It is a common myth that people who file bankruptcy lose all their property. It is just a myth. Bankruptcy exemptions help debtors with asset protection when they file Chapter 7 and Chapter 13. Our New Bedford bankruptcy lawyer explains asset protection in bankruptcy so you can rest easier about seeking the debt relief you need.
What Are Bankruptcy Exemptions?
When you file bankruptcy, your assets become part of the bankruptcy estate. The trustee can use non-exempt assets to pay your debts. However, the U.S. Bankruptcy Code includes “exemptions” that protect some assets from being used to repay debts. The exemptions may protect the entire value of an asset or a portion of the asset’s value.
Massachusetts gives debtors the choice between federal bankruptcy exemptions and Massachusetts bankruptcy exemptions. You cannot mix and max exemptions. You must choose between federal and state bankruptcy exemptions.
There is some overlap in the bankruptcy exemptions. Our New Bedford bankruptcy attorneys analyze your assets to determine which set of bankruptcy exemptions gives you the best protection in bankruptcy.
Common Bankruptcy Exemptions Used for Asset Protection in Massachusetts
Examples of federal bankruptcy exemptions you can use to protect assets include the following items. By contrast, the corresponding Massachusetts exemption is in parenthesis:
- Homestead exemption (residence) – $27,900 (M.A. exemption $125,000)
- A motor vehicle – $4,450 (M.A. exemption $7,500 or $15,000 if disabled or above 60 years old)
- Jewelry – $1,875 (M.A. exemption $1,225)
- Tools of the trade – $2,800 (M.A. exemption $5,000)
- Household goods – $700 per item up to a total of $14,875 (M.A. exemptions include clothing up to $15,000 and a $4,000 wildcard to use on furniture if desired)
Massachusetts has many more individual exemptions for personal property than the federal exemptions. Both federal and state bankruptcy exemptions protect most ERISA-qualified retirement accounts.
How Do Bankruptcy Exemptions Work in Chapter 7 and Chapter 13 Bankruptcy Cases?
A bankruptcy exemption protects a specific amount of equity in an asset. For example, if you claim an exemption of $7,500 in a vehicle worth $6,000, the bankruptcy exemption entirely protects the vehicle. However, if your vehicle is worth $15,000, only half the value is protected by a bankruptcy exemption.
In a Chapter 7 case, the bankruptcy trustee can seize non-exempt assets to sell. The proceeds are used to pay unsecured creditors. Therefore, the bankruptcy trustee could sell your $15,000 vehicle, give you $7,500, and use the remaining funds to pay your unsecured creditors.
In a Chapter 13 case, non-exempt equity is handled through your Chapter 13 plan. Chapter 13 trustees do not sell assets. Instead, you would pay your unsecured creditors an additional $7,500 (the non-exempt portion of your vehicle) over a 60-month plan.
Unfortunately, bankruptcy exemptions are not quite as simple as our example. Chapter 7 trustees consider the cost of selling an asset and the value they could receive at a “quick sale” to determine whether to abandon an asset with a small amount of equity above the exemption amount.
Furthermore, wild card exemptions can also help protect equity exceeding an exemption amount. Asset protection in bankruptcy requires carefully analyzing your assets and other factors impacting your bankruptcy case. An experienced bankruptcy lawyer can help you develop a strategy that takes full advantage of bankruptcy exemptions.
Get More Information About Asset Protection in Bankruptcy During a Consultation
Many individuals keep all their property when they file for bankruptcy relief. Contact our New Bedford bankruptcy lawyer at Logan A. Weinkauf, P.C., to discuss how we can help you protect your property while getting rid of debts you cannot afford to pay.