South Dakota Bankruptcy Exemptions and Law
In board games like Monopoly, players who declare bankruptcy must quit the game, and there is no way for them to return. Furthermore, bankrupt players forfeit all their property. A real-life bankruptcy is much different. It does not end the game. Rather, bankruptcy gives your family a fresh start.
Furthermore, even in a so-called “liquidation bankruptcy," most people get to keep most or all of their property. Either directly or indirectly, bankruptcy protects your assets. Unless you file for bankruptcy, creditors can usually carry through on their threats to seize your property and sell it to pay your debts.
A South Dakota bankruptcy lawyer maximizes these direct and indirect exemptions, meaning you keep as much of your property as allowed under the law. Only an attorney can give you solid legal advice as you go through bankruptcy. Furthermore, only a bankruptcy lawyer can stand up for your rights in court.
Bankruptcy's fresh start is available to debtors who are honest yet unfortunate. Bankruptcy fraud cases, like the Dance Moms bankruptcy fraud matter, are rare, but they do happen. If you have fallen on hard financial times, however, and have not acted fraudulently, bankruptcy is available to give you the fresh start you need.
Some Bankruptcy Essentials
Life is stressful when creditors harass you and you are weighed down by credit card bills and other unsecured debts. Bankruptcy addresses both these situations.
The automatic stay stops most forms of creditor harassment. Bankruptcy debtors do not need to show evidence of fraud, negligence, or other misconduct to stop things like:
- Wage garnishment
- Creditor lawsuits
Generally, Section 362 of the Bankruptcy Code (the automatic stay) not only takes effect immediately, it remains in effect until the judge closes the bankruptcy. That could be up to five years later.
The average South Dakota household has about $5,000 in credit card debt. The bank charges about an 18 percent interest rate on this debt. These families cannot get a fresh start if they struggle to pay these debts. So, bankruptcy discharges most unsecured debts, such as:
- Credit cards
- Medical bills
- Signature loans
- Payday loans
“Discharge" means the judge eliminates a legal obligation to pay a debt. The collateral effects, if any, remain. For example, if the IRS placed a lien on Javier's property before he filed bankruptcy, that lien remains, even if the judge discharges the back taxes. A lawyer must deal with the lien separately.
Back taxes are priority unsecured debts that are dischargeable only in certain situations. This category also includes student loans and family support obligations (FSOs), like alimony and child support. The automatic stay still applies, even if the debt is not dischargeable.
Types of Bankruptcy
People who are struggling with credit cards and other unsecured debt typically file Chapter 7 bankruptcy. Chapter 7 eliminates such debt in as little as six months. Since court supervision ends quickly, these debtors can quickly move on with their lives.
If you can afford to pay some or all of your debt, but need an income-based repayment plan or lowered interest to take care of them, Chapter 13 may be right for you. Chapter 13 gives you up to five years to gradually erase delinquent mortgage payments, past-due car loans, and other secured debt delinquency.
Some jurisdictions allow lawyers to file a “Chapter 20" bankruptcy. As the name implies, this informal type of bankruptcy combines the best elements of Chapter 7 and Chapter 13.
Just like there are formal and informal types of bankruptcy, there are formal and informal qualifications for bankruptcy. Most people are eligible under both.
Chapter 7 debtors must qualify under the means test. This provision was part of the 2005 bankruptcy reform act. You can file Chapter 7 if your annual income is below the average amount. For a South Dakota family of four, this amount was $91,000 as of November 1, 2020. The amount changes every few months.
This number is not set in stone. You might also qualify based on your actual income and expenses. It's more expensive to live in some parts of South Dakota than in other parts.
Chapter 13 debtors must be under the debt ceiling. As of January 1, 2021, these amounts were $1.4 million in secured debt and $400,000 in unsecured debt. These figures include both current and past-due obligations.
In the unlikely event you do not qualify for Chapter 7 or Chapter 13, you still have options. For example, a bankruptcy lawyer can negotiate with your creditors outside bankruptcy. Unlike some debt consolidation plans, these debt negotiations do not adversely affect your credit score. Furthermore, the threat of filing bankruptcy is sometimes more effective than an actual filing.
These qualifications vary in different jurisdictions. Furthermore, since the rules are unwritten, only an experienced bankruptcy lawyer is familiar with them.
We briefly mentioned income and expense information earlier. Debtors must declare this information in Schedules I and J.
Generally, Chapter 7 filers should be marginally in the red every month. Otherwise, the trustee (person who oversees the bankruptcy for the judge) might give the filing some unwanted additional scrutiny. Chapter 13 debtors have the opposite informal qualification. These families must have sufficient income to make a monthly debt consolidation payment.
There are also formal and informal bankruptcy exemptions (bankruptcy property protections). The formal ones are outlined below. The informal exemptions rely on an obscure bankruptcy rule known as the best interest of creditors rule.
