In a Chapter 7 bankruptcy, a debtor’s assets are sometimes seized and used to pay back a portion of their debts. However, some assets are exempt, meaning they cannot be seized by the court. This tends to cut down on time and paperwork in your bankruptcy filing, but first, one must determine what assets are exempt. A good bankruptcy attorney should be able to answer your questions.
A debtor is allowed to exempt some property from sale in a bankruptcy because they will need some property with which to make a fresh start. In California, there are two sets of exemptions for assets, and you must choose one. The major difference between the two is that in second set, there exists no exemption for wages. You can also use some federal exemptions, but those primarily cover benefits granted by the federal government, like veterans’ benefits or federal pensions.
Equity is Important in Exemptions
The important thing to remember about exemption limits is that they apply to the equity in the item, not the retail price of the item. If your asset is worth $10,000 but has a debt of $9,000 on it, the asset has $1,000 worth of equity, and that is the basis on which the trustee will assess it.
Even if your property is not exempt, your bankruptcy trustee may abandon it. The most common time when your trustee will choose to abandon property is when it does not have much equity that could be used to make up a debt. The classic example is when a debtor owns a car worth $5,000, and owes $4,500 remaining on it. The trustee could easily incur more than $500 in fees trying to sell it, which would mean that there would no longer be any equity remaining in the car. Since it is not worth it to sell, the item would likely be abandoned.
Due to exemptions, the vast majority of Chapter 7 bankruptcies in the U.S. are no-asset bankruptcies. It is a major misconception that bankruptcy court will take all of a debtor’s property without regard for its value, as the court has no interest in items it cannot sell to pay off debts.
If you are considering filing for bankruptcy Contact the Dowe Law Firm today at 510-233-7700 or email@example.com.