Bankruptcy Exemptions: What Property Can You Keep In Chapter 7 Bankruptcy
When you file for Chapter 7 bankruptcy, almost all of your property becomes property of the bankruptcy estate. That doesn’t mean you lose everything. The purpose of bankruptcy is to provide people with a fresh startand part of that fresh start is keeping the things you need to hold down a household and job. Bankruptcy exemptions allow you to keep the things you’ll need to work and live, such as furniture, dishes, clothing, and a car.
How much property you can exempt differs depending on which state you live in because each state has a set of exemption laws .
Example. If you own a car worth $5,000 and your state allows a $6,000 car exemption, then you can keep your vehicle. However, if you live in a state that only allows a $2,000 car exemption , then the bankruptcy trustee may take your car and sell it. From the proceeds of the sale, the trustee will pay you the exemption amount of $2,000 and distribute the rest among your creditors.
What Is Exempt From A Chapter 7 Bankruptcy
When you consider filing for bankruptcy, you may worry about losing all your assets. You may think the court will expect you to sell everything you have and start over. Between your family home and all your possessions, you worry that a judge will tell you to sell it all when you file.
But a bankruptcy in Mississippi is not meant to make you poor. While you will have to give up extra assets, some of your property stays exempt. By keeping these items exempt, you have a base to rebuild your finances.
You will let the court know about every asset you have
When you go through the Chapter 7 bankruptcy process, the court will have you list out all assets you own and the debt you have. These all become protected from any creditors with an automatic stay while you go through the bankruptcy process.
Your home and your car can stay exempt
You will also list out what you want to keep exempt from your bankruptcy. You can keep your house as long as you have $75,000 or less in equity over the mortgage. And the court lets you keep up to $10,000 of personal property, which can include your car and any jewelry or cash you have on hand.
The court can liquidate any property above and beyond this amount. But they hope to help you keep a steady base to start fresh.
Keeping certain assets exempt helps you rebuild your finances
We are a debt relief agency. We help people file for relief under the Bankruptcy Code.
Is There An Income Limit For Chapter 7 Bankruptcy
To automatically qualify for Chapter 7, your disposable income must be below the median level for your state. That number varies from state-to-state. If your disposable income exceeds the median in your state, you still may be able to qualify through a means test that includes looking at your income and reasonable expenses to see if you can get that number under the median income for your state.
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Wages Benefits And Retirement Accounts
Wages that you earned before your filing date but don’t receive until after filing your case are usually only partially protected. Any post-bankruptcy earnings are completely exempt in a Chapter 7 filing.
Welfare benefits and retirement accounts are almost always protected– but only if you list them on your paperwork. Social Security, unemployment benefits, 401, disability benefits, veteran benefits, etc., are all protected by federal law.
However, if you have a lot of money saved in any of these accounts, it might be wise to talk to an attorney.
Types Of Chapter 7 Bankruptcy Exemptions Available
Chapter 7 bankruptcy is sometimes referred to as “liquidation bankruptcy” because it involves gathering the property or assets of the filer, and then selling them to pay off as much debt as possible before the rest of the debt is “discharged” or eliminated. As noted above, however, bankruptcy law protects some kinds of property from being sold off to pay these debts.
These protections are called exemptions, which sometimes protect entire types of property, while other times exemptions may have limits as to the value that they may protect, such as a home. Exemptions may also be affected by the filer’s tax filing
It is important for filers to know that their state’s laws, and sometimes federal law, will establish what set of bankruptcy exemptions are available to them. Every state has its own set of exemptions that may either co-exist with federal exemptions or replace them. It is very important for filers to consult with a local bankruptcy attorney or become very familiar with the exemptions available to them in order to maximize the property they retain.
Below are some of the common types of bankruptcy exemptions that may be available in typical Chapter 7 filings, along with some short descriptions of how they work:
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Qualifying For State Exemptions
The state you file for bankruptcy in is usually determined by the state you have lived in for the past two years.
If you haven’t lived in any state for at least two years, however, your place of âresidenceâ will likely be the place where you spent the majority of your time for the six months leading up to two years ago.
