In Minnesota, we use the term "homestead" to mean two different things. We use the term "homestead" to mean "Gets a break on real estate taxes"; but we also use the term "homestead" to mean "land that cannot be taken by a judgment creditor".
In the context of bankruptcy, we almost always use the term in the second sense -- land that is exempt from the claims of judgment creditors. The Minnesota homestead law is comparatively generous. The law (Minn. Stat. Chapter 510) lets a person claim, as his or her homestead, up to 160 acres in size and more than $330,000 in equity. However, one of the rules is that you, or your spouse, have to actually live on the property.
However, there is a way to protect your homestead from judgments even though you no longer live there.
For example, assume you need to move from your property because you live in Grey Eagle and have lost your job there but find a job in, say, Albert Lea. Further assume that you have $100,000 of equity in your home in Grey Eagle, but you may need to file bankruptcy because, while laid off, you lost your insurance and incurred a huge medical bill.
What you do is this: You file a statement with the County Recorder stating that even though you have left the property, you still claim it as your homestead. The filing of that statement will protect the homestead for up to five years.
A couple of cautions: First, remember the statement above about the word "homestead" being used in two ways? The form you file to claim "homestead benefit for real estate tax treatment" is filed with the County Assessor, not the County Recorder. The form you file to claim "homestead as exempt from the claims of judgment creditors" is filed with the County Recorder. Since it is easy to confuse the two terms, you must be certain that the right form is filed with the County Recorder, not just assume that because one form is filed with the County Assessor for real estate tax treatment that it carries over to judgment protection. Second, the form must be filed within six months of moving from the property.
Because the Minnesota homestead exemption is so important, be certain to keep its protection in force even though you move.
Tuesday, January 15, 2013
Monday, November 19, 2012
Foreclosure problems
There
are two ways to foreclose a mortgage in Minnesota, one is “by
action” and one is “by advertisement”.
The methods are set out in Minn. Stat. Chapters 580 and 581.
A foreclosure “by action” means
that the lender sues you, gets a judgment, and then has an auction of
your collateral. A foreclosure “by advertisement” means that the lender sends
you notices, publishes in a legal newspaper, and has a sheriff's
sale, but there is no court involvement. “By advertisement” is
somewhat cheaper and somewhat quicker, and it is the way virtually
every Minnesota residential mortgage is foreclosed.
The difference, from the borrower's
standpoint, is that a foreclosure “by advertisement”, with a six
month redemption period, means that the lender cannot come after you
for a deficiency (a short-fall between the loan amount and the price
at which the lender sells the home to another person). So, if your
mortgage is $150,000, and the lender forecloses the loan “by
advertisement” and with a six month period of redemption, even if
the lender sells the home to a third party for $100,000.00, you will
not owe the lender any money. (This assumes you don't do anything
stupid, like destroy the house!)
If
it is a conventional mortgage, the usual thing that happens is that
Wells Fargo forecloses “by advertisement”.
However,
if it is a VA mortgage , the Veterans Administration may well pursue
you for any deficiency. The same thing applies to a Rural Housing
loan through the US Department of Agriculture (formerly Farm Home
Administration). It appears that an FHA loan has the authority to
pursue you, but I have not seen that happen in practice.
So,
you need to be certain what kind of mortgage you have.
Wednesday, October 24, 2012
Bankruptcy Reform 7 years later.
Bankruptcy Reform 7 years later.
A friend reminded me that October 17 was the anniversary of the effective date of the "Bankruptcy Reform" act. Then-President George W. Bush signed the law earlier, but most parts of the law became effective October 17, 2005.
Some things have changed greatly, some things have not.
Frankly, the changes have been less horrible than many of us (including me) feared.
Bankruptcy has become more complicated, and therefore more expensive. For instance, I now have to gather up paystub information for the prior six-plus months, and complete a form called a means test. Very fortunately, if the result is "under median", we only have to complete two or three of the multi-page form.
Another change has been the requirement to get pre-bankruptcy credit counseling from an approved counseling agency. Because that was relatively unusual back in 2005, we thought that would be a substantial impediment to clients being able to file. However, a whole new industry seems to have grown up to provide credit counseling on-line or by telephone. There are probably at least forty such counseling companies who are approved in Minnesota.
What has not changed is that clients are still in a lot of pain when they come in; what has not changed is that people tend to throw in all their financial reserves in an effort to avoid having to file; what has not changed is that people are very reluctant to file a bankruptcy.
