Whether you apply for Bankruptcy Chapter 7 or Chapter 13, you will eventually deal with the issue of non-exempt property. Understanding what property is exempt and what property is not exempt can affect your bankruptcy case. Don’t be left wondering about this vital aspect of the bankruptcy filing. Keep reading for an introduction to non-exempt property in bankruptcy.
A person’s property
- A property is a physical thing or a piece of land.
- It can also be an object or a document.
- Examples of properties include buildings, cars, jewellery, furniture and appliances.
If you have any issues concerning the definition of property, it’s best to consult with a bankruptcy attorney for legal advice.
A bankruptcy court may make different decisions about treating various property types in a bankruptcy case. For instance, if you own a property with equity, it may be treated differently than your other types of property.
If you own multiple properties, the court may decide that they’re all considered one property. The court may also decide that some of your properties are not considered assets at all and won’t be part of your bankruptcy estate. In this case, they’ll be treated as if they don’t exist.
To keep things simple, the court will often try to divide your assets into two categories: exempt and non-exempt. Most states have lists of exemptions that determine which types of property will be exempt from liquidation during the bankruptcy process. If a state does not have this type of list, federal law applies to determining these exemptions.
What is the definition of non-exempt property?
Non-exempt property is a factor that might help or hurt you during your case, so you must ensure that you adhere to all the rules and educate yourself about how to save your non-exempt property in bankruptcy. This will give you a more comprehensive knowledge of how bankruptcy works and what options you may have available if you choose to file for bankruptcy protection.
Non-exempt assets
Some of your property or assets may be liquidated to satisfy your creditors following your bankruptcy filing. Non-exempt property is what these assets are.
Non-exempt property has a straightforward concept: If you have valuable assets and file for bankruptcy, you should utilize the worth of these assets to pay off part of the obligations that will be forgiven in your bankruptcy.
After repaying any secured debts or registered liens, value refers to the equity in these assets. For instance, if you own a $900,000 property with a $675,000 mortgage, you will have $225,000 in equity in your home. This equity will be forfeited, subject to any applicable exemptions.
Frequently surrendered objects to the trustee include the following:
- Second automobile
- Artwork, coin collections, and jewellery of exceptional value.
- Stocks, bonds, and other assets that are not registered with a financial institution
- Cash in the bank above what is necessary to meet short-term living expenses
- the equity in your house.
- A secondary dwelling, for example, a cottage or a vacation property
- A bequest
- A refund of taxes paid on income earned up to the filing date
Which property is exempt from bankruptcy?
A debtor must submit to the court a list of exempt property. The term “exempt property” refers to property that the debtor may shield from liquidation. The Bankruptcy Code permits states to enact their exemption laws, that the debtor may choose over the federal exemptions.
It is critical to speak with a competent bankruptcy attorney who can explain the state-specific exemptions available and how they relate to the federal exemptions available.
Typically, the exempt property comprises the following:
- Automobiles, up to a specific value
- Essential clothing
- Household products and furnishings that are essential
- Appliances for the home
- Up to a particular amount in jewellery
- Pensions
- A percentage of the debtor’s equity in their house
- Tools necessary for the debtor’s trade or profession, up to a certain amount
- Unpaid but earned wages
- Public benefits accrued in a bank account include public assistance (welfare), social security, and unemployment compensation.
- Compensation for personal injury
You Will Lose Asset That Is Not Exempt from Bankruptcy
At the very least, in Chapter 7 bankruptcies. Chapter 13 operates somewhat differently.
Chapter 7: Loss of Non-Exempt Property
In Chapter 7, the bankruptcy trustee managing your case cannot sell your exempt property. However, the trustee has the authority to sell the non-exempt property. Even so, the trustee will avoid selling a low-value item. The trustee will first determine whether the property will provide a sufficient return for creditors.
Occasionally, a filer wants to retain property that a trustee might sell for a fair price. In this circumstance, many trustees may sell it to the filer at a reduced price—typically about 20% less. The bargain will be determined by the amount of money saved by the trustee on sales charges.
In Chapter 13, how do I pay for the non-exempt property?
A Chapter 13 trustee will not sell your property, even if you request it. You will retain everything. As appealing as this may seem, it may become costly. You are required to return the total amount of your non-exempt property under your repayment plan.
If you are unable to make the payment — and many individuals are unable to do so because of the fact that non-exempt equity may quickly increase a monthly fee — you will not qualify for Chapter 13.
Maintain accurate records if you wish to attempt to circumvent this issue by selling assets before filing for bankruptcy. You may always sell the property and use the proceeds to cover your expenditures, but any leftover cash should be turned over to the trustee.
Should I hire a lawyer to file for bankruptcy if I don’t have non-exempt property?
Yes. Filing for bankruptcy is a complex process. Most people who file for bankruptcy engage the service of a lawyer to help them through this grueling time in their life.
If you have a vast amount of non-exempt properties, Chapter 13 may be better for you because it allows a more extended payment period (and the court will take the payment period from your discharge date).
If you have no non-exempt assets and can prove it, you might be able to file a Chapter 7 bankruptcy petition. In this type of bankruptcy, you would get a discharge of your debts and would not be required to pay anything to your creditors.
A competent bankruptcy attorney at the Law Office of Jeffrey B. Kelly (Kelly Can Help) will not only help you decide whether or not to file for bankruptcy but will also help guide you through the complicated process of filing for bankruptcy. The best thing about hiring an experienced attorney is that it can give you peace of mind when going through this challenging time in your life.
Conclusion
As you can see, the issue of what property is exempt isn’t as simple as it might appear. And while the Bankruptcy Code doesn’t always offer specific guidance on whether an item should be considered exempt or not, judges are often called upon to make that distinction for themselves.
We hope that the content we’ve provided above has helped clear up some of those grey areas and will assist you in deciding how best to proceed in your case. If you are looking for experienced legal help, please call us at 678-672-4612 or contact us online to request a free legal consultation and learn more about your options.