Will I Lose My Cabin If I File for Bankruptcy?

Posted by Wesley Scott on July 28, 2015 at 11:00 AM
Wesley Scott

file_for_bankruptcyIn Minnesota, owning a cabin is the ultimate dream. You have likely saved up for many years to be able to buy one, but now a recent financial crisis (i.e. job loss, medical bills, divorce, etc.) has made it hard to keep up with all of your bills. You may be worried that if you file for bankruptcy you will need to sell or let go of your cabin that you worked so hard to buy. However, when you file bankruptcy, you do not lose all of you assets as many people believe. In most cases, debtors are able to keep their assets while eliminating their debts.

Keeping Secured Property When You File Bankruptcy

Whether you keep your cabin when you file bankruptcy will depend on whether you can continue to make the payments on the mortgage, what bankruptcy exemptions are available to you, if you are able to claim the cabin as your primary residence, and the chapter of bankruptcy you file.

Paying the Mortgage Payments for the Cabin

When a person experiences a financial crisis, that person must use what money they do have to pay necessary living expenses such as food, shelter, clothing, transportation, etc. Unnecessary expenses and the secured payments on luxury items are usually last on the list to be paid. If you file bankruptcy, you may be able to keep your cabin. By discharging unsecured debts such as medical bills, credit cards, and personal loans, you may be able to reorganize your budget so that you “free up” enough funds to pay the mortgage payments on your cabin and avoid foreclosure.

Bankruptcy Exemptions

Bankruptcy exemptions allow you to protect the equity in certain assets from your creditors and the trustee. Minnesota has state exemptions that debtors may use when they file bankruptcy. Minnesota is one of the few states that allow debtors to choose whether to use federal bankruptcy exemptions or state exemptions. Neither state nor federal exemptions include a specific exemption for a second home; however, the federal exemptions do include a wild card that may be available for use on a cabin. Depending on the amount of equity in the cabin and your circumstances, a wild card exemption may protect your cabin if you file bankruptcy.

Primary Residence

If you have chosen to surrender your residence, you may be able to claim the cabin as your primary residence if you and your family have moved into the cabin prior to filing bankruptcy. Therefore, you could use the bankruptcy exemption specifically for a residence to protect the equity in the cabin. Whether this fully protects the cabin from your creditors and the trustee depends on the value of the cabin and the payoff of the mortgage.

Chapter of Bankruptcy Filed

A cabin may be more difficult to protect in a Chapter 7 bankruptcy. Under a Chapter 7 bankruptcy, the trustee liquidates any non-exempt assets with equity and uses the proceeds from the liquidation to pay your creditors. Therefore, if your cabin has equity above any liens and applicable exemptions, the trustee may sell the cabin to pay your creditors.

Whether you can keep your cabin when you file bankruptcy under Chapter 13 will depend on the amount of equity in the cabin and the payments on any mortgages. In some cases, you may be able to keep your cabin; however, before an attorney can answer that question, he or she must review your entire financial situation. Each person’s financial situation is different. You cannot assume that what happens in another bankruptcy case will be the same outcome in your bankruptcy case.

If you are struggling with bills you cannot pay, sign up for a free bankruptcy consultation with Kain & Scott, P.A. to determine if filing bankruptcy is the best way to resolve your debt problems and keep your assets safe.

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Topics: Bankruptcy

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