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TJ, Esq.
TJ, Esq., Attorney
Category: Bankruptcy Law
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Experience:  Licensed to Practice Law
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When considering bankruptcy, my main concern is getting rid

Customer Question

When considering bankruptcy, my main concern is getting rid of credit cards and 2 home equity loans. I would like to keep the 80 acre farm and that mortgage. What are my options, if any?
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  TJ, Esq. replied 6 years ago.

Hello and thank you for allowing me to address your legal question.

The first thing you should know is that there is a difference between secured debt and unsecured debt. Your credit card debt is unsecured. That means that you did not provide any collateral for the loan. If you do not pay your credit card bills, then the lender is restricted to suing you for the money. On the other hand, your home equity loans are secured debt, which means your house is collateral for the loans. If you do not pay your home equity loans, then the lender has the right to sell your home in order to pay off the loans.

Both secured debt and unsecured debt can be eliminated in a bankruptcy, but a bankruptcy will not eliminate the fact that a loan is secured with collateral. Therefore, despite a bankruptcy, the a secured creditor may sell the collateral to satisfy the debt. In other words, while a bankruptcy could prevent the credit card company from suing you, obtaining a judgment, and trying to sell your home to satisfy the judgment, it will not prevent your mortgage lenders from selling your home to satisfy the unpaid loans.

Are your two home equity loans for the farm that you’d like to keep? If so, then you will need to continue to pay those loans. Another factor to consider is that not all states have homestead exemptions. For example…If you live in Florida, then your home’s equity is totally protected during a bankruptcy. On the other hand, in Maryland your home’s equity would not be protected at all during a bankruptcy (therefore, if you had equity, your home would likely be sold). Some states fall in-between in that they allow a debtor to keep a certain amount of his home’s equity, but not all. You haven’t mentioned your state, so I can’t tell you whether any of your home’s equity can be protected (if you provide your state, I’ll be glad to look it up for you).

The last major factor to consider is whether you qualify for a chapter 7 or chapter 13 bankruptcy. In a chapter 7 bankruptcy, your unsecured debt would be wiped out immediately. In a chapter 13 bankruptcy, you would pay a certain percentage of your unsecured debt over a 3 to 5 year plan (at the end of the term of the plan, you would be discharged and the bankruptcy would be over). Not everybody qualifies for a chapter 7 bankruptcy, and it is dependant on factors such as your income, the amount of your unsecured debt, etc. You’ll need to meet with a local bankruptcy attorney in order to determine if you qualify.

Did I answer your general questions?

DISCLAIMER: Please understand that the complexities of most legal problems cannot be sufficiently addressed in this setting. Accordingly, my post is intended as general information only, and should neither be construed as specific legal advice, nor as an adequate substitute for the retention of legal counsel.

Customer: replied 6 years ago.
I live in Minnesota. We are using the 80 acres for a little hobby farm-3 cows. My debt to income ratio is extremely terrible-only assets would be the farm property-no 401, only 1 vehicle-which i'm not very attatched to. any idea what the laws in minnesota would mean to me?
Expert:  TJ, Esq. replied 6 years ago.

Hello again.

I’m unclear whether your farm is also your primary residence. If not, then you cannot protect your farm’s equity under the Minnesota’s homestead exemption laws. If it is your primary residence, then the following law applies:

510.02 AREA AND VALUE; HOW LIMITED.

Subdivision 1. Exemption. The homestead may include any quantity of land not exceeding 160 acres. The exemption per homestead, whether the exemption is claimed by one or more debtors, may not exceed $300,000 or, if the homestead is used primarily for agricultural purposes, $750,000, exclusive of the limitations set forth in section 510.05.

So, if your farm is under 160 acres, and if the equity is under $750,000, then you can protect it from creditors.

So far as your vehicle is concerned, the law states:

550.37 PROPERTY EXEMPT.

Subd. 12a. Motor vehicles. One motor vehicle to the extent of a value not exceeding $2,000; or one motor vehicle to the extent of a value not exceeding $20,000 that has been modified, at a cost of not less than $1,500, to accommodate the physical disability making a disabled person eligible for a certificate authorized by section 169.345.

So, if your equity in the vehicle is worth less than $2000, then you can protect it from creditors as well.

DISCLAIMER: Please understand that the complexities of most legal problems cannot be sufficiently addressed in this setting. Accordingly, my post is intended as general information only, and should neither be construed as specific legal advice, nor as an adequate substitute for the retention of legal counsel.

 

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