In a Chapter 7 bankruptcy case, you keep all property which the law says is either “excluded” or “exempt” from the claims of creditors. In a Chapter 13 bankruptcy, you keep everything you want so long as you can make the necessary monthly payments to pay your creditors the unprotected value of the assets you wish to keep.
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If you have property that is not “excluded” or “exempt” in Chapter 7 then you will probably want to file for Chapter 13 bankruptcy. This is the type of planning we will go through together.
Bankruptcy Exclusions ‑ Things You Get to Keep No Matter What:
Spendthrift Trusts and IRS‑Qualified Retirement Plans and Annuities. 100%.
Educational Funds: Unlimited if IRS‑qualified, and the beneficiary is a child or stepchild or grandchild or stepgrandchild, and the contributions are more than two years old; $6,225 if contributions are less than two years old and more than one year old; zero if the contributions are less than one year old.
When you file for bankruptcy you get to choose either a list of federal exemptions or state exemptions ‑ but not both. Part of our planning will be a review of which exemptions work out better for you.
You choose either all the federal exemptions or all the state exemptions (with our assistance, of course), but you may not choose from both. The amounts are all doubled if you are married and filing together (except the state homestead exemption if you are under age 62). Please, please do not use total market value! Only “equity” is looked at, which is the property’s value less its debt.
For example, a $150,000 home with a $135,000 mortgage only has $15,000 of equity. A $20,000 car with an $18,000 debt only has $2,000 equity.
Federal Exemptions In Bankruptcy (as of 04/01/13; adjusted every three years):
Residence: $22,975.00, whether in real or personal property used for a residence, a residential cooperative, or a burial plot, by the debtor or a dependent.
Motor vehicle: $3,675.00 in one vehicle.
Household furnishings and goods, clothes, animals and crops: $12,250.00 total, and $575.00 for each item.
Tools of professional trade: $2,300.00
Life insurance: All term life insurance contracts are exempt, but only $12,250.00 of one policy’s loan value is exempt. Life insurance benefits to a dependent are exempt.
Health aids: Entirely exempt.
Public entitlements: Social security, unemployment, public assistance, and veterans’ disability and illness benefits are all exempt.
Tax‑exempt retirement funds: Unlimited except up to $1 million for some IRAs.
Lawsuit recoveries such as crime victim reparations, wrongful death recoveries to a dependent:
Personal bodily injury recoveries of up to $22,975.00 (but recoveries for pain, suffering, and actual pecuniary loss are not exempt); recoveries for future earnings losses are also exempt.
Other property: $1,125.00 plus $11,500.00 of any unused portion of the residence exemption.
State Exemptions In Bankruptcy:
Homesteads: $500,000.00 is exempt (unlike other exemptions, this is not doubled if married unless the spouses are age 62 or older).
Bank accounts: $2,500.00 is exempt.
Clothes and bedding: Clothes and bedding as necessary are exempt.
Furniture: $15,000.00 is exempt.
Books: $500.00 is exempt.
Animals: Two cows, twelve sheep, two swine, and four tons of hay are exempt.
Tools of trade: $5,000.00 is exempt.
Trade supplies and inventory: $5,000.00 is exempt.
Provisions: $600.00 is exempt.
Pews: One pew in a house of public worship is exempt, but not for taxes.
Fishermen equipment: $1,500.00 of boats, tackle, and nets is exempt.
Uniforms: A militia officer’s or soldier’s required uniform, arms, and accouterments are all exempt.
Burial: Rights of burial and tombs are all exempt.
Sewing machine: $300.00 in one sewing machine are exempt.
Television: One television is exempt.
Computer: One computer is exempt.
Cooperatives: $100.00 of shares in a cooperative are exempt.
Cash: $2,500.00 is exempt.
Utilities: $500.00 necessary for fuel, heat, refrigeration, water, hot water, light is exempt.
Public assistance benefits: All exempt.
Automobile: $7,500.00 of a car’s equity is exempt. If you are over age 60 or handicapped then $15,000.00 of a car’s equity is exempt.
Jewelry: $1,225.00 is exempt.
Retirement funds: Annuities, pension plans, profit sharing plans, other retirement plans, and individual retirement accounts are exempt (except for a court order concerning divorce or support, or a criminal fine or victim restitution); unlimited except some IRAs are limited to the greater of 7% of the total aggregate income over the past five years or $1 million, both excluding rollovers.
Cash value life insurance: Unlimited amount is protected for owner of policy.
Other property: $1,00.00 plus up to $5,000.00 of any unused portion of the household goods, tools of trade, or automobile exemption.
In determining whether property is exempt, you must keep a few things in mind.
- For Chapter 7 bankruptcy, the value of property is not the amount you paid but what it is worth now at a tag sale or auction. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement in a private sale. (Replacement value is used in Chapter 13 bankruptcy.)
- You also only need to look at your equity in property. This means that you count your exemptions against the full value, minus any money that you owe on mortgages or liens. For example, if you own a $10,000 car (at wholesale value) with an $8,500 loan against it, you count your exemptions against the $1,500 which is your equity if you sell it.
- While your exemptions allow you to keep property even in a Chapter 7 bankruptcy, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind on payments. In a Chapter 13 bankruptcy you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.
Confused? Don’t worry ‑ one of the reasons you need to hire an experienced bankruptcy lawyer for your case is to be sure that you choose the right type of bankruptcy for your situation. All you need to do is contact me for a consultation to talk about your problems and whether bankruptcy is right for you.
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