When it comes to filing for Bankruptcy, the idea of losing your assets can be intimidating. However, filing for relief does not necessarily mean you will lose all of your assets. Bankruptcy Exemptions make it possible for a Debtor to file for relief and retain some of his/her assets. Continue reading below to learn more about how you may be able to keep your assets during your Bankruptcy case.
WHAT ARE BANKRUPTCY EXEMPTIONS?
When filing for Chapter 7 Bankruptcy, your assets are divided and sold to pay for your debts. When filing for Chapter 13 Bankruptcy, your assets are not sold but they determine how much is paid to the general unsecured creditors. With the help of Bankruptcy Exemptions, you may able to keep some of your assets or limit the amount paid to the general unsecured claims.
Bankruptcy Exemptions are established by the Bankruptcy Code to protect a certain amount of your assets when filing. To do so, the fair market value of each protected asset remains exempt. Although the Bankruptcy Code is federal law, a state is able to establish its own statewide exemptions and have these be used in place of the federal exemptions. In order to qualify under your state’s exemptions, you must generally have resided in the state for at least 730 days (i.e. 2 years) prior to filing for relief.
Specific assets may be considered fully exempt regardless of the value of that asset. For example, your retirement account is one asset that is generally exempt regardless of the amount in the retirement account (certain restriction do apply). While state or federal law establishe what qualifies as exempt, “wildcard exemptions” are not specific to any particular asset and can be applied towards any assets. Some assets may be fully protected, while others may only be exempt up to a certain dollar amount. If the full value is protected, you will not have to worry about having that asset taken from you (chapter 7) or increase the amount paid to your creditors (chapter 13). If there is a secured loan against your home or car, the equity amount above and beyond the amount of the loan is what you need to exempt.
Contact Sacramento Bankruptcy Lawyer by calling 916-800-7690 and our highly skilled Bankruptcy Attorney will be able to analyze your case and discuss with you your options.
HOW DO EXEMPTIONS WORK?
Exemptions play different roles in Chapter 7 and Chapter 13 Bankruptcy cases.
During a Chapter 7 Bankruptcy, assets are liquidated, and a court appointed Trustee sells any assets that do not qualify as exempt. The funds made from selling assets are used to pay off your debts. If a Debtor was forced to give up all assets, filing for Bankruptcy may make them worse off than they were prior to filing. By utilizing Bankruptcy Exemptions, the Debtor can prevent the Trustee from selling and liquidating any exempt assets.
EXAMPLE 1: Angela files for Chapter 7 Bankruptcy and owns a vehicle with a fair market value of $4,500.00. The vehicle does not have a loan secured to it. Angela lives in a state that provides a vehicle exemption of $6,000. In this situation, Angela has the option to protect the full value of her vehicle and the Trustee would not be able to sell it.
EXAMPLE 2: Robert and Vicky are a married couple and file for Chapter 7 Bankruptcy together. The two own a jewelry collection with a fair market value of $5,000. Robert and Vicky live in a state that provides a jewelry exemption of $2,000. After applying the exemption, the two are left with $3,000 worth of jewelry that is un-exempt and that portion can be liquidated by the Trustee.
During a Chapter 13 Bankruptcy, debts are reorganized and payments are made over a 3 to 5 year period. Chapter 13 allows for the Debtor to keep all of his/her assets. The repayment plan outlines that certain debts must be paid in full. For example, if you owed Federal Taxes for the previous year, they must be fully paid off during your repayment period. Other debts, like credit cards, only require a portion of the debt to be paid. Once your case has been discharged, the remainder of unpaid debts is eliminated.
Exemptions determine how much of your general unsecured debt must be paid under your Chapter 13 Plan. One of the factors that determines how much you are required to pay to the general unsecured debt is how much of your assets are unprotected. The remaining value of assets must be paid to your creditors.
