Asset Exemptions in Minnesota Bankruptcy
Asset Exemption Introduction
If you are sure you are doing a Chapter 13 in Minnesota, you still should not skip this page. At first glance the question of what assets can be claimed as exempt appears to be primarily about Chapter 7. The theory of a Chapter 7 is that all your assets are liquidated by the Trustee and distributed to the creditors. BUT the Trustee can only have assets which are not exempt. So one of the most important issues in Chapter 7 is what assets can the debtor claim as exempt. In many cases the debtor can claim everything or nearly everything he or she has as exempt. This results in the Chapter 7 debtor being able to keep everything or nearly everything he or she has.
In Chapter 13 the exemptions play an important role, although it is more indirect. For the most part, Chapter 13 only concerns cash flow and not assets. The exception is the "best interests of the creditor" rule. This rule says that the payments under a Chapter 13 must total at least as much as the creditors would have received if the case had been a Chapter 7. So the analysis of the assets and exemptions still has to be done just as if it was going to be a Chapter 7. But in a Chapter 13, if there are non-exempt assets, the Trustee doesn't just grab the assets. The Trustee only has to make sure that the payments under the plan add up to a figure which is equal to or greater than the amount of any assets which may be non-exempt.
Here's a video on this topic which I posted on youtube quite a while ago. The ideas expressed in the video are good, but the numbers I used are now out of date. The dollar values of the exemptions referred to in this video have for the most part increased a bit.
In the good old days, a debtor could engage in exemption shopping by moving from state to state to find the best list of exemptions. Minnesota's is actually one of the better choices. With the help of credit industry lobbyists, Congress in passing the 2005 law has attempted to put an end to this practice. They are making it much more difficult by imposing more stringent domicile requirements.
So lets say you moved to Minnesota from Colorado a few months ago. Since you have been here for over three months, Minnesota is where you are required to file your bankruptcy. However, the domicile requirements of the 2005 law say we have to look back 24 months from the date of filing, and then look at the six month period before that. Where you lived for the majority of the time in that six month period determines which state's exemption laws apply. Dave Kelly calls this the "where were you living during the six months before two years ago rule."
Besides the where were you living years ago question, there are also several restrictions in the 2005 law that apply when claiming a homestead as exempt. The two most important ones seem to be the following:
1. Before you can claim Minnesota's full $420,000 of equity homestead exemption, you have to have lived in Minnesota in that homestead for at least 1,215 days - about three and a third years. Prior to that you are limited to exempting $170,350.00 of equity, provided that you have been here long enough to use the exemptions under Minnesota statutes.
2. The bankruptcy trustee can look back ten years for transactions in which assets which would not otherwise have been exempt are converted to homestead equity. For example, let's say you sell your cabin up north and use the proceeds to pay down the balance owing on your homestead mortgage. Under previous law this would have the effect of changing what had been non-exempt equity in the cabin into exempt equity in the homestead, and it was considered an OK thing to do. Under the 2005 law we have to take a much more careful look at such transactions going back ten years. If the bankruptcy trustee can show that the asset conversion was done with the intent to hinder and delay creditors, then part of the homestead exemption could be lost.
The Federal Exemptions
There is a list of exemptions provided by federal law. BUT this list can only be chosen by debtors in states where the legislature has passed a law which "opts in" to the list. Each state gets to decide if this federal list is available for bankruptcy filers in that state. Last time we counted, fifteen states have "opted in" including Minnesota. Bankruptcy is a matter of federal law, but Congress has decided to allow state legislatures to mess with this piece of it. You have the option to use the federal exemption list in Minnesota if:
1. You qualify as being domiciled in Minnesota - see the where were you during the six months before two years ago rule above - or;
2. During the six months before two years ago you were living in a state which has opted in, such as Texas or Washington.
3. During the six months before two years ago you were living in a state where the exemption laws specifically provide that they can't be used by people residing outside the state or can't be applied to property outside that state. Kansas appears to be one such state.
So, PROVIDED that you qualify to use the exemptions available under Minnesota law, there are two completely different lists of exempt assets from which you must choose, one provided by state law and one provided by federal law. The debtor must choose which list he or she is going to use, and then use that list exclusively. Choose well. There can be no crossover between the two lists. In Minnesota it is usually best to use the federal list except in cases where the debtor has a lot of equity in a homestead. The Minnesota homestead exemption is bigger and better than what is allowed under the federal exemptions. Other than in that circumstance, for Minnesota residents the federal list is usually more protective. In large part this is because the federal list contains a catch-all where one can claim anything which may not be exempt under one of the specific provisions.
