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Montana Bankruptcy Exemptions and Law
While you may be worried about losing all of your assets in bankruptcy, Montana has enacted laws that will protect some of your property so that you can use it to move on with your life when you exit bankruptcy.
Montana Bankruptcy Law
While the bankruptcy process is governed by federal law and overseen by federal bankruptcy courts, the U.S. Bankruptcy Code does allow for states to enact rules to help residents shield their property from creditors. This protected property is known as “exempt property" because it is exempt from the rules requiring you to turn over most of your assets to a trustee when you file for bankruptcy.
The Bankruptcy Code provides a set of federal rules regarding exempt property, but Montana has chosen to enact its own rules. Some states let you choose between the federal and state exemptions, but Montana requires you to use its rules if you file for bankruptcy in the state.
When you file for bankruptcy in Montana you must use the exemptions provided for in state law. If you have property that falls within one of the exemptions, you can keep it during your bankruptcy and use it to start over after you have finished.
If you are married, you are not required to file for joint bankruptcy under Montana law. However, if you are married and file for bankruptcy jointly with your spouse, you can each take advantage of many of the exemptions.
Montana allows you to exempt up to $250,000 of the equity you have in a residential property. This doubles to $500,000 for married couples filing for bankruptcy together. If the property is a farm, you can also exempt up to 320 acres of farmland.
To qualify for the exemption, you must file a homestead declaration with your local county clerk.
You are allowed to exempt up to 75% of your weekly wages or 30 times the minimum wage, whichever is higher.
Motor Vehicle Exemption
Montana allows you to exempt up to $2,500 of the equity you have in a motor vehicle.
No Wildcard Exemption
Many states have what is known as a “wildcard" exemption that is popular with bankruptcy filers because it allows them to exempt any property they own, up to a certain amount. Montana does not provide for a wildcard exemption.
Personal Property Exemptions
You can exempt up to a total of $4,500 the value of the following items, up to $600 per item:
- Household furnishings
- Necessary clothing
- Sporting goods
- Musical instruments
- Feed and crops
Tools of the Trade Exemption
You can exempt the tools, implements, and books you use in your trade or profession up to $3,000 in total value.
Insurance Benefits Exemption
Montana offers exemptions for the following benefits:
- The proceeds of a life insurance policy if it includes a clause stating that it should not be paid to creditors
- Group life insurance benefits
- Medical, surgical, or hospital benefits
- The proceeds of an annuity contract, up to $350 per month
- Fraternal society benefits
- Hail insurance benefits
Pension and Retirement Exemptions
Most pension and retirement benefits are exempt, including:
- Tax-exempt retirement accounts like 401(k)s, IRAs, and defined benefit plans
- Firefighter and police officer plans
- University system employee plans
- Plans for teachers and public employees
- Highway patrol officers and sheriffs plans
- Game warden plans
- Judge plans
Public Benefit Exemptions
Montana provides exemptions for the following public benefits:
- Social Security
- Unemployment compensation
- Workers' compensation
- Veterans' benefits
- Local public assistance
- Aid to the aged, disabled, and families with dependent children
- Subsidized adoption benefits
- Vocational rehabilitation to the blind
- Crime victims' compensation
- Silicosis benefits
- Alimony and child support
- The proceeds of an insurance policy for lost or damaged exempt property
- The property of a business partnership
- A burial plot
General Information About Filing for Bankruptcy in Montana
Nearly all personal bankruptcy cases take place under either Chapter 7 or Chapter 13 of the Bankruptcy Code. Both will protect you from your creditors and help you get out of debt, but each handles the bankruptcy process differently and you need to choose the one that is best for your financial situation.
When you file under Chapter 7, you must turn over most of the assets you cannot protect with an exemption to the bankruptcy trustee who will sell them to repay your creditors. It is for this reason that Chapter 7 is often known as “liquidation bankruptcy." However, in exchange for giving up most of your nonexempt property, you will be able to get rid of nearly all of your debt. To keep people from filing for Chapter 7 bankruptcy when they could afford to repay their creditors, Congress has imposed income limits on filers.
Chapter 13 bankruptcy lets you reorganize your debts under a bankruptcy plan that the court has approved. The plan will usually pay off most of your debts over three to five years and the court can force your creditors to accept the debt restructuring and reduce the amount you owe. Filing under Chapter 13 is usually the most beneficial for homeowners because it can help them keep their homes.
To file for Chapter 7 bankruptcy in Montana you must show your income is low enough to qualify. There are two means tests that are used by the court to determine whether you can file under Chapter 7.
The first means test requires you to show that your household income is less than the median income for a Montana household of the same size. If it is under that amount, you qualify. As of November 2020, U.S. Census data showed that the median household income for a Montana family of three was $75,151. Therefore, if you live in a three-person household with less than $75,151 in income you will qualify for a Chapter 7 case in Montana.
To file under Chapter 13 you need to show the Bankruptcy Court that you have a regular income and no more than $419,272 in unsecured debt and $1.26 million in secured debt.