EXAMPLE 1: Michael files a Chapter 13 Bankruptcy and owns a vehicle with a fair market value of $10,000. He also owes $20,000 in credit card debt. Michael’s state of residence gives a vehicle exemption of $4,000 and a “wildcard” exemption of $2,500 that can be used towards any asset. By combining the two exemptions together, Michael is able to exempt $6,500 of his vehicle. Since $3,500 of the vehicle is un-exempt, Michael must pay at least $3,500 of his $20,000 credit card debt during his repayment plan. The remaining $16,500 of credit card debt will be eliminated upon Discharge if not required to be paid by another factor.
EAMPLE 2: Rebecca files a Chapter 13 Bankruptcy. She owns a home with a fair market value of $200,000, and it has a mortgage secured against it of $125,000. In addition, Rebecca has $20,000 of credit card debt. Rebecca’s state of residence allows her to use a homestead exemption of $75,000. Taking her mortgage into consideration, Rebecca is able to protect the full value of her home. She will not have to pay her credit card debt based on them being un-exempt because she does not have any un-exempt assets, therefore the full $20,000 will be eliminated upon Rebecca receiving a discharge.
EXEMPTION SCHEMES IN CALIFORNIA
Compared to other states, California is unique when it comes to offering exemption schemes for its residents. California residents have the option to choose between two different schemes, known as the “703” and “704” exemption schemes. Below you will find a brief summary of each scheme. To learn more about how to use the bankruptcy exemptions and which scheme may be more beneficial for you, please contact our office ASAP by calling 916-800-7690 and scheduling your free consultation!
703 Exemption Scheme (located in California Code of Civil Procedure § 703.140(b)). Below are examples of some of the common exemptions:
- Motor Vehicle Exemption- $5,850.00
(C.C.C.P. § 703.140(b)(2)
- Clothing, Household Goods, Appliances, Furnishings, etc. - $725.00 per item
(C.C.C.P. § 703.140(b)(3))
- Jewelry- $1,75000
(C.C.C.P. § 703.140(b)(4))
- Wildcard Exemption- $28,350.00
(C.C.C.P. § 703.140(b)(5))
- Tools of the Trade- $8,725.00
(C.C.C.P. § 703.140(b)(6))
- Unmatured Life Insurance Benefits- $15,650.00
(C.C.C.P. § 703.140(b)(8))
704 Exemption Scheme (located in California Code of Civil Procedure §§ 704.010 - 704.730). Below are examples of some of the common exemptions:
- . Single - $75,000.00
(C.C.C.P. § 704.730(a)(1))
- . Family and at least one family member has no interest in the homestead - $100,000.00
(C.C.C.P. § 704.730(a)(2))
- . 65 or older or physically or mentally disabled - $175,000.00
(C.C.C.P. § 704.730(a)(3))
- Motor Vehicle Exemption- $3,325.00
(C.C.C.P. § 704.010)
- Unmatured Life Insurance- $13,975.00
(C.C.C.P. § 704.100(b))
- Tools of the Trade- $8,725.00 ($17,450.00 for joint filing)
(C.C.C.P. § 704.060)
- Wages– 75% of disposable earnings from the prior 30 days
(C.C.C.P. § 704.070(b)(2))
- Bank Deposits from Social Security Benefits- $3,500.00 ($5,250.00 for joint filing
(C.C.C.P. § 704.080)
- Personal Injury & Wrongful Death Recovery– Amount necessary for support
(C.C.C.P. § 704.140)
HOW CAN WE HELP?
Our highly skilled Bankruptcy Attorney Pauldeep Bains has extensive knowledge in using exemptions to maximize a Debtor’s results. Filing Bankruptcy without a full understanding of how the exemptions function could put you in a situation where the Chapter 7 Trustee is liquidating your assets or a Chapter 13 Trustee is requiring you to pay 80% to your general unsecured creditors (i.e. credit cards, medical bills, etc.) when you shouldn’t be. Please contact our office by calling 916-800-7690 right away to speak with Mr. Bains, a top local Sacramento Bankruptcy Lawyer.
We help clients in the following areas: Sacramento, Elk Grove, South Sacramento, West Sacramento, Natomas, Citrus Heights, Antelope, Fair Oaks, Gold River, Rancho Cordova, Roseville, Rocklin, Lincoln, Wheatland, Yuba City, Marysville, Woodland, Davis, and Lodi.