Minnesota State Exemptions Still Leaking Assets Like a Sieve

When you file a Chapter 7 bankruptcy, ownership of all your assets all the way down to your socks passes to a trustee appointed by the court.  The only way to avoid losing your shirt and most everything else you own is to claim the assets as exempt.  If you qualify to use the federal exemptions, it is very likely that everything you own will be exempt and you will keep all your assets.  That’s the result I always want to see – my client gets rid of his or her debts but keeps all his or her stuff.

The only problem with the federal exemption list is that it has a low number for the amount of homestead equity which can be exempted.  If  someone has more equity than can be protected by the federal exemptions, the only other choice is to use the state exemptions.  The Minnesota state exemptions will protect up to $$390,000 of equity in a homestead, but other than that those exemptions leave a lot to be desired.  They are hopelessly out of date in many respects.

For example, the only electronics clearly allowed as being exempt are a radio, a phonograph and television receivers.  Notoriously, computers are not exempt.  Neither are cell phones, tablets, game machines, printers, monitors or any other device that isn’t a TV, radio or phonograph.

There’s no exemption for jewelry, unless it’s a wedding ring that was actually present at the wedding ceremony.  There’s no exemption for guns, sporting goods such as bicycles or exercise equipment, or collectibles of any kind.  Household furnishings, clothing and appliances are exempt, but a riding lawn mower is not considered to be an appliance.  Money in your checking account or savings account is not exempt unless it can be traced to a pay check from employment which was deposited within the last 20 days.  There’s no exemption for any kind of a tax refund which may be owing or which may have accumulated as of the date of filing the bankruptcy.  Bankruptcy trustees routinely present my clients with a form which signs over their tax refunds.

Several weeks ago two bills were introduced at the state legislature in St. Paul to try and correct some of this.  One of them added exemptions for the following, all of which currently are absent from the exemption list:

  • Computers, tablets, printers and cell phones as part of the household goods exemption
  • Jewelry up to a value of $2,817.50 – replacing the existing wedding ring exemption
  • A new section exempting $3,000 of tools, snow removal equipment and lawnmowers
  • A wild card exemption which could be used for up to a $1,250 value of property not fitting into any other exemption; and
  • Health savings accounts (HSA) and medial savings accounts up to a value of $6,500.

When I heard last week that the legislature had passed an amendment to the exemption statute, I got quite excited.  I thought it must be the bill I just described above.  I was quite disappointed to learn that it was another bill which only added one provision: an exemption for health savings accounts and medical savings accounts up to a value of $25,000.  It’s nice that the amount of the exemption is so high, but I almost never see anyone with an HSA which has any more than a few hundred dollars in it.

So except for the new exemption for the HSAs, we are still stuck with all the same old problems with the Minnesota state exemptions.  Oh well, at least the antique radio in my office is exempt.

 

Garnishment Money Refunded by Bill Collecting Lawyer after Bankruptcy Filing

I just love when this happens.  I came in to the office this morning, checked the mail box, and here’s letter from one of the big bill collecting law firms.  Often those letters can be some kind of bad news, but today the letter contained a check for over $1000 for one of my clients.  This was a refund of the money that they garnished from my client’s pay check in the 90 days before we filed the bankruptcy.

So you might wonder how this can be.  After all, once a bill collector takes your money isn’t is just gone?  Most of the time it really is just gone, forever.  An exception to the rule, however, can be money that was garnished or seized within 90 days before the filing either of a Chapter 7 or a Chapter 13 bankruptcy.  The window for getting the money back is a pretty small one.  It’s necessary to have all the following before any of the money can come back:

  • It must be a case where the amount seized in the 90 days is over $600.  If it’s over that amount, it counts as what is called a “preference.”  If it’s less than that, it doesn’t count at all.
  • It has to be a bankruptcy case where the debtor is using the federal exemptions.
  • The debtor has to have claimed the preference amount as exempt using the wild card exemption under the federal exemptions.
  • The bankruptcy trustee has to have not objected to the claim of exemption for the preference.  The trustee has 30 days from the date of the meeting of creditors – what I call the hearing – to object to exemptions.  So this means that the 30 day time period has to have expired.
  • You have to actually contact the creditor or the creditor’s lawyer and ask for the money back.  If they won’t give it back, which is often the case, legal action can be taken to get it back.  I tell my clients to not bother with the legal action, however,  because the attorney fees would probably cost more than you would ever get back.

So what I tell my clients when we have this situation is that I will set up the bankruptcy petition so that the money is listed as a preference under assets and them claimed as exempt.  When the 30 day exemption period expires, I will write a letter and demand the money.  Then we wait and see if the money turns up.  It only does in about half or less of the  cases.

Many of the creditors are so nasty that they don’t care if the law requires them to give the money back.  They know that nobody can afford to pursue them  if they don’t.  But I am always joyful to see that check come in the cases where they do.

This post is for general information purposes only and does not create an attorney-client relationship.  It is not legal advice.  Please consult the attorney of your choice concerning the details of your case.  I am a debt relief agency helping people to file for relief under the federal bankruptcy code.

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