Montana debtors in financial trouble may file for bankruptcy protection under Chapter 7 or Chapter 13 of the federal bankruptcy code. In a Chapter 7 case, a court-appointed trustee seizes assets and sells them in order to repay creditors. In a Chapter 13, the trustee prepares a repayment schedule, which allows the debtor to repay a portion of his debt over several years. Montana has its own set of rules that guide bankruptcy cases filed in the state.
When filing Chapter 7 bankruptcy, Montana debtors must submit to a means test, which arose as part of a federal bankruptcy reform law passed in 2005. Debtors who have income over the state's median income level, depending on their household size, may not qualify for Chapter 7. The court will not accept their petition for bankruptcy, or may require them to file for Chapter 13 instead.
If a Montana debtor files a bankruptcy petition under Chapter 7, and passes the means test, the court will appoint a trustee to handle the case. The job of the trustee is to identify all "non-exempt" assets, meaning those which can be seized and sold to repay creditors. While the case is in progress, an automatic stay issued by the court prevents creditors from pursuing any collection actions, or filing new lawsuits, while also halting any pending lawsuits in progress. At the end of the process, the court discharges, or cancels, any debts that the law allows.
Chapter 13 Cases
In a Chapter 13 case, the court-appointed trustee draws up a repayment schedule. The trustee considers any of the debtor's non-exempt assets and income in setting out the monthly payments, which will continue for up to five years. Many debtors choose chapter 13 to get their unsecured debts under control, while catching up on important secured debts, such as a home mortgage or car loan. Creditors with secured loans retain the right to seize the pledged collateral if the debtor defaults, even if the debtor is in bankruptcy.
Montana and the other states have their own schedules of property that is exempt from bankruptcy. The trustee is not allowed to seize these assets or use their value in figuring a Chapter 13 repayment schedule. Although some states allow debtors to choose between federal and state exemptions, Montana does not -- you must use the state exemptions. These include a homestead exemption of $250,000. Montana also exempts up to $4,500 in household goods, up to $2,500 equity in a car, $3,000 in professional books and tools, as well as life insurance, disability and Social Security benefits, retirement accounts, and child support and alimony.
Montana debtors seeking bankruptcy protection under either Chapter 7 or Chapter 13 must file their petitions in the US Bankruptcy Court, District of Montana. Along with the petition, debtors must list all secured and unsecured creditors as well as their assets, whether or not they claim an exemption for those assets. The court schedules hearings in Great Falls, Billings, Butte, Missoula and Kalispell, and offers a summary of its local rules and procedures on the court website.