Exemptions In Bankruptcy

14 May Bankruptcy, exemptions and a fresh start

My clients lately are so down on themselves that they insist on worrying that the bankruptcy trustee will strip them of everything, their home, their car, their consulting practice. Not so, I repeat, and repeat. FIrst of all, the bankruptcy trustee is only interested in assets that have net equity. So, the trustee is not going to "seize" your house where you owe more than it's worth. [The level of the client's fears are, I think, reflected in the choice of a word like "seize" with its connotations of violence.] The house has no equity, much less enough extra value to pay for the costs of sale and the trustee's commission to sell it. Likewise, the car. If there is no equity, "seizing" it doesn't benefit creditors. And bankruptcy trustees have no interest in taking something from a debtor if it doesn't result in money for the creditors. Most small personal service businesses have no value beyond the efforts of the owner. If the owner stops working in it, there is nothing of value that a buyer would pay for, in most circumstances.
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29 Mar Chapter 7 Debtor May Use “$0” Exemption on Asset Having Unknown Value; Mistaken Exemption Upheld

Grueneich v. Doeling, 2009 WL 605774 (8th Cir.BAP, Minn., March 11, 2009), held that a chapter 7 bankruptcy debtor can, in good faith, claim an exemption in an unknown amount ("0.00"), if the debtor has good reasons for doubting the value of an asset. In this case, the Eighth Circuit Bankruptcy Appellate Panel reaffirmed the continuing validity of In re Wick, 276 F.3d 412 (8th Cir.2002). The Wick case allowed a debtor to obtain an exemption up to the maximum dollar amount allowed by the exemption statute, even where the debtor listed the asset as having an "unknown" value, and listed the exemption amount as "unknown." In Grueneich, the bankruptcy debtor filed chapter 7 on March 27, 2007. He originally claimed two parcels of real estate as exempt pursuant to the federal homestead exemption, 11 U.S.C. section 522(d)1), in the amounts of $900.00 and $4,266.00. Neither of these were actually his homestead. He also listed stock in his corporation as having a value of "$0.00"; he did not claim any exemption for this stock. No objection to exemptions was filed. Over one year later, the debtor filed amended schedules B and C. This time, he stated that the "corporate/LLC debt exceeds the value of asset in all instances." He continued to value the stock at "0.00," and he claimed the stock exempt under section 522(d)(5) with a value of "0.00." The debtor included a notation that he was exempting any assets up the maximum dollar amount remaining under applicable law.
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28 Feb Avoiding Judgment Liens in Bankruptcy – Too Little, Too Late?

Depending on the homestead exemption applicable in your state, the Bankruptcy Code allows a Debtor to void and nullify certain judicial liens against a residence if the lien interferes with the homestead exemption. While it is possible to reopen a closed case to avoid a lien, do not wait too long to do so or it may be too late. Even though the debt is discharged by the bankruptcy case, the lien will survive the case unless it is avoided under the Bankruptcy Code in the case.

It is a simple process to file a motion in a bankruptcy case to lift the lien on the home even if there is no equity in the home to cover the exemption. The lien must be a judicial lien, that is, a lien created by the entry of a judgment in court. Not all liens on a home may be judicial liens.Generally, the motion to avoid the lien is filed in the case while it is open, but court decisions are full of examples of cases being reopened for the sole purpose of avoiding an old lien.

Be careful not to wait too long.

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