Will I Lose My Property in Bankruptcy? by Bankruptcy Attorney in St. Louis Tobias Licker
The filing of a bankruptcy petition does not mean that you will lose all of your property. You are allowed, through exemptions, to keep certain assets safe from liquidation to pay creditors. Exemptions may protect specific types of property, such as a motor vehicle or an exemption may protect up to a certain dollar amount of an asset. So called “wildcard exemptions,” can be applied towards any property you own.
Understanding exemptions and how they will work for you are very important. Knowing what you can or cannot keep may change your mind about filing for bankruptcy. Be sure to discuss your options with a knowledgeable bankruptcy attorney. Exemptions are specific to the state you live in. Our bankruptcy attorneys practice in Missouri and Illinois and are able to provide you with information about exemptions in those states.
Exemptions will work differently depending on whether you are filing a Chapter 7 or Chapter 13 bankruptcy petition.
A Chapter 7 functions as an asset liquidation. The appointed trustee is going to sell off your assets to pay your creditors. However, the trustee cannot sell any exempt property.
A Chapter 13 bankruptcy functions as a reorganization of your debts. However, the amount you pay certain creditors depends on how much property of your property is exempt.
How do you determine which assets are exempt?
The amount of property you can exempt depends on whether you are using the Federal or the State exemptions and which state’s exemption laws you are using.
There are Federal bankruptcy exemptions which were created to assure some uniformity from state to state. However, some states opted out and you are required to use the state exemptions. Some states give you the option of choosing either its or the federal exemptions. In these cases you must choose one or the other. You cannot mix and match with respect to different items or property.
The most frequently utilized Federal exemptions are the homestead exemption which protects the equity in your home, the motor vehicle exemption, and the wildcard exemption. In addition to these, there are many other federal exemptions specifically designed to protect assets ranging from retirement accounts to the tools of your trade. Missouri and Illinois chose to use their own state exemptions.
The state exemptions are, for the most part, similar to the federal exemptions. The state exemptions vary widely. Some are very generous while others do not.
Which Exemption System Can I Use?
You are not allowed to “shop” the states. You are required to use the exemptions of the state where you reside (your “domicile” under bankruptcy law).
Where Is My Domicile?
Your domicile is the place where you make your permanent residence (where you vote, pay taxes, have a homestead exemption for real estate tax purposes) for the last two years before filing. If you lived in more than one state within that time period, you look at the 6 months prior to the 2 year period. The state in which you lived for most of the time within the 6 months preceding the 2 year period will determine which exemptions you use. But be careful, when you lived for example in Illinois most of the time during the 6 month period, you cannot just use Illinois exemptions yet. You still would need to look at the Illinois exemptions if they allow non-residents to use state exemptions or have to use federal exemptions. That means even though the state opted to use state exemptions if you move into a different state, you might have to use the state exemptions from your prior residence or federal exemptions. If you moved to the St. Louis Metro area and consider filing bankruptcy, please contact our attorneys if you have any questions about which exemptions apply.
How do I go about claiming exemptions?
When you file your petition and supporting schedules, you will include a schedule listing all of your exempt property. The schedule should include:
• A detailed description of each item for which you are claiming an exemption
• The specific statute (state of federal) that allows each exemption
• The fair market value of each of the items for which you are claiming an exemption
Once you have filed the schedule, the bankruptcy court, the trustee and your creditors evaluate it. Your creditors or trustee have 30 days to object to your exemptions.
If there is an objection, it’s that person’s burden to prove that the property is not exempt or otherwise not properly claimed as exempt in your schedule. If no one objects, the property is excluded and can’t be used to pay your creditors.
Can I keep my house?
Both the federal and the state exemption statutes provide for what is known as a homestead exemption. This applies to property used as your residence. You are allowed to protect some or all the equity you have in this property as long as you continue to make any mortgage payments.
The federal homestead exemption, as of 2011 is $21,165. State homestead exemptions vary widely. In some states there’s no limit, while in others a set dollar amount is protected. In Missouri and Illinois, the homestead exemption is $15,000. However, if you have equity in your home, after deducting your mortgages, other liens and the homestead exemption, it does not mean that you have to turn over that non-exempt portion to a chapter 7 trustee. If a trustee would sell your home, he would have administrative expenses such as around 7% for real estate agent and broker fees which can be deducted in addition. Your bankruptcy attorney has the experience to advise you whether you should file a chapter 7 or chapter 13 bankruptcy case depending on the non-exempt assets in your home.
If you don’t have equity or it’s within the exemption amount, you can keep the property.
Can I keep my motor vehicle?
The federal exemption for a motor vehicle, as of 2011 is $3,450. If the equity (value less amount owed) is more than $3,450 you may be able to apply exemption amounts from other categories, to keep the vehicle. If the trustee sells it, you will receive the first $3,450 of the proceeds. The exemption in Illinois is $2,400 and in Missouri $3,000. The wildcard exemption which can be applied to any personal property (with some legal professionals suggesting it cannot be applied to real estate) including motor vehicles, is in Missouri $600 and in Illinois $4,000 per person. If you file the bankruptcy case jointly with your spouse and both of you own the vehicle you both can apply your exemption to that vehicle. That means in Missouri you could apply $7,200 in exemptions towards a jointly owed vehicle. If the vehicle is not jointly owned, only the person who owns the vehicle can apply the exemption. Be careful not to transfer any property interests to your spouse shortly before filing in order to be able to claim your spouse’s exemption. Talk to your bankruptcy attorney first. If you transfer property shortly before filing, the trustee might void that transfer if it was transferred without receiving fair market value. It might be considered a fraudulent transfer. In that case you would lose the exemption you might have been able to apply towards the property transferred.
Besides of the wildcard exemptions, you might have additional exemptions which can be applied towards the protection of your property, one of these exemptions is the head of household exemption in Missouri, which is $1250 for the head of household plus an additional $250 for each dependent under the age of 18.
You may also have the option to pay the trustee the excess value and keep the vehicle. Even if you do not have the full amount of the excess value your bankruptcy attorney might offer the trustee a partial amount that is acceptable in lieu of the full amount. If the trustee accepts the offer, the trustee will file a motion to compromise controversy. When a trustee accepts an amount to compromise and files the motion with the court, it normally will be granted by the court.
What about my furniture and household goods?
Both federal and state bankruptcy statutes allow exemptions for household goods and furnishings. Generally speaking this type of property usually has little value at a sale, so a trustee usually does not press for a sale.
Can I protect my retirement savings?
The federal and most state statutes provide an exemption for pension, IRA, 401(k)s, profit sharing and stock bonus plans, and other similar funds.
This protection is important, since these accounts are probably among the most substantial assets you have. Most IRA’s and 401(k)s and other retirement accounts are exempt in Missouri and Illinois. However, discuss specifically with your bankruptcy attorney any annuities and whole life insurances you have. These types of investment might not be exempt and you might have only your wildcard exemptions available. Your bankruptcy attorney will be able to discuss if the assets can be transferred into a retirement account that is protected by state exemptions.