I Don't Want To Lose My . . .(fill in the blank) . . .

For many of my clients who come in for the initial consultation, one of the first questions is, "What about my        ?" Usually the "blank" is a car, but often it is furniture, investment accounts and other personal property. As always in things legal, not just bankruptcy, there's no short or simple answer. (And you thought I was going to say, "It depends . . ."). Although it does depend. The answer to the question about the car or the house or any other item of property depends initially on what you want to do with it. Next, it depends on what the Bankruptcy Code will let you do with it.

Of course I am talking about exemptions. Great. What's an exemption? When a bankruptcy is filed (and I'm talking about consumer bankruptcies here, not the General Motors variety), something called "the Bankruptcy Estate" is created. What that means, for all intents and purposes, is that once you file a bankruptcy, all of your stuff now becomes property of the Bankruptcy Estate. Under Section 522 of the Bankruptcy Code, however, an individual debtor can exempt certain property out of the Bankruptcy Estate, up to specified values. For example, that car you were worried about . . .the Code allows an individual debtor to have a vehicle for his or her personal or family use, worth up to $3,450.00. Now, many people don't own their car outright, and are paying a car loan or have a lease. In that case, it usually doesn't matter what the thing is worth, because it is securing a debt, and if anyone (like the Chapter 7 Trustee) were to sell the car, they would have to satisfy that debt first. (There are other provisions relating to keeping a car which is subject to a loan, but that's a topic for a different post.)

So, you have a car, you own it outright, and it's worth . . .let's say $7,000.00. Bye bye car, right? Not necessarily. Once you have exhausted that exemption of $3,450.00 for the car, you are allowed to use a so-called "wildcard" exemption, which in most cases will eat up the excess non-exemptable portion of the car value. This same sort of exemption can apply to other personal property as well, allowing you to keep most, and in some cases all, of certain personal property that might otherwise exceed the allowable amounts. Of course, there is quite bit more analysis that goes along with the process and is best left up to your bankruptcy attorney.

This is why it is very important for you to provide your attorney with a complete and accurate inventory of your personal property (your stuff plus cash, bank accounts, and other types of accounts), so that he or she can do the necessary analysis to properly apply and claim the appropriate exemptions.

What About My Refund . . .????

Ah yes . . .January is over, February has slapped us in the face and is sitting back and laughing about it, and the W-2s have bloomed. Unless I miss my guess, it must be tax time again.  And for many people, that means that a refund is in the cards.

But wait . . .says a client . . . I'm filing bankruptcy!!  WHAT ABOUT MY REFUND??? Are they going to take that? Well . . .your're going to hate me for this . . .it depends.

It depends on how much you are expecting to receive and on how much of it (or even all of it) can be exempted under the available exemptions. Let's say you are expecting to receive about $5,000.00. But you are just on the verge of a bankruptcy filing; all that's left to do is go to your lawyer's office to review your petition and schedules, and sign it. And let's say that you own your house, and by some miracle (in this climate!) you actually have some equity in it . . .for this example, let's say you have in the neighborhood of $10,000.00 in net equity. (Net equity would be what you get to put in your pocket after the mortgage, the broker's commission and all closing costs have been paid). Under the federal exemptions you are permitted to keep up to $21,625.00 in equity in your house; in this example, after exempting (keeping) your $10,000.00 worth of equity, about $11,625.00 remains. In Pennsylvania, we can choose whether to use the federal exemptions or the state exemptions. Using the federal exemptions there is good news!!

The Bankruptcy Code allows you to use up to $10,825.00 of the unused portion of the amount you were allowed to use for your house. So, under this scenario, you would be able to keep your tax refund. Using the same analysis, if you have no equity in your house, or if you don't have a house, then you would still be able to use the unused portion of the homestead exemption, and you would be able to keep your tax refund.

Of course, the above example is just a hypothetical situation, and there are other factors that each individual client may have to consider when looking at the exemptions. This is just one reason why there are no easy answers in bankruptcy!