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BANKRUPTCY FAQ ▼
* What are the different kinds of bankruptcy?
* Do I qualify for bankruptcy?
* Secured debt vs. unsecured debt: What's the difference?
* Do I need a lawyer to file for bankruptcy?
* Where do I file for bankruptcy?
* Can I get free bankruptcy forms?
* What happens to my property in bankruptcy?
* Do I have to get credit counseling before I file for bankruptcy?
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50-STATE BANKRUPTCY EXEMPTIONS FOR 2022
Welcome to LegalConsumer's listings of bankruptcy exemptions you can use in your
state.
Here you'll find out:
* Which Exemption system can you use in your state?
* The Federal Bankruptcy Exemptions (§522(d))? or
* Your State's Exemption Laws?
* Can I keep my House?
* Can I keep my Car?
* Can I keep money in my bank account?
* Can i keep money in my retirement accounts?
* What other kinds of property are exempt?
STATE EXEMPTION LAWS
Every state has their own system of exemptions that applies in collection cases,
for collecting debts under state law.
State exemptions laws are often found under sections of statutes called
exemptions from collection or attachment.
A few states, like Michigan, have created a separate set of exemptions, meant
only for bankruptcy proceedings. And California has two sets of exemptions to
choose from
FEDERAL BANKRUPTCY EXEMPTIONS UNDER SECTION 522(D)
The federal bankruptcy statute has its own list of exemptions under section 522
of the bankruptcy code.
These federal exemptions were created in the 1982 revision of the bankruptcy
code. When those revisions were passed, a compromise was made that allowed
states to "opt out" of the new federal exemption system and allow debtors in
those states to only to use the exemptions under existing state law, (and some
non-bankruptcy federal exemptions).
WHICH EXEMPTION SYSTEM CAN YOU USE IN YOUR STATE?
Only 19 states (see map above) allow you the option of using to use the Section
522(d) exemptions in the bankruptcy code. The remaining states have "opted out"
and limit you the state exemptions.
* the Federal Bankruptcy Exemptions under Section 522, or,
* your state's State Exemptions that apply to debt collection in your state
Whatever system you choose, you must choose all your exemptions from that
system.
SO-CALLED FEDERAL "NON-BANKRUPTCY" EXEMPTIONS
If you chose to use your state's exemptions, you are also allowed to claim
federal "non-bankruptcy" exemptions. That is, exemptions for things like
pensions and the like, where the exemption law is not found in bankruptcy code
section 522(d), but rather in some other federal law, like the one protecting
railroad pensions, and the like, and IRAs and Social Security.
WILL I LOSE MY HOUSE? 50-STATE HOMESTEAD EXEMPTION LIMITS
Any homeowner who files for bankruptcy must pay particular attention to the
homestead exemption available in their state.
The homestead applies to equity in the home, after deducting for mortgage liens.
If there is any equity that is not protected by Homestead exemption, the trustee
may decide to liquidate (sell) the property to raise money for your unsecured
creditors.
For this reason, it is extremely important to understand the limits of your
state's homestead exemption before you file for bankruptcy.
WILL I LOSE MY CAR? 50-STATE MOTOR VEHICLE & WILDCARD EXEMPTIONS
States vary widely on the amount of equity they protect and motor vehicles.
In some states you can protect more than $10,000 of vehicle value, while in
other states you can only protect a few thousand dollars in equity in a vehicle.
And most states have a "wildcard" exemption which can be added (stacked) on
other exemptions if you have more equity to protect.
> If you're leasing your vehicle then different laws apply. That's covered in
> another article, here.
If you have a car loan, you'll be asked if you want to keep the car or surrender
it to your note holder. Or you'll also have a chance to buy the car at its
current value in a process called redemption, which requires you to come up with
the full amount, in cash to give to the creditor.
If you have a car that's worth a lot, the trustee might be interested in selling
it to raise money for unsecured creditors. However since cars are very important
part of a fresh start, most people don't lose their cars in bankruptcy.
Primarily because by the time they reach bankruptcy, either the car isn't worth
much, or has a lot of debt on it already.
However, during the Covid pandemic, the market for used cars got hot, and the
value of used cars increased, so it's important to know if the equity in your
car is fully protected by an exemption.
