What Property You Could Keep After Bankruptcy

RyanD
April 29, 2013

One of the major concerns people face when declaring bankruptcy is what assets they will be able to keep. While bankruptcy eliminates many problems for debtors giving them a fresh start, it does come at a cost. There are state and federal bankruptcy laws that dictate which property is exempt from creditors and which property can be used to satisfy creditors. Depending on property exemption law and an individual’s unique set of circumstances, either chapter 7 or chapter 13 bankruptcy may represents a better choice. Each type of bankruptcy has its advantages and requirements.

Claiming Exempt Property

A person who files bankruptcy includes a list of property claimed as exempt. The fair market value of each item must also be included with this list. The schedule should cite the applicable law that allows for the exemption. If no creditors object to the exemptions claimed, then that property cannot be legally included to pay off creditors.

Within 30 days of filing the schedule, a court-appointed trustee and the creditors review the case. They have the right to question and reject any exemptions claimed. If creditors object to a particular exemption, they must prove that the exemption is not allowable or that it was not properly represented on the schedule.

Allowable Federal vs. State Property Exemptions

Some states do not allow debtors to follow federal property exempt guidelines, requiring instead that state exemption laws be followed. Other states allow a debtor to follow either federal or state property exemption laws. The states that currently allow a debtor to use federal exemptions are Connecticut, Arkansas, Massachusetts, Kentucky, Alaska, Michigan, New Jersey, Texas, New York, Wisconsin, Hawaii, New Mexico, Minnesota, Rhode Island, Washington, Pennsylvania, Vermont, District of Columbia, and New Hampshire.

Homestead Exemption

Homestead exemption laws apply to a debtor’s residence. The federal exemption amount as of 2011 was $21,165. State exemption amounts vary widely. Any home equity amount exceeding the allowable exemption can be used to satisfy creditors. People concerned about losing home equity in a chapter 7 bankruptcy may choose to file a chapter 13 bankruptcy instead.

Automobile Exclusions

There is also a bankruptcy exemption for automobiles. The allowable federal exemption amount for automobiles is $3,450. Equity in a vehicle is calculated by subtracting the liens owed on it from the fair market value. If this amount is greater than the exemption amount, then the creditor has the right to claim any excess above the exclusion amount.

Retirement Exemptions

Other than a person’s home, retirement assets often account for the largest share of a person’s wealth. Federal and state exemptions usually include pensions, IRAs, 401(K), and other accounts specifically established for a person’s retirement. The cap of $1,171,650 on IRA funds is so large that it is rarely an issue of concern for people filing bankruptcy.

Household Goods

The 2011 federal exemption for household items is $11,525. The state figures differ. No individual item claimed in this category can be worth more than $550. Rarely do trustees spend much effort chasing down household goods for recovering purposes since they are rarely worth much when liquidated.

Summary

Consulting a qualified attorney before filing for bankruptcy is a wise decision. Since the laws vary by state and also change, finding an expert in the field can make a significant difference in the outcome of filing bankruptcy. Property exemptions make it easier for families and individuals to move forward and make a meaningful contribution to society.

This article was written together with Robert Tritter, an aspiring legal practitioner who looks forward to entering law school one day. In the meantime, he studies law on the side. He recommends considering Matt Faler, a bankruptcy attorney in Long Beach, California who is dedicated to making sure that you keep what you deserve. Check out his website to see how he can help you through this difficult time.