In joint bankruptcies the following amounts claimable under the federal exemptions can usually be claimed by each of the joint debtors. This does not mean that the exemptions double in joint cases, but sometimes depending on the circumstances the effect is AS IF they have doubled or nearly doubled. Including the most recent increases as of April 2019, the following is a summary of what may be claimed by an individual petitioner under the federal list:
1. $25,150 of equity in the debtor's primary residence.
2. $13,400 of household goods, furnishings and appliances, provided that no single item is valued at over $625.
3. The debtor's interest of up to $4,000. in one motor vehicle.
4. Jewelry of a value up to $1,700.
5. Tools of the trade or business of debtor having a value of up to $2,525.
6. Cash value of life insurance up to $13,400.
7. Professionally prescribed health aids - no dollar limit.
8. Social security benefits, disability benefits, most pension benefits, and child support or alimony - no dollar limits.
9. Personal injury claims having a value of up to $25,150, not including pain and suffering or "actual pecuniary loss."
10. The catch-all: any other assets up to $1,325 in value plus up to another $12,575 of value if the homestead exemption was not fully utilized. For someone with no equity in their home, this can total $13,900.
The federal exemption numbers are scheduled to be updated - increased I hope - again in April of 2022.
The MN State Exemptions
If you choose to claim the exemptions available under the statutes of the State of Minnesota, the exemptions available as of the July 1, 2018 value update include but are not necessarily limited to the following:
1. The family bible, library and musical instruments.
2. A seat or pew in any house or place of public worship and a lot in any burial ground.
3. All wearing apparel, one watch, utensils and foodstuffs of the debtor and debtor's family.
4. Household furniture, household appliances, phonographs, radio and television receivers of the debtor and the debtor's family not exceeding $10,800.
5. 75% of debtor's disposable earnings or debtors earnings up to the amount of the Federal minimum wage for forty hours per week, whichever is more.
6. The debtor's homestead including 160 acres of land. Whether claimed jointly or individually, the value of the claimed homestead exemption may not exceed $420,000 or, if the homestead is used primarily for agricultural purposes, $1,050,000. The homestead exemption does not apply to mortgages or mechanic's liens.
7. Farm machines and implements not exceeding a value of $13,000.
8. Wedding rings or other symbols of marriage exchanged at the time of marriage between the debtor and spouse not exceeding $2,940.00 in value.
9. Tools, implements, machines, instruments, office furniture, stock in trade and library reasonably necessary in the trade, business or profession of the debtor not exceeding $12,000 in value; provided that this exemption and the farm machine exemption may only be combined in an amount not to exceed $13,000.
10. The library or apparatus used in the instruction of youth in any university, college or seminary which is open to the public.
11. Life insurance proceeds of a surviving spouse or child not exceeding $48,000. Add another $12,000 for each dependent of the surviving spouse or child.
12. Benefits from a police or fire department association or from a fraternal benefit association.
13. A manufactured home inhabited as a home by the debtor.
14. One motor vehicle to the extent of a value not exceeding $4,800. This number may be higher if the vehicle has been modified to accommodate someone with a physical disability.
15. Cash value of an unmatured life insurance policy up to $9,600.
16. Employment benefits under a stock bonus, pension, profit sharing, annuity, individual retirement account or similar plan on account of illness, disability, death, age or length of service up to $72,000 and "additional amounts ... to the extent reasonably necessary for the support or the debtor and any spouse or dependent of the debtor."
17. Health savings accounts and medical savings accounts up to a value of $25,000.
Each case is different, and you should consult your attorney concerning the specifics of your case. The entire area is extremely tricky, quirky and sensitive, and this summary of necessity leaves out a great deal of detail. The Minnesota exemptions are usually updated every two years in even numbered years on July 1st, unless the change would be less than 10%. Apparently the adjustments are based on gross domestic product statistics. The above numbers include the most recent updates which became effective July 1, 2018. The next updates should be in 2020.
The health savings account exemption was just added in 2018. A lot more than that should be added or changed in my humble opinion. I carried on about it on my blog not long ago in an article titled "Minnesota State Exemptions Still Leaking Assets Like a Sieve."
My thanks to wpclipart.com for use of the above images of the Minnesota State Flag and the United States Flag.
Kelly Law Office
11900 Wayzata Blvd. #116E
Minnetonka, Minnesota 55305
Phone: (952) 544-6356
Fax: (952) 525-7924
Across I-394 from Ridgedale. Serving the entire Minneapolis and St. Paul area, with easy access from the western suburbs including Minnetonka, St. Louis Park, Golden Valley, Hopkins, Eden Prairie, Maple Grove, St. Michael, Waconia, Medina and Plymouth. Also available by appointment only at 8421 Wayzata Blvd. second floor conference room, St. Louis Park, MN 55426.