How Bankruptcy Exemptions Work
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Find out how bankruptcy exemptions can safeguard your property and finances. Consult the attorneys at Chang & Diamond, APC, for personalized guidance. Call now.
What Are Bankruptcy Exemptions?
In bankruptcy, you can protect some of your essential assets from being sold or used to pay your debts. These assets are called exempt property, and they are protected by bankruptcy exemptions.
Bankruptcy exemptions allow you to keep some property up to a certain value. It all depends on the type and amount of property. For instance, the homestead exemption lets you keep your primary residence. Also, the motor vehicle exemption lets you keep your car. A wildcard exemption lets you apply a certain amount of money to any property you choose.
These exemptions vary depending on whether you use federal or state bankruptcy exemptions. Some states allow you to choose between federal and state bankruptcy exemptions, while others require you to use their state exemptions. In any case, you can only use one exemption system and must follow its rules.
While bankruptcy exemptions allow you to keep some property after bankruptcy, there are common bankruptcy mistakes, limitations, and consequences you need to be aware of.
Contact Chang & Diamond, APC, for professional advice and guidance about the federal and state exemption systems.
What Property Is Exempt from Bankruptcy?
Property exempt from bankruptcy includes the vehicle necessary for your work commute as well as the tools you need to perform your job. Exempt property also includes your primary residence, furniture, appliances, and other household items that make your home comfortable and functional. However, it’s vital to understand that not everything can be shielded.
When filing for bankruptcy, you must list all your assets and debts as well as claim any exemptions that may apply to them. The bankruptcy trustee will review your petition and verify your information.
The bankruptcy court appoints the trustee to oversee your case and distribute your payments to your creditors. They can sell your non-exempt assets in order to repay your creditors with the proceeds.
Trustees may also be able to recover the property you transferred before filing for bankruptcy. This typically happens when the property wasn’t exempt or was transferred fraudulently.
Non-exempt assets, which vary according to both state and federal laws, may be subject to liquidation to repay secured debts. This is where a knowledgeable bankruptcy attorney can guide you in navigating exemption laws to preserve as much of your property as possible when filing your bankruptcy petition.
How Exemptions Affect Your Case
Depending on the chapter of bankruptcy you file, exemptions will affect your case differently. In Chapter 7 bankruptcy, for example, the trustee sells your non-exempt assets and repays your creditors. From the proceeds, secured creditors are paid first, followed by unsecured creditors. Overall, the court discharges or cancels most of your remaining debts.
In Chapter 13 repayment plans, payments are based on the non-exempt property. So, the trustee will use the value of your assets to determine how much you must repay your creditors in a repayment plan. The repayment plan usually lasts three to five years, and any unpaid debt is discharged after the plan is completed.
Choosing Between California and Federal Exemptions
When filing for bankruptcy, you can decide between California or Federal exemptions. Your choice depends on your unique circumstances and assets. It’s also advisable to consult with an attorney.
Protecting Assets in California
California’s exemptions are generous for home equity. As of 2021, you can safeguard home equity up to $600,000, based on your county’s single-family home average from the prior year.
California’s exemptions are not so generous when protecting other assets, such as money in your bank accounts, cars, or personal property. They only let you keep a small amount of money in your bank accounts and a small amount of equity in your car.
Protecting Your Home With Federal Exemptions
Federal homestead exemptions are lower than California’s. As of 2023, they allow $31,950 for home equity. Yet, Federal exemptions provide more protection for other assets under both non-bankruptcy and bankruptcy federal exemption laws.
Protecting Other Assets With Federal Exemptions and the Wild Card
Federal exemptions include a generous “wildcard” exemption of $1,700. It is expandable by unused homestead exemptions to a maximum of $33,650 for any property. This flexibility is especially valuable for preserving assets like cars and bank account funds.
The wild card exemption isn’t tied to a specific asset category predetermined by the law. Instead, it offers a flexible shield for any asset, provided the state’s regulations permit it. The term “wild card” signifies its adaptability, allowing it to be employed as needed. This flexibility proves invaluable in the context of managing assets during bankruptcy.
Federal exemptions also apply to the following:
- Motor vehicles
- Tools of trade
- Household goods
- Health aids
We can help you determine which of your assets are exempt from bankruptcy. Contact us to schedule your free case evaluation.
What Assets Are Not Exempt?
Luxury items are among the assets that are not exempt from bankruptcy. Luxury items include a second home, a sports car, expensive jewelry, or a designer watch. You may be able to reduce your debt and avoid losing these assets in bankruptcy by selling such assets before filing for bankruptcy.
When it comes to pets, you might not lose them in bankruptcy unless they are very valuable. Trustees often don’t bother with selling pets since they do not bring much profit.
Contact Chang & Diamond, APC
Bankruptcy exemptions play a critical role in safeguarding your assets during bankruptcy. However, navigating these exemptions and making the right choices can be complex. You need an attorney throughout the process. We can help maximize your benefits and protect your valuable assets.
A lawyer will help you determine the value of your property and whether it is exempt or non-exempt. We can also help you choose between the state’s and federal exemptions.
Our lawyers help you prepare and file all the necessary documents for your bankruptcy case. This includes the ones that claim your exemptions. You can trust us to help you protect as much property as possible from the trustee and your creditors.
We offer legal advice and guidance throughout the bankruptcy process. This ensures you have a smoother and more successful outcome. We explain your rights and obligations and answer your questions. If necessary, we also represent you in court, negotiate with your creditors, and help you achieve debt relief through bankruptcy.
Are you dealing with bankruptcy? Contact Chang & Diamond, APC’s bankruptcy attorneys, today. Our bankruptcy attorney can offer you professional advice and support. That way, you won’t have to worry about the challenges of bankruptcy changes. Call us now.