Hereâs an example: Say you have been living in Arkansas for the past year and a half. Before living in Arkansas, you lived exclusively in Texas for 4 years. Because you haven’t been living in Arkansas for the required two years, you will be counted as a Texas resident.
This means that you will choose between Texas’ Chapter 7 bankruptcy exemptions or the federal bankruptcy exemptions.
Doubling Exemptions In A Joint Filing
If both spouses file for bankruptcy jointly, then most states and the federal government allow each spouse to claim the full amount of the exemption therefore, the exemption amounts are doubled. However, in some states, only specific exemptions can be doubled in a joint filing. As in the example above, Florida’s wildcard exemption can be doubled, but not the exemption for motor vehicles. A common exemption that cannot be doubled is the homestead exemption, which is the exemption that you claim on your home. Some states do not allow any doubling of exemptions at all.
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Houses Cars And Property Encumbered By A Secured Loan
If you own a house, car, or expensive household furnishings, chances are you had to take out a loan to purchase them. Your lender typically has a security interest in the property . This security interest is not affected by bankruptcy in most cases. Since bankruptcy does not erase security interests, the bankruptcy trustee is only concerned with how much equity you have in the property.
Each state allows you to exempt a certain amount of equity in your personal property and your house. So whether a trustee will sell your property depends on the amount of equity you have in the property and your state’s exemption laws. If you have no equity in your house or personal property, you don’t have to worry about the trustee taking them. However, if you wish to keep them, you must continue making regular payments to your lender. Your lender may also require you to “reaffirm” your debt to keep the property after bankruptcy.
Summary Of Bankruptcy Steps
Overall, the process to file bankruptcy in Orlando includes the following steps:
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Debts Never Discharged In Bankruptcy
While the goal of both Chapter 7 and Chapter 13 bankruptcy is to put your debts behind you so that you can move on with your life, not all debts are eligible for discharge.
The U.S. Bankruptcy Code lists 19 different categories of debts that cannot be discharged in Chapter 7, Chapter 13, or Chapter 12 . While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are:
- Alimony and child support.
- Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.
- Debts for willful and malicious injury to another person or property. âWillful and maliciousâ here means deliberate and without just cause. In Chapter 13 bankruptcy, this applies only to injury to people debts for property damage may be discharged.
- Debts for death or personal injury caused by the debtorâs operation of a motor vehicle while intoxicated from alcohol or impaired by other substances.
- Debts that you failed to list in your bankruptcy filing.
What Are Exemptions In Chapter 7 Bankruptcy
Mississippi consumers who are overwhelmed by their financial obligations might have an out through Chapter 7 bankruptcy. This requires debtors to sell off their non-exempt property through a trustee. The trustee values the assets and uses the funds from sales to pay creditors. However, the debtor does not have to relinquish all assets to the court.
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Start Here To Learn About Protecting Property In Chapter 7 Bankruptcy
Updated By Cara O’Neill, Attorney
When considering Chapter 7 bankruptcy, most people want to know if they can keep their property. The short answer is maybe. Chapter 7 bankruptcy wipes out many qualifying debts, but there is a catchif you own too much property, the bankruptcy trustee can sell some of it and pay the proceeds to your creditors.
So how much property can you keep? The answer depends on “exemptions”state laws that tell you what you’re allowed to protect in Chapter 7 and 13 bankruptcy.
The Role Of Chapter 7 Bankruptcy Exemptions
Each state has a list of exemptions. Some states allow you to use the federal bankruptcy exemptions instead. In Chapter 7 bankruptcy, the Chapter 7 bankruptcy trustee will sell the debtor’s nonexempt propertyproperty that can’t be protected with an exemptionand sell it for the benefit of the debtor’s unsecured creditors. By contrast, if an item of property is exempt, the trustee can’t take it.
To learn more about exemptions and which states allow you to use the federal bankruptcy exemptions, see Bankruptcy Exemptions.
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Meeting The Bankruptcy Trustee
The bankruptcy court will schedule a meeting with an appointed Chapter 7 trustee. This meeting is called the or the 341 meeting. The meeting is held in a conference room, not a courtroom. Typically, this meeting will last ten to fifteen minutes.