On that "happy" note, I will close this post; however, I add that I am grateful that despite the best efforts of the credit card industry, which lobbied so hard for the 2005 law change, the bankruptcy law still generlaly works so that I can still help people shed their financial "millstone".
A friend reminded me that October 17 was the anniversary of the effective date of the "Bankruptcy Reform" act. Then-President George W. Bush signed the law earlier, but most parts of the law became effective October 17, 2005.
Some things have changed greatly, some things have not.
Frankly, the changes have been less horrible than many of us (including me) feared.
Bankruptcy has become more complicated, and therefore more expensive. For instance, I now have to gather up paystub information for the prior six-plus months, and complete a form called a means test. Very fortunately, if the result is "under median", we only have to complete two or three of the multi-page form.
Another change has been the requirement to get pre-bankruptcy credit counseling from an approved counseling agency. Because that was relatively unusual back in 2005, we thought that would be a substantial impediment to clients being able to file. However, a whole new industry seems to have grown up to provide credit counseling on-line or by telephone. There are probably at least forty such counseling companies who are approved in Minnesota.
What has not changed is that clients are still in a lot of pain when they come in; what has not changed is that people tend to throw in all their financial reserves in an effort to avoid having to file; what has not changed is that people are very reluctant to file a bankruptcy.
On that "happy" note, I will close this post; however, I add that I am grateful that despite the best efforts of the credit card industry, which lobbied so hard for the 2005 law change, the bankruptcy law still generlaly works so that I can still help people shed their financial "millstone".
Wednesday, July 18, 2012
Jail for hiding "stuff"
The news today reports that ex-baseball star Lenny Dykstra pled guilty to several counts of bankruptcy fraud in federal criminal court. The court's docket says:
The Defendant Lenny Kyle Dykstra (1) pleads GUILTY to Count 1s,10s,12s. The plea is accepted. The Court ORDERS the preparation of a Presentence Report. Sentencing set for 9/3/2012 01:30 PM
Mr. Dykstra filed bankruptcy in California back in 2009, after playing professional baseball for the New York Mets. There was a lot of activity in the case -- there are 528 entries on the docket -- and I have not slogged through them. The news reports are that he hid $200,000 worth of baseball memorabilia and other items from his bankruptcy trustee. Obviously the trustee found out about the hidden items and "turned him in" to the federal prosecutors.
Much like Denny Hecker here in Minnesota, this is an extreme case, likely prosecuted to send a message to other Americans who want to file bankruptcy.
Court cases abound with statements to the effect that "bankruptcy is for the poor but honest debtor". Most of the time the items that bankruptcy filers try to hide are far, far less than the amount of the debt they would have gotten rid of had they played straight with the bankruptcy system.
After all, the bankruptcy trustee cannot keep the items for himself or herself; the trustee has to liquidate the assets and turn them into cash. The obvious target audience is the person who filed the bankruptcy case. My experience is that bankruptcy trustees will gladly set up a payment plan for you to use to "buy back" your excess assets. And, remember, the assets the trustee can take are those which are above the exemptions the law allows. Minnesota law allows a person to keep a home with equity of more than $300,000; federal bankruptcy law allows a person to keep a home with equity of $10,100.00 and another $11,975.00 of any property. In both cases, this in addition to a modest car, retirement accounts worth up to $1,000,000.00, and about $10,000.00 worth of household goods.
The moral of this post: Level with your attorney and with your trustee about what you own. You can probably keep much more than you expect, and you can buy back the rest over time. The cost of doing so is surely much, much less than the penalty of getting your bills back, even though you filed bankruptcy, not to mention the possible criminal penalties.
The Defendant Lenny Kyle Dykstra (1) pleads GUILTY to Count 1s,10s,12s. The plea is accepted. The Court ORDERS the preparation of a Presentence Report. Sentencing set for 9/3/2012 01:30 PM
Mr. Dykstra filed bankruptcy in California back in 2009, after playing professional baseball for the New York Mets. There was a lot of activity in the case -- there are 528 entries on the docket -- and I have not slogged through them. The news reports are that he hid $200,000 worth of baseball memorabilia and other items from his bankruptcy trustee. Obviously the trustee found out about the hidden items and "turned him in" to the federal prosecutors.
Much like Denny Hecker here in Minnesota, this is an extreme case, likely prosecuted to send a message to other Americans who want to file bankruptcy.
