Legal Memorandum: Establishing Insolvency in MN

Issue: What is necessary for a debtor to establish insolvency in Minnesota?

Area of Law: Bankruptcy & Creditors Rights
Keywords: Insolvency; Debtor; Debts
Jurisdiction: Federal, Minnesota
Cited Cases: 18 Minn. 414; 173 Minn. 104; 173 Minn. 112
Cited Statutes: Minn. Stat. § 513.42; Uniform Fraudulent Transfers Act (UFTA) § 2; UFTA §§ 1(2), 2(d); § 2 Comment 1
Date: 03/01/2012

Minn. Stat. § 513.42 describes the circumstances constituting “insolvency”:

(a) A debtor is insolvent if the sum of the debtor’s debts is greater than all of the debtor’s assets, at a fair valuation.


(b) A debtor who is generally not paying debts as they become due is presumed to be insolvent.


. . . .


(d) Assets under this section do not include property that has been transferred, concealed, or removed with intent to hinder, delay, or defraud creditors or that has been transferred in a manner making the transfer voidable under sections 513.41 to 513.51.


(e) Debts under this section do not include an obligation to the extent it is secured by a valid lien on property of the debtor not included as an asset.


Minn. Stat. § 513.42; see also Uniform Fraudulent Transfers Act (UFTA) § 2.   

Subsection (a) provides one of the principal methods employed when considering this issue, and is sometimes referred to as “balance sheet insolvency.”  Balance sheet insolvency exists if the party contesting the transfer is able to show that the debtor’s indebtedness exceeded his or her assets.  UFTA § 2(a).  The debtor’s assets include all property of the debtor except property encumbered by a valid lien, property exempt under non-bankruptcy law, property held in a tenancy by the entirety, property concealed […]

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