A representative of the U.S. Trustees office sometimes attends these meetings. The debtor and his bankruptcy attorney are required to attend the creditors meeting . As a practical matter, very few, if any, unsecured creditors attend. The Chapter 7 bankruptcy trustee represents all creditors whether or not unsecured creditors attends the meeting of creditors.
The Chapter 7 bankruptcy trustee asks the debtor questions at the creditors meeting, but they will not interrogate, cross-examine, or threaten the debtor. The trustee may ask the debtor why they filed bankruptcy and ask questions about the debtors assets and sources of income. The trustee often asks about the debtors income and expenses to make sure the debtor qualifies for Chapter 7 bankruptcy and that the bankruptcy is not an abusive filing.
are scheduled by the court based on the trustees schedule. Your bankruptcy attorney is not able to request a meeting date or time. If the debtor or their attorney is unable to attend the scheduled 341 meeting, the trustee usually schedules a make-up meeting approximately two weeks after the first date. If the debtor fails to attend the second meeting, the trustee may move to have the bankruptcy dismissed.
The Bankruptcy Filing Process
This is a quick rundown when you file for bankruptcy and the bankruptcy process in Arizona.
However, in cases that involve the liquidation of property, such as in a Chapter 7 Bankruptcy, debtors are commonly granted with a bankruptcy discharge of most, if not all, debts. This is usually because debtors already have little or no assets to pay their creditors.
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Chapter 7 Bankruptcy Discharge
The last step is the bankruptcy discharge. A discharge absolves the debtor of most of their debts and prevents creditors from taking further action against the debtor for those debts. Excluding cases which were dismissed or converted, individual consumers who filed for Chapter 7 were granted a discharge in more than 99% of cases. The discharge is only available to individual debtor seeking Chapter 7 bankruptcy relief. Any Chapter 7 filed by a partnership, corporation, or LLC will result in the business closing and its assets sold off to repay creditors.
Keep in mind that a Chapter 7 bankruptcy discharge may not completely wipe the slate clean. There are some debts which are not dischargeable via bankruptcy. These debts include, but are not limited to:
- Alimony and child support
Chapter 7 Vs Chapter 13
Chapter 7 and Chapter 13 are the two most common types of personal bankruptcy.
In a Chapter 7 bankruptcy, a trustee appointed by the bankruptcy court will liquidate many of your assets and use the proceeds to pay your creditors some portion of what you owe them. Certain assets are exempt from liquidation. Those typically include part of the equity in your home and automobile, clothing, any tools you need for your work, pensions, and Social Security benefits.
Your nonexempt assets that can be sold off by the trustee include property , a second car or truck, recreational vehicles, boats, collections or other valuable items, and bank and investment accounts.
In Chapter 7, your debts are typically discharged about four months after you file your bankruptcy petition, according to the Administrative Office of the U.S. Courts.
In a Chapter 13 bankruptcy, by contrast, you commit to repaying an agreed-upon portion of your debts over a period of three to five years. As long as you meet the terms of the agreement, you are allowed to keep your otherwise-nonexempt assets. At the end of the period, your remaining debts are discharged.
In general, people with fewer financial resources choose Chapter 7. In fact, to be eligible for Chapter 7, you must submit to a means test, proving that you would be unable to repay your debts. Otherwise, the court may determine that Chapter 13 is your only option.
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Whats The Difference Between Chapter 7 And Chapter 13 Bankruptcy
The major difference is time Chapter 7 takes 4-6 months Chapter 13 takes 3-5 years and money. You can have most, or all your unsecured debt discharged in Chapter 7 bankruptcy. In Chapter 13, some of your debt is forgiven, but only if you meet the conditions approved by the trustee and bankruptcy judge.
How Chapter 7 Works
A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. In addition to the petition, the debtor must also file with the court: schedules of assets and liabilities a schedule of current income and expenditures a statement of financial affairs and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case . 11 U.S.C. § 521. Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling evidence of payment from employers, if any, received 60 days before filing a statement of monthly net income and any anticipated increase in income or expenses after filing and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. § 302. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors.
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