lot of their equity tied up in these types of assets. It’s important to understand that not everyone will qualify for a Chapter 13 bankruptcy. It requires a specific amount of disposable income at the end of every month to meet a repayment plan. If your income is too low, then the courts aren’t likely to approve of your case.

The same goes for if your debt is considered too high. Most of the time, Chapter 13 will simply give you more time to meet your debts by spreading them out. This differs from Chapter 7 bankruptcy, which benefits debtors with no property or disposable income. If you want to learn more about the different types of bankruptcy, then consult this guide. 

How Do You Determine Your Chapter 13 Payment Amount?

When you file for Chapter 13 bankruptcy you must propose a repayment plan to the courts. This plan details what you can afford to pay creditors. So how do you determine the amount that you owe? There are a variety of factors that need to be analyzed to determine your specific Chapter 13 payment plan.

The first factor is your income and expenses. Income can come from your job, pension, alimony, unemployment payments, disability payments, bonuses, and any other source of regular income. The debtor must provide the court with proof of income for six months.

If you expect your income to increase or decrease, then you can expect your monthly payment to change with it. You will then subtract from this amount any monthly expenditures as defined by the Internal Revenue Service. After you subtract these expenses you are left with your disposable income.

In some cases, this amount becomes your monthly payment. However, it can be further complicated by specific types of debt and non-exempt assets. During the Chapter 13 process, each creditor must come forward with Proof of Claim. This document shows how much debt you are liable for.

All priority debts — things like income taxes, alimony, wages owed, and child support — must be paid. Secured debts, like car and house payments, must also be paid if you wish to keep these assets. Unsecured debts, like credit card payments and medical bills, must at least equal the number of your nonexempt assets. You can learn more about the different types of debts by visiting our guide here. 

Do You Need a Bankruptcy Attorney to Handle Your Bankruptcy Case? 

Technically, you’re allowed to handle your Chapter 13 bankruptcy case on your own. However, we highly recommend not doing this. It’s extremely unlikely that the courts will approve of your payment plan without the help of an attorney. Only 1% of individuals succeed. Why is this?

The reality is that Bankruptcy 13 law is incredibly complicated. It requires you to file schedules, forms, and statements accurately and on time. You’ll also need to make a payment plan all on your own and inform your creditors. On top of that, you must be present at scheduled dates with your creditors.

These sessions typically last all day and can easily drag into added dates and times. If you make a small mistake or forget one of the procedural rules, then the courts can easily dismiss your case. This is a problem because it will affect your ability to file again shortly.

On top of that, your automatic stay might be limited by this dismissal. That’s why we always recommend hiring an attorney with a strong track record. It might be more expensive than representing yourself, but it will save you a lot of headaches and likely failures. 

How Has COVID Affected Bankruptcy Payments?

Due to the economic hardships caused by the COVID pandemic, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into effect on March 27, 2020. For individuals with Chapter 13 bankruptcy, this law has several effects. For one thing, it excludes any disposable income and monthly income from federal emergency relief payments.

The law also allows for repayment plans to be extended by a period of seven years. Keep in mind that these changes only apply to bankruptcies filed after the CARES Act was put into effect and lasts for one year. 

Do You Live Near Bloomington, Minnesota? Contact Gregory J. Wald

We hope this article helped you find out the process for determining your Chapter 13 payments. As you can see, finding the right attorney is an important part of filing for this bankruptcy. Without one, your Chapter 13 case is almost certainly doomed before it even starts. So how do you find a law team you can trust?

If you live in the Bloomington area, then look no further than the Wald Law Firm. Gregory Wald has over thirty years of experience in bankruptcy law.

When you combine this with his small, individualized practice, you get a law team that’s dedicated to the particulars of your case. This gives you the best chance of getting your payment plan approved. Schedule your free consultation today so that we can begin addressing your debt problems as soon as possible. 

The 6 Steps of the Means Test

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The Means Test is Required for Chapter 7 Bankruptcies

If you are an individual debtor with primarily consumer debts then you are required to calculate your current monthly income and expense deductions under a means test.

 

The bankruptcy code defines income as income from all sources without regard to its taxable nature. It also includes contributions to household expenses from any entity received by debtor on a regular basis.

