All debtors want to keep as much of their assets and income as they can when they file bankruptcy. Some assets do need to be given back to creditors or the trustee to pay for secured debts and for some unsecured debts.
Debtors with too high an income are required to file a Chapter 13 bankruptcy to pay off some of their debts. Still many items can be saved even in a Bankruptcy Case.
Some assets can be saved because the Bankruptcy law specifically protects them. Other assets can be saved if the debtor makes suitable arrangements. Sometimes it depends on what the state law provides.
Here are a few of the common asked questions about saving assets. For information on pensions, public benefits and other items and for more detail on these items – talk to a bankruptcy lawyer to maximize the items and income that you can protect.
Can I Save my Home?
Yes. If you file a Chapter 13 bankruptcy and submit a viable reorganization plan, you should be able to save your home. The main requirements are that you must:
- Continue to make the monthly payments from the time you file for bankruptcy through the end of the line.
- Submit a plan to pay the arrears over a 3 to 5 year time frame and offer some small percentage to pay other debts. You must then pay the amounts to the Trustee in Bankruptcy in a timely manner.
Sometimes you can also renegotiate the loan such as extending the payments or even asking for a lower interest rate. There are several factors a creditor will consider.
These include the amount due on the loan, the length of the payments, the debtor’s equity in the home and the value of the home.
Debtors also have a personal exemption in the home. If the home is owned jointly with a spouse, then the spouse (if the spouse also files for bankruptcy) may be able to add his/her exemptions to the calculations.
The personal exemption is currently close to $23,000. For a husband and wife, the joint exemptions are $46,000.
For some mobile homes and homes of small value (perhaps because they need a lot of repairs), the debtor may be able to save the home.
If the debtor can’t save the home directly through the personal exemptions, the debtor will get the cash value of the exemptions when the home is sold provided the home is worth more than the exemptions.
Some state exemptions are higher than the federal exemptions.
A good debtor’s counsel may advise a debtor to use the state exemptions to save the home if the exemptions are high enough.
Can I Save my Car?
Yes. Debtors can save their home in a Chapter 13 bankruptcy by agreeing to continue the monthly payments and by paying the arrears over a 3 to 5 year period.
Debtors can save their home in a Chapter 7 bankruptcy if they file a reaffirmation agreement. A reaffirmation agreement means the debtor agrees to pay just for the car even after the other debts in bankruptcy are discharged. If the debtor doesn’t keep up the car payments, the car can be repossessed.
Debtors can also use their personal exemptions to keep the car. Debtors have a personal exemption, through the federal bankruptcy law, in the amount of $3,750.
If the debtor’s equity interest is less than the exemption, they should be able to keep the car. For example, if a car is worth $10,000 and the loan is $7,000, then the debtor has an equity interest of $3,000.
Since the exemption is more than $3,000, the debtor can use the exemption to keep the car – provided he continues to pay the loan.
On top of the $3,750 exemption, debtors can use any unused part of their homestead exemption allowance. The homestead allowance, if you don’t own a home, that you can use on personal assets like a car is $11,500.
Can I Save my Furniture and Jewelry?
Yes. In the same ways (Chapter 13 plan, Chapter 7 reaffirmation agreement, and use of personal exemptions) that a debtor can keep a car, the debtor can keep the furniture.
The main difference is that the exemption is different. The exemption for furniture, appliances, books, pets and household goods is $12,250 as long as no individual item is worth more than $575.
The worth of an item is not what you paid for it but you could get, after the costs to advertise the sale, if you sold out. Most household items are worth less than $575.
The exemption for jewelry is $1,750. Because furniture rarely has much value, many creditors will want to enter into a reaffirmation agreement.
Likewise, debtors only need pay up to the value of the furniture (not the whole loan) if they file for a Chapter 13 reorganization.
There is also a small wildcard exemption of just over $1,000 that you can use to on top of the personal exemption for any one item plus $11,500 of the unused portion of the homestead allowance.
Can I save the tools of my trade?
Yes. Debtors can file a Chapter 13 reorganization plan, enter into a Chapter 7 reaffirmation agreement or use their personal exemption. The personal exemption for tools of the trade is $2,300.
The unused portion of the homestead exemption up to $11,500 can be used to save tools of the trade too.
Can I keep my Social Security Benefits?
Yes. Social Security benefits are protected by the Federal Bankruptcy Law. Creditors can’t touch them. Moreover, Social Security benefits are not considered for the income means test.
Many senior citizens should be eligible for a Chapter 7 if, for example, they can’t pay their medical bills.
Can I keep my Retirement benefits?
Yes, for the most part. Typical retirement accounts are protected. Standard IRAs and Roth IRAs are capped at $1,245,475
Can I keep my Unemployment Compensation Benefits?
Maybe. Unemployment compensation benefits may be considered income or they may be considered welfare payments. It really depends on where you live and what the Bankruptcy Court for that location says.
Generally, you have to list unemployment on your forms. Many locations will use the unemployment compensation as part of the means test.
Can I keep my Disability Payments?
Usually. SSDI ( Social Security Disability Income ) and SSI ( Supplemental Security Income ) are meant to help people who can’t earn an income. For this reason lump sum payments and monthly payments are generally protected. It’s still wise to make sure a bankruptcy lawyer formally asks that the payments be exempted.
Other disability benefits, such as workers’ compensation payments may vary from state to state. Most states protect worker’s compensation benefits from being paid to creditors. Worker’s compensation benefits are normally part of the means test process.