Court cases abound with statements to the effect that "bankruptcy is for the poor but honest debtor". Most of the time the items that bankruptcy filers try to hide are far, far less than the amount of the debt they would have gotten rid of had they played straight with the bankruptcy system.
After all, the bankruptcy trustee cannot keep the items for himself or herself; the trustee has to liquidate the assets and turn them into cash. The obvious target audience is the person who filed the bankruptcy case. My experience is that bankruptcy trustees will gladly set up a payment plan for you to use to "buy back" your excess assets. And, remember, the assets the trustee can take are those which are above the exemptions the law allows. Minnesota law allows a person to keep a home with equity of more than $300,000; federal bankruptcy law allows a person to keep a home with equity of $10,100.00 and another $11,975.00 of any property. In both cases, this in addition to a modest car, retirement accounts worth up to $1,000,000.00, and about $10,000.00 worth of household goods.
The moral of this post: Level with your attorney and with your trustee about what you own. You can probably keep much more than you expect, and you can buy back the rest over time. The cost of doing so is surely much, much less than the penalty of getting your bills back, even though you filed bankruptcy, not to mention the possible criminal penalties.
Monday, March 19, 2012
Engagement rings
The exempt status of engagement rings in Minnesota, when using the state exemptions, has not been clear for a while. Several years ago the legislature enacted a law that specifically said that "wedding rings" are exempt up to a certain dollar amount (about $2500). Unfortunately, some trustees have claimed that because the law says "wedding rings", that the law did not exempt engagement rings.
The on-line version of the law says that exempt assets include:
(c) The debtor's aggregate interest, not exceeding $1,225 in value, in
wedding rings or other religious or culturally recognized symbols of
marriage exchanged between the debtor and spouse at the time of the
marriage and in the debtor's possession.
This provision was enacted in 2005 -- Chapter 137. The original bill, HF 473, said:
1.15 (c) the debtor's aggregate interest in wedding rings, not
1.16 to exceed $1,225 in value, held primarily for the personal or
1.17 family use of the debtor or a dependent of the debtor.
The conference report to HF 473 said:
1.18 That the House concur in the Senate amendment and that H.F.
1.19 No. 473 be further amended as follows:
1.20 Page 1, line 17, delete "wedding" and after "symbols"
1.21 insert "of marriage exchanged between the debtor and spouse at
1.22 the time of the marriage and"
2.1 We request adoption of this report and repassage of the
2.2 bill.
I think someone was trying to be culturally sensitive and muddied the statute by dropping in the phrase "or other religious or culturally recognized symbols of marriage exchanged between the debtor and spouse at the time of the marriage" and not setting it off by commas or parentheses.
The real-world problem is that bankruptcy trustees (and possibly other creditors too) read the statute as follows:
(c) The debtor's aggregate interest, not exceeding $1,225 in value, in
wedding rings exchanged between the debtor and spouse at the time of
the marriage and in the debtor's possession.
In other words, they ignore the phrase "or other religious or culturally recognized symbols of marriage" and claim that the phrase exchanged between the debtor and spouse at the time of the marriage modified wedding rings, not "other symbols" (whatever other symbols means).
Their claim is that an engagement ring is not a wedding ring and also that it was not "exchanged between the debtor and spouse at the time of the marriage"
Recently Judge O'Brien had a case in which the trustee was making that argument. Fortunately, the judge did not agree and ruled that the debtor's engagement ring and wedding ring, as a set, were exempt.
There is an undercurrent in the case however. The trustee is claiming that the debtor tried to conceal the existence of the engagement ring and is trying to get the judge to rule that the debtor cannot exempt the ring -- even though it would otherwise be exempt -- because the debtor tried to "hide it".
So, that leads to one of the "unwritten rules" -- "If you want to keep it, you have to list it."
The on-line version of the law says that exempt assets include:
(c) The debtor's aggregate interest, not exceeding $1,225 in value, in
wedding rings or other religious or culturally recognized symbols of
marriage exchanged between the debtor and spouse at the time of the
marriage and in the debtor's possession.
This provision was enacted in 2005 -- Chapter 137. The original bill, HF 473, said:
1.15 (c) the debtor's aggregate interest in wedding rings, not
1.16 to exceed $1,225 in value, held primarily for the personal or
1.17 family use of the debtor or a dependent of the debtor.