The trustee's power to seize and sell your assets, even in a Chapter 7, is not absolute. These actions must clearly benefit creditors, from a purely financial standpoint. Below is an example:
Assume Herman, who owns a small fishing boat, files bankruptcy because ten lenders are harassing him for payment. The boat, which the formal exemptions might not protect, is worth about $1,000. It also needs about $500 in repairs, which the trustee must pay for. Furthermore, the trustee must store and market the boat. On a related note, since most buyers do not pay the asking price, the boat will probably fetch substantially less than $1,000.
Therefore, when all is said and done, Herman's ten creditors would, at most, receive a few dollars each. They might even owe a few dollars each. A sale and seizure would punish Herman, but it would not be in the creditor's best financial interests.
South Dakota's formal bankruptcy exemption system, which debtors can use if they have lived in the state for at least two years, is contained in the state's codified laws. Some highlights include:
- Homestead exemption: All home equity is exempt if the residence is on less than one urban acre or 160 rural acres. Most mobile homes, fifth wheels, and other such items are also exempt, if they are used for a primary residence, they are larger than 240 square feet, and their owners registered them with the state.
- Personal property: Household goods, such as clothes, furniture, appliances, and electronics, are also exempt. Some subcategories, such as books, have exemption amounts limitations. However, most used personal property items have practically no “garage sale" value. Federal law requires debtors to declare these amounts when they file bankruptcy.
- Retirement accounts: IRAs, 401(k)s, and other defined contribution plans are normally exempt. Pension and other defined benefit plans are normally exempt as well. On a related note, public benefits, like Social Security and VA disability payments, are normally exempt as well.
- Insurance policies: These rules are rather complex, mostly depending on the type of policy and beneficiary's relationship to the maker. The bottom line, however, is that most insurance payouts and insurance policy equity amounts are exempt.
- Wildcard: Most filers use this $5,000 exemption to protect motor vehicle equity. This exemption usually goes a long way in this area. Most new car owners have practically no equity in their vehicles. Furthermore, most used cars have almost no financial value. Other people use their wildcard exemptions to protect cash in a bank account, tools of the trade, or a fishing boat.
Some states allow debtors to choose between state and federal exemptions. South Dakota is not one of these states.
Hopefully, this post addressed a number of your questions about bankruptcy in South Dakota. Here are a few other common ones.
How do I start a bankruptcy case in South Dakota?
A significant number of bankruptcies in South Dakota are DIY (Do-It-Yourself) filings. In a few cases, that's a good idea. The forms are available here. But, these forms are rather complex. And, DIY filers have no instructions to consult. They also have no lawyer to ask for guidance.
Furthermore, if things go sideways, DIY filers are completely on their own. As mentioned above, serious matters like bankruptcy fraud and creditor objections are rather common. A good bankruptcy lawyer knows how to successfully resolve these disputes.
Additionally, although an attorney costs more economically, an attorney saves money in other ways. A bankruptcy lawyer gives you peace of mind during an uncertain period. Furthermore, only an attorney can unlock some advanced features, like lien stripping or sign-and drive, which could save your family thousands of dollars.
Where do I file bankruptcy in South Dakota?
South Dakota's bankruptcy courts are in Pierre and Sioux Falls. DIY filers must travel to one of these places. These facilities are only open on a limited basis. Lawyers have access to the state's Electronic Case Filing (ECF) system. They may file documents, pay fees, request documents, and do other things from almost any place at almost any time.
How much does bankruptcy cost in South Dakota?
Filing fees vary in different situations. They are normally about $350 for a consumer bankruptcy. Some debtors are eligible for a payment plan or a fee waiver.
Attorneys' fees vary as well, mostly based on the complexity of the case and the filing location. Fees are normally higher in a Chapter 13. These bankruptcies are more time-consuming than a Chapter 7. Sliding scales and payment plans are typically available.
What debt cannot be discharged in bankruptcy?
Criminal fines and family support obligations, like child and spousal support payments, cannot be discharged in bankruptcy. A bankruptcy lawyer can address these situations in separate matters. Priority unsecured debts, mostly student loans and back taxes, are dischargeable in certain situations. Secured debts, like a home mortgage, are technically dischargeable. However, if the owner stops making payments, the creditor will repossess the collateral after the Automatic Stay expires.
What are the most common reasons to file Chapter 7 bankruptcy?
High medical bills are the leading cause of Chapter 7 bankruptcy in South Dakota. Even if patients have insurance, it usually only covers about 80 percent of some charges. 20 percent of a cancer treatment bill costs more than most people can afford. Other causes include job loss, economic downturn, divorce or separation, and reckless overspending.
Can I keep my cell phone in Chapter 7?
If you want. Cell phones, like insurance agreements, utility services, ISP services, and home security agreements, are executory contracts in bankruptcy. Generally, debtors may continue these contracts. Other debtors use bankruptcy to end or renegotiate them. That's especially true if they are stuck in an unfavorable executory contract arrangement.
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.