 

A Chapter 7 debtor is required to include the means test calculations in the bankruptcy schedules filed at the beginning of the bankruptcy case. A Chapter 7 debtor whose debts are not primarily consumer debts must also file the means test form after checking the box that their debts are not primarily consumer debts. The means test schedules require that the debtor check a box on the form that a presumption of abuse either does, or does not, arise. If the form indicates that a presumption of abuse exists, the court clerk is required to send a notice to all creditors within 10 days of filing the petition that a presumption of abuse exists.

 

The trustee will review all schedules and documents, and if abuse is presumed, the trustee will file a statement to that affect with the clerk of the bankruptcy court within 10 days after the meeting of creditors. The clerk will mail the statement to all creditors within 7 days of filing. The trustee is required to bring a motion to dismiss, or file a statement explaining why a motion is not filed. A creditor may also bring a motion to dismiss.

 

Debtors who do not meet this standard may not file a Chapter 7 or they may be subject to a dismissal hearing. In the alternative, the case would be converted to a repayment plan under Chapter 13.

 

If a debtor’s income falls below the state median qualifying the debtor to file Chapter 7, creditors do not have the standing to file a motion to dismiss.

 

Means Test Calculation

The means test calculation consists of six steps:

  • Step 1: Determine debtor’s current monthly income (CMI) and annualized current monthly income (ACMI) and compare with the median income schedule.
  • Step 2: Determine necessary expenses allowed under IRS standards.
  • Step 3: Determine additional expenses.
  • Step 4: Determine secured debt expenses and priority claims.
  • Step 5: Determine net current monthly income (CMI).
  • Step 6: Determine if a presumption of abuse exists.

What is the Bankruptcy Means Test?

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Bankruptcy Chapter 7 Means Test

bankruptcy Chapter 7 means testBefore you can file a bankruptcy case, you have to decide which type of bankruptcy best suits your needs. If you want to file Chapter 7 bankruptcy, you will probably have to take what we call the Bankruptcy Chapter 7 Means Test, a mathematical formula designed to determine if you can afford to make payments in a Chapter 13 case.

The Bankruptcy Means Test Is a Gateway to Filing a Chapter 7 Case

Until 2006, individuals were more or less free to choose which type of bankruptcy would help them accomplish their goals, as long as they were not using the bankruptcy system to defraud their creditors. In 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Through BAPCPA, Congress intended to cut down on what it viewed as abusive practices by people filing Chapter 7 straight bankruptcy when they could afford to pay some of their debt in a three to five year Chapter 13 repayment plan. To accomplish this goal, Congress included the Means Test as a provision in BAPCPA.

The Presumption of Abuse

Even though we call this a test, there is no passing or failing as such. Instead, the test tells us whether there is a “presumption” that you would be abusing the bankruptcy system if you filed a Chapter 7. If the presumption arises, you may still be able to file a Chapter 7 case, but you may be required to go before the judge to explain why you are not taking advantage of your creditors.

The Elements of the Means Test

Filing a bankruptcy case requires a lot of financial information. You disclose your income, expenses, all the debts you owe and the type and value of all your real and personal property. The Means Test is primarily concerned with your income and expenses. The Means Test comes in two parts.

Part 1

First, the formula compares your family income to the median income of families of the same size in your state. The median is the point at which there is the same number of families with a higher income as there is with a lower income. If your income is less than the median income for your state, congratulations! You’ve “passed” the test; or more accurately, the presumption of abuse does not arise. You are free to file under Chapter 7.

You can access a chart with the median income of each state on the US Trustee’s website. https://www.justice.gov/ust/means-testing

Part 2

If, however, your family income is higher than the median for you state, you will move on to the second part of the Means Test. In Part II, the formula will deduct your reasonable and necessary expenses from your family income. Some deductions are for the actual expenses you incur, but some are based on national or regional averages. Once your expenses are deducted, the Means Test calculates whether you have a meaningful amount of disposable income at the end of the month. If your disposable income is small enough (or in negative territory), the presumption of abuse does not arise. In effect, you have passed the test. If, however, your disposable income is high enough, the presumption of abuse arises, and you will likely be shut out of filing a Chapter 7 case.

Consequences

If you take the Bankruptcy Chapter 7 Means Test, and the presumption of abuse does not arise, you will generally have no difficulty filing a Chapter 7 case. If you take the Means Test and the presumption of abuse does arise, you can still file a Chapter 7 case, but you will probably draw a motion from your Chapter 7 trustee or your trustee’s boss, the US Trustee, asking the court to dismiss your case for abuse. A qualified and experienced consumer bankruptcy attorney like Gregory J. Wald can help you determine if any of your personal circumstances would allow you to file a Chapter 7 case when the presumption of abuse arises.