The conference report to HF 473 said:
1.18 That the House concur in the Senate amendment and that H.F.
1.19 No. 473 be further amended as follows:
1.20 Page 1, line 17, delete "wedding" and after "symbols"
1.21 insert "of marriage exchanged between the debtor and spouse at
1.22 the time of the marriage and"
2.1 We request adoption of this report and repassage of the
2.2 bill.
I think someone was trying to be culturally sensitive and muddied the statute by dropping in the phrase "or other religious or culturally recognized symbols of marriage exchanged between the debtor and spouse at the time of the marriage" and not setting it off by commas or parentheses.
The real-world problem is that bankruptcy trustees (and possibly other creditors too) read the statute as follows:
(c) The debtor's aggregate interest, not exceeding $1,225 in value, in
wedding rings exchanged between the debtor and spouse at the time of
the marriage and in the debtor's possession.
In other words, they ignore the phrase "or other religious or culturally recognized symbols of marriage" and claim that the phrase exchanged between the debtor and spouse at the time of the marriage modified wedding rings, not "other symbols" (whatever other symbols means).
Their claim is that an engagement ring is not a wedding ring and also that it was not "exchanged between the debtor and spouse at the time of the marriage"
Recently Judge O'Brien had a case in which the trustee was making that argument. Fortunately, the judge did not agree and ruled that the debtor's engagement ring and wedding ring, as a set, were exempt.
There is an undercurrent in the case however. The trustee is claiming that the debtor tried to conceal the existence of the engagement ring and is trying to get the judge to rule that the debtor cannot exempt the ring -- even though it would otherwise be exempt -- because the debtor tried to "hide it".
So, that leads to one of the "unwritten rules" -- "If you want to keep it, you have to list it."
Thursday, July 28, 2011
What is Charged Off Debt?
Many times people will see that one or more of their debts is "charged off".
Charged off is an accounting term that means an account is no longer active. Often if you have not made payments on a particular account for six months, the creditor will "charge off" the account. Frequently thereafter they will transfer the account to a collection agency or sell it to a debt buyer.
Many people mistakenly believe a deb\t which is "charged off" is no longer owed. Unfortunately, that is incorrect. Debt collectors may try to collect a "charged off" debt even years after the original creditor designated the account as "charged off".
Accounts can get too old to collect -- which is called being barred by the statute of limitations.
If you are contacted regarding a charged off account, one thing to check is whether the statute of limitations prevents you from being sued on a time barred debt.
Charged off is an accounting term that means an account is no longer active. Often if you have not made payments on a particular account for six months, the creditor will "charge off" the account. Frequently thereafter they will transfer the account to a collection agency or sell it to a debt buyer.
Many people mistakenly believe a deb\t which is "charged off" is no longer owed. Unfortunately, that is incorrect. Debt collectors may try to collect a "charged off" debt even years after the original creditor designated the account as "charged off".
Accounts can get too old to collect -- which is called being barred by the statute of limitations.
If you are contacted regarding a charged off account, one thing to check is whether the statute of limitations prevents you from being sued on a time barred debt.
Sunday, June 5, 2011
Three Common Mistakes to Avoid
Three Common Bankruptcy Mistakes to Avoid
Bankruptcy can be complicated. Many people are fearful just thinking about filing for bankruptcy. However, it is important not to let this concern lead you into mistakes. Here is a short list of common mistakes people make, so that you can avoid them.
A. Don’t transfer things or money.
Do not transfer things you own to a friend or relative -- such as a car, boat, or cash. Many times you can protect the items you own; if you transfer them you may forfeit that protection.
B. Don’t pay off creditors.
Don't pay back relatives or friends amounts you owe them. The trustee will ask, and the person you pay likely cannot keep the money. Don't pay unrelated unsecured creditors as much as $600 within the 90 days before you file. Doing so typically creates what is called a “preference” and the trustee can recover that amount from the payee but you do not get the money back yourself.
Don't pay back relatives or friends amounts you owe them. The trustee will ask, and the person you pay likely cannot keep the money. Don't pay unrelated unsecured creditors as much as $600 within the 90 days before you file. Doing so typically creates what is called a “preference” and the trustee can recover that amount from the payee but you do not get the money back yourself.
C. Don't borrow against your 401(k). The funds in your 401(k) account are virtually guaranteed to be protected from creditors; if you take the money out, you may forfeit that protection.
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