Can I protect any of my property when I file a bankruptcy?
The bankruptcy laws are designed to afford the honest debtor a fresh start. So that you can truly have a fresh start after you file bankruptcy, you do not have to give up all of your property and assets. You get to keep a certain amount of property and assets, as well as your personal items and personal effects. What, and how much, you get to keep when you file bankruptcy is determined by your bankruptcy exemptions.
Exemptions are a set of laws that spell out what property and other assets, and how much worth of equity in property and assets, you are allowed to keep when you file for bankruptcy relief. Just what are bankruptcy exemptions, how do they work, and how are they applied to bankruptcy cases?
Choice of Available Exemptions for California Residents
California has actually enacted two different sets of exemptions that you may choose from:
- California exemptions; or
- California is Federal-like exemptions.
When filing a bankruptcy you must choose which set of exemptions you want to take. Determining which set of exemptions to take can be tricky and requires the advice of an experienced attorney based on a thorough analysis of your particular situation.
The California bankruptcy exemptions allow you a substantial amount of equity in your home. As of 2018, you can exempt either $75,000, $100,000, or $175,000 of the equity in your home, depending upon your circumstances (i.e., age, marital status, income and health). Generally, if you have a lot of equity in your home, you would benefit from using the California exemptions.
Apart from real estate, the California bankruptcy exemptions are minimal with respect to your other assets and do not allow you to keep much other property such as vehicles and money in your financial accounts. You only can exempt a small amount of vehicle exemption and minimal amounts of other exemptions such as money in your accounts.
California Federal-like Exemptions
The Federal-like exemptions, in comparison to the California exemptions, are not very generous when it comes to protecting the equity in your home. As of 2018, the Federal Homestead Exemption allows you to exempt $26,800 in equity in your home. However, the Federal exemptions do allow you to exempt a large amount of personal property you would not be able to keep under the California exemptions.
For example, if your car has $12,000 in equity (car current value LESS the loan amount), you would not be able to keep your car if you chose the California exemptions. However, under the Federal exemptions, you could use part of your wild-card exemption and keep your car. You may even apply the wildcard exemption to the money held in your bank account(s). For example, you could theoretically apply all of your wildcard exemption to your bank account funds and keep $28,225 cash in your bank accounts when you file your bankruptcy. Generally, the Federal-like exemptions work best for those who have only a minimal amount of equity in their home but have other financial assets that they want to protect.
What Happens to My Non-Exempt Assets?
Assets that are not covered by an exemption are referred to as “non-exempt” assets. which the bankruptcy Trustee may exercise control over to sell and distribute the sale proceeds to your creditors.
For certain non-exempt assets, the Trustee could decide to abandon (not take control of) your assets if the nonexempt equity in your asset is very little, or if it would be too burdensome or expensive for the Trustee to market and sell the assets.
As with most legal bankruptcy issues, there are many nuances in the area of exemptions that are best explored by consulting with an experienced bankruptcy lawyer.