People Who Are Exempt from the Means Test

Although the Bankruptcy Chapter 7 Means Test will apply for most filers, some are exempt by law. These include

  • Filers with primarily business-related (non-consumer) debt.
  • Veterans with a disability rating of at least 30%, or who were discharged because of a disability that occurred in the line of duty, and who incurred most of their debt while on active duty.
  • Filers who are in the military reserves or the National Guard and are called to active duty before they file their bankruptcy case.
  • Those who file a Chapter 11 case.

The Means Test and Chapter 13

If you “fail” the Bankruptcy Chapter 7 Means Test, you might consider filing a Chapter 13 case. Although it will take three to five years to complete, you will still receive many benefits. This includes protection from your harassing creditors, no interest accrual on most debt and discharge of most debt that remains unpaid at the end of the plan. You may even be able to use Chapter 13 to change unfavorable terms on a car loan.

Those who file Chapter 13 repayment plan cases are not subject to the Means Test itself. But, Chapter 13 debtors must complete two forms that serve a somewhat similar function.

First, you will file Form 122-C1, Statement of Your Current Monthly Income and Calculation of Commitment Period. This statement, which compares your family income to your state’s median income, determines whether you will enter into a three-year or a five-year repayment plan. If you are above the median, you will stay in Chapter 13 for five years. If below the median, you will only be required to stay in three years, although you can propose a plan to last up to five years if necessary.

Second, you will file Form 122C-2 Chapter 13 Calculation of Your Disposable Income. As it states, this form deducts your reasonable and necessary expenses to determine your minimum Chapter 13 plan payment.

To Learn More About the Bankruptcy Chapter 7 Means Test, Contact Gregory J. Wald Today

The Means Test is complicated. An experienced consumer bankruptcy lawyer like Gregory J. Wald knows how to maximize each step for your benefit. Contact him today at (952) 921-5802 for your free consultation.

 

What Happens to Your Motor Vehicle in Minnesota Chapter 7 Bankruptcy?

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MINNESOTA CHAPTER 7 BANKRUPTCYMost people who file for bankruptcy own or lease a car, truck, or motor cycle.  A motor vehicle is often a necessity, so, if you are thinking about bankruptcy, you are probably concerned about the fate of yours. What happens to your motor vehicle in Minnesota  Chapter 7 bankruptcy depends on whether it is fully paid for, financed, or leased. Here we examine the various possibilities.

Effect of Bankruptcy Filing

Upon the filing of the bankruptcy case, each motor vehicle that you own becomes the property of your bankruptcy estate.

Use of Exemptions

A court-appointed trustee oversees every Chapter 7 case.  It is the trustee’s job to sell the property of the estate to pay back your unsecured creditors (those who don’t have a lien against a particular item of property).  This is where exemptions come into play.  Bankruptcy law allows you to exempt a portion of the equity in certain property from being liquidated and paid to creditors.  The goal is to allow you to keep property that is essential for your livelihood such as means of transportation to work and a home.

There are both federal bankruptcy exemptions and state exemptions.  Which exemptions can be used depends upon the state where the bankruptcy case is filed.

Choosing State or Federal Exemptions

In Minnesota, you can elect to use either the federal bankruptcy exemptions or the Minnesota state exemptions but not a combination of the two.

Currently, the Minnesota exemption for motor vehicles is $4,600 of equity in a single vehicle ($46,000 if the vehicle has been modified for reasons of disability) as compared to the federal motor vehicle exemption of $3,775 of equity in a single motor vehicle.  Unlike the Minnesota exemptions, the federal exemptions have a so-called wild card exemption.  It can be used in addition to or in combination with the federal motor vehicle exemption.  The current federal wild card exemption is $1,250.00 of equity.  Up to an additional $11,850 of the unused federal homestead exemption of $23,675, which applies to real property, may be combined with the federal wild card exemption for a total wild card exemption of $13,100.  This means that you conceivably could exempt up to $16,875 in a motor vehicle by choosing the federal exemptions.

The federal motor vehicle bankruptcy exemption can be doubled for property jointly owned by a married couple.  In other words, a married couple filing for bankruptcy would have a combined motor vehicle exemption of $7,550 aside from any wild card exemption.

