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You don’t make payments back to your creditors in a Chapter 7 Bankruptcy. This is the opposite of a Chapter 13 Bankruptcy where you make regular monthly payments back to your creditors through a Chapter 13 Bankruptcy trustee.

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You don’t make payments back to your creditors in a Chapter 7 Bankruptcy. This is the opposite of a Chapter 13 Bankruptcy where you make regular monthly payments back to your creditors through a Chapter 13 Bankruptcy trustee.

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You have heard this before right? A Chapter 7 Bankruptcy is sometimes referred to as a “Fresh Start” bankruptcy? But what does this mean? It means this- it means that in a Chapter 7 Bankruptcy, you do not make payments back to your creditors. At the end of about a 4 month process your liability on your debts is wiped out (discharged), forever, tax free! Now, that sure seems like a “Fresh Start” to me, how about you?

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Not sure why, but when I think of the word “discharged” I think you have been discharged from duty in the military sense. Obviously, that is not what discharge means in the Chapter 7 Bankruptcy sense. When we say you have been “discharged” in the Chapter 7 Bankruptcy sense, we are referring to what happens with respect your personal liability on your debts. A discharge is granted under Section 727 of the Bankruptcy Code.

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The language of bankruptcy attorneys can seem like Greek to the non-attorney. What does it mean for a Chapter 7 trustee to “liquidate” assets? When would the trustee do such a thing anyway? When we say, a Chapter 7 trustee will “liquidate” assets, we mean the Chapter 7 trustee will sell the assets and reduce the physical assets to money. You can’t take physical assets and distribute those assets to creditors. Instead, you sell the assets, reduce the assets to money, and disburse those proceeds to creditors pro rata and based on a set of priorities.

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So you are reading up on Chapter 7 Bankruptcies and you come across the term “no-asset case” and you wonder what that means. The vast majority of Chapter 7 cases filed in the United States are what we lawyers refer to as “no-asset cases”.

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This is a great question to ask. Normally, debts that are forgiven are taxable income to you. For example, if you had 100k in debt and your creditors all said- forget about it and wiped it out that is fantastic, except, you now will have to pay taxes on the 100k. Why? Anytime an entity writes off a loss on their taxes it is income to someone else. Make sense?  Now, let’s be clear, paying taxes on 100k is better than paying 100k. If your tax bill is 35k you just saved 65k.

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Over a third of Minnesotans have more than $1,000 which they keep for financial emergencies. Credit card payments and medical bills usually do not qualify as such. So, many Minnesota bankruptcy filers have at least a few hundred extra dollars in the bank. Sometimes, this money is not even an emergency fund. They simply need it to pay bills.

The bad news is that, in a Chapter 7 bankruptcy, the trustee liquidates as many nonexempt assets as possible to pay the debtors’ medical bills, credit cards, and other unsecured debts. The good news is that cash is often an exempt asset in Minnesota. Even if that’s not the case, at Kain & Scott, we know how to use legal loopholes in your favor.

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Most banks have very little patience when it comes to missed mortgage payments. In fact, many lenders begin pre-foreclosure proceedings after just two missed payments. So, distressed Minnesota homeowners have very little safety cushion.

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So you decided to file bankruptcy, and get your life back. You have resolved yourself to the fact that of all the options available to you, filing for bankruptcy, getting a fresh start, makes the most sense. I am really proud of you and honor your courage and anxiety! There is a lot of fear about filing bankruptcy. You wonder what people will think of you, what will they ask you and if you have to go to court?

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