Our most common bankruptcy client is an individual or married couple. They may have a house with a mortgage or two. They have a car with a car loan, and an older car without a loan. They have household furnishings, clothing, bank accounts and retirement accounts. Debts have become overwhelming due to loss of income, uninsured medical expenses, or divorce.
They need a bankruptcy judge to discharge their debts – to declare that they do not owe those debts any longer, so they can have a “fresh start”. Then they will not have to use future income to pay past debts. But they fear they will lose all their property if they file bankruptcy.
In fact, most of our clients can keep all of the property they want to keep!
First the scary news: When you file bankruptcy most of your property instantly becomes owned by your bankruptcy estate. Think as that as the heap of assets that may be turned into money to pay your creditors.
Here is the rescue news:
1. Property which is not worth more that the balance of the loan which is secured by that property. So if your house is not worth more than its mortgage loan or your car is not worth more than your car loan, then the bankruptcy court does not want it. As soon as your bankruptcy trustee realizes that, he will “abandon” the property. That is his decision to return full ownership of that property to you. It is still subject to the liens. If you want to keep your house, you must keep paying the mortgage; if you want your car, you must keep paying the car loan.
2. You are entitled to remove from the bankruptcy estate property which is exempt i.e., there is a rule of law that says that a debtor gets to keep his property; his creditors may not take it from him. Therefore, you are entitled to remove it from the bankruptcy estate, so it will not be sold and given to your creditors.
A few exemptions have no dollar limit, e.g., retirement accounts like IRA’s, wedding and engagement rings, child support, Social Security and personal injury receipts.
Most exemptions have a dollar limit:
$6,000.00 for a car.
$5,000.00 for household furnishings (valued at thrift store values).
Three fourths of money on deposit which is earnings.
A $5,000.00 miscellaneous exemption which you can apply to any asset.
The bankruptcy trustee will also abandon any property of inconsequential value, i.e., it is not worth enough for him to try to take it, store it, sell it, distribute it to creditors and file an account with the bankruptcy court.
For most of our clients this rescue news means that they will not give up any property in order to discharge debts.
If you need to discharge debt, but fear that you have some property which all of these rules will not protect, you should still meet with us. There are a few completely legal steps which you can take to get the best outcome.
Suppose you have the unusual case in which, after applying all of these principles, you still have some property which might be at risk. You may be able to keep that property by filing a Chapter 13 bankruptcy. That is essentially an offer to the bankruptcy court which says, “Let me keep this property which has equity, and over a period of time out of my future income I will give to the court the same amount of money to give to my creditors which it would have been able to give them if I had filed a liquidation bankruptcy and the property had been sold to pay creditors”. If your Chapter 13 offer to the court is accepted and you make the agreed payments, then you keep the property and you still discharge most debts.
If debts have become overwhelming and you want to learn whether bankruptcy will help you, we offer a free initial consultation. Give us a call at 540-659-3130. The attorneys at Goodall, Pelt & Carper, PC in Stafford, Virginia are glad to help you.