04 Feb What Can I Keep Through Bankruptcy
Debtor-creditor law in this country tries to balance the rights of creditors to recover money they are legitimately owed with the need of the debtor for a nest of assets for daily living and for a fresh start. Thus state and bankruptcy law give the debtor the right to claim certain property as “exempt”, that is, free from the claims of creditors.
Exemptions is the one area where bankruptcy law is different, on its face, from state to state. Congress gave the states to right to “opt out” of the exemption system in the bankruptcy code, found in Section 522. If it chooses, a state can limit its citizens to the exemptions found in state law.
Most exemptions provide that the debtor may keep property in the category covered by that exemption with an equity value of a certain number of dollars. The starting place for applying exemptions is the fair market value of the assets in question, as they are today. We aren’t talking about the item’s purchase price, or its replacement cost. We want to know “what could you sell it for today”.
Then from that value is subtracted any consensual lien, such as a car loan, or a mortgage. The difference between fair market value and any lien on the asset is the value that needs to be protected by an exemption, if the debtor is to keep the asset through a Chapter 7. (In Chapter 13, the debtor typically keeps all of his assets, and gives the creditors over time payments that equal the non exempt value of his assets.)
Know, too, that even when there is non exempt value in an asset, trustees often decline to administer those assets, because after the costs of sale and the trustee’s other expenses, there wouldn’t be any meaningful distribution to clients.
A bankruptcy lawyer can explore with you the available exemptions in your state.
Cathy Moran, Esq.
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