How Do I Start Bankruptcy in Montana?
Before you can file for bankruptcy, you will first be required to complete a credit counseling course to determine whether bankruptcy is the best option for addressing your debt problems. When you file for bankruptcy, you must submit a course completion certificate showing that you have taken the course within 180 days of filing.
If you are hiring an attorney, he or she will file the case on your behalf. But if you are filing without an attorney (known as filing “pro se"), you start the process by downloading the proper forms from Montana's bankruptcy court. You will need to fill them out and file them with the court clerk. Depending on which type of bankruptcy you choose, you will likely need to submit additional documents that are described in the instructions.
How Much Will Bankruptcy Cost in Montana?
Whether you are using an attorney or filing on your own, the filing fee for Chapter 7 bankruptcy is $338 and the Chapter 13 filing fee is $313. Should you not have the money to pay the fee, you can ask the court to pay in installments over 120 days. You can also ask that the court waive the fee if you earn less than 150% of the poverty line.
While you can file for bankruptcy without one, most people choose to have an attorney represent them in bankruptcy. It's difficult to give “typical" prices for Wyoming bankruptcy lawyers because their fees vary wildly based on location and the complexity of your bankruptcy. But most attorneys will charge around $1,100 for a run-of-the-mill Chapter 7 case. Attorneys usually charge more for Chapter 13 cases and complex cases can end up costing you $5,000 or more.
The Automatic Stay Protects You From Creditors
Rarely does anyone file for bankruptcy when they are not facing intense pressure from collections agencies and possible legal action. The automatic stay is issued by the court when you file for bankruptcy and will immediately stop your creditors from harassing you. By protecting you from your creditors, the stay will give you time to work out a plan for resolving your debts through the bankruptcy process.
The automatic stay doesn't just stop phone calls from collection agencies; it will also pause foreclosure actions, car repossessions, and court cases brought by your creditors. Creditors who violate the automatic stay by contacting you or taking any other action to collect their debt may be required to pay damages by the court.
When you file for bankruptcy, nearly all of your debt will be placed into one of two categories: secured and unsecured. You should understand the distinction between the two types of debt because each is treated differently in bankruptcy and may impact your decision to file under Chapter 7 or 13.
You have unsecured debt when you owe money to a creditor, but the creditor has no right to seize your property for failing to pay. This creditor can be anyone to whom you owe money, from a major bank that issued you a credit card to a neighbor who sued you over a dog bite. No matter how you incurred the debt, you now owe an organization or individual money, but they cannot seize your property to force you to pay.
Nearly everyone who files for bankruptcy has at least some unsecured debt. The most common types are unpaid credit card bills, medical bills, and court judgments.
When you owe money to a person or organization that has the right to repossess something you own for nonpayment, you have secured debt. This debt is often created when you enter into a loan contract and put up some of your property as collateral. The most common types of secured debts in personal bankruptcies are home mortgages and car loans.
What happens to Secured and Unsecured Debt in Chapter 7?
One of the primary benefits of filing under Chapter 7 is that any unsecured debt you cannot pay through the sale of the assets you turned over to the bankruptcy trustee will be wiped away. Since most people who file for Chapter 7 have little income and few assets, that usually means that most of your creditors will only be paid a small fraction of what they are owed and the unpaid balance will be discharged by the court.
Your secured creditors will fare better in a Chapter 7 case because they retain their right to repossess your property for failure to pay. The automatic stay will usually postpone the repossession, but you will eventually need to deal with your secured debt in one of three ways:
- Giving the collateral to the creditor: You will lose the property, but in most cases you will be free from the debt.
- Keeping the property and keep making payments: If a Montana exemption covers the equity you have in the property, you may be able to negotiate a payment agreement with the creditor that allows you to keep it.
- Pay off the loan and retain the property: This is unlikely because most Chapter 7 debtors lack the assets to do this.
Secured and Unsecured Debt Under Chapter 13
Filing under Chapter 13 usually lets you keep more of your secured property than you can keep under Chapter 7. That is because your Chapter 13 repayment plan usually restructures your debt so that you pay back your secured creditors over three to five years. The court-approved plan can also reduce the amounts you owe your secured creditors. If you have a mortgage and you would like to keep your home, you will probably need to keep making payments outside of bankruptcy.
Unsecured creditors usually receive more under Chapter 13 than Chapter 7, but are rarely repaid in full. Your unsecured creditors will be paid with the disposable income left over after you have repaid your secured creditors under the repayment plan. Any unsecured debt that has not been repaid when the plan has been completed will be discharged by the court.
Need Help Filing for Bankruptcy in Montana?
Filing for personal bankruptcy can be a complex process and is often difficult when you don't have the help of an experienced local attorney. A bankruptcy lawyer can help walk you through personal bankruptcy and serve as a forceful advocate before the court and while negotiating with your creditors. A bankruptcy attorney will also understand how to take full advantage of Montana's bankruptcy exemptions to keep as much property as possible out of the hands of your creditors.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.