Which exemption system – Minnesota or federal – you should elect will depend upon the nature of your assets.  The federal homestead exemption of $23,675 of equity in a primary residence is not nearly as generous as Minnesota’s homestead exemption of $390,000 of equity in a primary residence ($975,000 if the property is used for agricultural purposes).

If you do not have any equity in your homestead, you may wish to elect the federal exemptions if the value of your motor vehicle substantially exceeds the Minnesota motor vehicle exemption or if you own a second motor vehicle that would have no exemption protection.  You can use the federal wild card exemption of $13,100 on top of the federal motor vehicle exemption of $3,775 for a total exemption of $16,875 in a single motor vehicle.  Using the federal exemptions in Minnesota bankruptcy cases makes sense only when you have either zero or very little home equity.  If you have substantial home equity, Minnesota’s state exemptions should be elected so you can avail yourself of the state’s generous homestead exemption.

Minnesota permits a married couple who files a joint bankruptcy to separately claim exemptions.  This means that if there are two motor vehicles, each spouse can use the full exemption of $4,600 per vehicle.

How the Motor Vehicle Exemption Works

Assuming you elect the Minnesota exemptions, this is how the motor vehicle exemption works.  If the total value of a motor vehicle is equal to or less than $4,600, you may keep the vehicle and you do not have to pay any money to the trustee.  If the value of the motor vehicle exceeds $4,600, you technically must pay any difference to the trustee in order to keep the vehicle.  If the difference is relatively small, however, in practice, the trustee will abandon any claim to the vehicle and allow you to keep it.  This is because the cost of selling the motor vehicle will be more than the net proceeds that will be received from the sale.  To sell a vehicle, the trustee must hire a professional and obtain court approval, the cost of which, plus a commission to the trustee, is deducted from the gross proceeds of the vehicle’s sale.

Alternatively, if you have substantial nonexempt equity in the motor vehicle, you can opt to turn the vehicle over to the trustee.  The trustee in turn then will sell the vehicle and out of sales proceeds pay you the value of the motor vehicle exemption, deduct his or her commission and costs of the sale, and distribute the rest to your unsecured creditors.

Motor Vehicle with a Loan

If you have a lien against your motor vehicle, there are four possible scenarios.

First, you can obtain a discharge of the debt and agree to relinquish the motor vehicle to the creditor.  If you fail to return the vehicle, the creditor will need to file a motion with the bankruptcy court for permission to take the vehicle or wait for the bankruptcy case to conclude to proceed with repossession.

Second, you can reaffirm the debt by agreeing to pay the creditor what is owed in return for being allowed to keep the vehicle.  Reaffirmation is a new contract that you enter with the creditor and which must be approved by the bankruptcy court.  As a condition to approval of the reaffirmation, you have to show that you need the motor vehicle and that the payment to the creditor will not cause an undue hardship.

Your third option is to redeem the vehicle.  In a redemption, you offer to pay the creditor a sum equal to the vehicle’s current fair market value in a single lump sum payment.  The creditor must accept the lump sum payment even if fair market value is less than what you still owe for the vehicle.  If you and the creditor cannot agree on fair market value, the court will decide the issue.

Most bankruptcy filers who redeem a vehicle don’t have enough cash on hand to make a single lump sum payment and have to borrow the money usually at high interest rates.

Finally, the bankruptcy trustee can sell the vehicle and pay off the lien to the financing creditor and the value of the motor vehicle exemption to you.  In the majority of cases, however, the existence of the lien will deter the bankruptcy trustee from taking the vehicle and selling it.  The reason is that after paying off the lien and the paying you the exemption value, there will be insufficient funds available to distribute to creditors once the costs of the sale are deducted from the sales proceeds.

Leased Motor Vehicles

A motor vehicle that you are leasing belongs to the leasing company and is not part of your bankruptcy estate. Your lease obligation is a debt that will be discharged in the bankruptcy unless you actively agree to assume the lease.  If you reject the lease, you must return the vehicle to the lessor but you are off the hook for the remaining lease payments and charges.

It is not a good idea for you to assume a vehicle lease unless you are sure you can manage the lease payments.

Bankruptcy laws and exemptions are complex. It is important to hire an experienced bankruptcy attorney to help you make the right choices. To schedule a consultation with bankruptcy attorney Gregory J. Wald, call (952) 921-5802.

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