Almost all states have “exemptions” that allow their residents who file a bankruptcy case to protect certain personal property and some amount of equity in their home. The Bankruptcy code and related state laws recognize that some of your assets are essential to life and that you have worked hard to obtain them. Exemptions allow you to exempt, or protect, certain property from your creditors’ collection efforts.
The types and amounts of property you can keep, or rather “exempt”, depend on your state’s exemption laws. Exemptions vary from state to state and most do have specific requirements and set caps or maximums. Generally, your state’s exemptions may allow you to keep assets such as motor vehicles, household goods and furniture, clothing, most retirement accounts, life insurance policies, and social security payments. Many states also have an exemption for equity in the home you use as your personal residence and a “catch-all” exemption that can be used to protect a variety of other assets like cash or money in a bank account.
These exemptions are meant to ensure that you have the necessary means to live and work, and they protect debtors from overzealous or predatory creditors who might otherwise seize everything, but most of these exemptions are not unlimited and can only protect property up to a certain set amount. So can you keep your home or vehicle while in a bankruptcy case? Keep reading to find out how to discharge certain debts while keeping the property you need to live and work.
Protecting Your Home and Home Equity
In a Chapter 7 bankruptcy case, you may be able to keep your home if you are current on your mortgage payments and your equity in the property is not above the amount you can protect with the exemptions available to you. If you are behind on secured debt like a mortgage, or you have more equity in the property than you can protect, you could lose the property in a Chapter 7 case. If you are behind in the mortgage payments, the mortgage company can ask the court to lift the automatic stay (the bankruptcy protection that prevents your creditors from collecting against you while you are in an active bankruptcy case) and if successful, the mortgage company can proceed with a foreclosure. If you have more equity in the property than your exemptions can protect, your bankruptcy trustee can sell, or liquidate, the property and use the sale proceeds to pay your creditors.
When you are behind on your mortgage payments but want to keep your home, or if you have more equity in your home than what can be protected by the available exemptions, a Chapter 13 bankruptcy case can help you catch up on your missed mortgage payments and/or protect the excess equity in your home. The court must approve a Chapter 13 plan that allows you to repay the past-due mortgage payments over three to five years while continuing to make your regular ongoing monthly mortgage payments. If you keep up with both of these payments as required by your plan, your mortgage company cannot foreclose on the home while you are in the bankruptcy case. Additionally, you may be allowed to keep all of your property in a Chapter 13 bankruptcy case even if you have a large amount of equity in your home, but in exchange, through your three to five year repayment plan, you must also pay a portion of your unsecured debts in an amount equal to the amount your creditors would have received from your trustee if your trustee had sold, or liquidated, your home in a Chapter 7 bankruptcy case.
Talk to a Local Attorney about Your Options
Knowing the value of your property is very important in your bankruptcy case. It can mean the difference between keeping or losing your home or stripping away a second mortgage or judgment lien. Generally, your city or county real estate tax assessment is a good starting point, but sometimes it may be necessary to have a Comparative Market Analysis or Appraisal done on the property, especially if you think the real estate tax assessment has not accounted for the condition of the property and any necessary repairs. If you have property you want to keep during bankruptcy, speak with your bankruptcy attorney to develop a strategy to properly value your real estate before filing your bankruptcy case.
Again, exemptions will vary from state to state, and which state’s exemptions will apply to you may depend on how long you have been a resident of your current home state and where you lived in the preceding years, and how long you lived there. There are also many other factors that need to be considered when determining which chapter of bankruptcy is best for you and your particular situation so be sure to talk to an attorney in your state about your individual circumstances.
We are always ready and willing to help our clients when they have questions about their real and personal property or any other aspect of their case. We are here to assist you with filing and successfully completing your bankruptcy case, and we will give you support and guidance as you go through the bankruptcy process. Contact our office to schedule your free bankruptcy consultation today. You can reach us by phone at (804) 355-1800 from 9:00 am to 5:00 pm Monday through Friday, or send us a message through our website anytime! Let us help you assess your options and determine how to best protect your property and provide you with the relief you need.
If you found this blog post helpful and informative, keep an eye out for our next post on “Creditor Collection Actions – Warrants in Debt, Garnishment Summons, and Judgment Liens”, coming out next month! And check out some of our previous blog posts here on the website and on our Facebook page! If there is a particular subject you would like us to write about in an upcoming post, please do not hesitate to let us know! We welcome your feedback and we want to write posts on the subjects and information that will be most helpful to our clients!