*
BANKRUPTCY EXEMPTIONS FAQ
* What are Bankruptcy Exemptions?
* Which State's Exemptions Must You Use?
* What Is A “No Asset” Bankruptcy?
* Common Exceptions to Exemptions:
* Special Rules for Retirement Accounts
* Insurance Exemption Glossary
* Can I eliminate liens on exempt property?
* Exemptions & “Secured Debts”
* Dealing with Secured Auto Loans in Bankruptcy
* 50-State Exemption Updates
* Conditions of use & common sense advice before you use exemption information
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* How Chapter 7 Bankruptcy Works
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* Can an Employer Garnish My Wages in State?
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Student Loans - (Student Loans)
* Best Sources of Student Loan Undue Hardship Case Law
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and Complete the New Required Affidavit Online
* Student Loans §523(a)( 8 ) Undue Hardship Discharge Affidavit
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* Student Loan Bankruptcy Discharge Affidavit For Undue Hardship §523(a)(8) -
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Property, Exemptions & Liens - (Property)
* Can Bankruptcy Prevent Foreclosure?
* Bankruptcy Exemption Laws - 50 State - Free
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* Can I Use the Federal Exemptions in My State?
* Bankruptcy Exemptions FAQ
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Bankruptcy?
* Can I Keep Property That I've I Pledged as Collateral For a Debt?
* Can I Keep My Car or Truck If I File For Chapter 7 Bankruptcy in My State?
* What Will Happen to My Home If I File For Bankruptcy in My State?
* 50 State Homestead Exemptions
* Can Bankruptcy Keep Me From Being Evicted?
No, But Bankruptcy Can Get Rid of Back Rent Debt Accumulated During Pandemic
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Bankruptcy FAQ
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Bankruptcy FAQ >
What are the different kinds of bankruptcy?
THE TWO KINDS OF BANKRUPTCY MOST CONSUMERS USE
This website focuses on the two most common types of bankruptcy filed by
individuals: Chapter 7 and Chapter 13. But here’s a quick summary of the six
types of bankruptcy most commonly filed under the bankruptcy code; they get
their names from the chapters where they appear in the code.
CHAPTER 7 BANKRUPTCY
* Chapter 7 lets individuals wipe out (“discharge”) most kinds of debt in just
a few months.
* You get to keep certain kinds of property—for example, at least some of the
equity in your home, your car, clothing, personal items, and property that is
essential to your profession. This type of property is called “exempt”
property, and many Chapter 7 filers find that exemptions cover most of what
they own.
* If you have nonexempt property, the bankruptcy trustee will sell it to repay
your creditors as much as possible.
* To qualify for Chapter 7, you must pass the “means test,” showing that your
income is less than the state median income for your family size.
* Most bankruptcies filed in the U.S. are Chapter 7 bankruptcies. (For more
information, see How Chapter 7 Bankruptcy Works.)
CHAPTER 13 BANKRUPTCY
* Under Chapter 13, an individual repays some or all of their debts under a
payment plan approved by the bankruptcy court.
* Chapter 13 bankruptcy takes three to five years to complete.
* Those who choose Chapter 13 usually do so because they want to protect
certain kinds of non-exempt property or because they have too much income to
qualify for Chapter 7. (Most people prefer to file for Chapter 7 if they
qualify, because Chapter 7 allows you to erase most kinds of debt in just
three to six months.)
* You can qualify for Chapter 13 if you have steady income and your debts don’t
exceed the limits set by the bankruptcy code. (For more information, see How
Chapter 13 Bankruptcy Works.)
LESS COMMON TYPES OF BANKRUPTCY
CHAPTER 9 BANKRUPTCY
Cities or towns may file for Chapter 9 bankruptcy if they are overwhelmed by
debt. It allows municipalities to develop a plan for handling debts while
holding creditors at bay.
CHAPTER 11 BANKRUPTCY
* Chapter 11, often called “reorganization bankruptcy” is usually used by
businesses.
* It allows a business to work out a court-supervised plan to pay back
creditors while keeping its doors open. We mostly hear about big businesses
filing for Chapter 11, but small businesses or even individuals can use it,
too.
* The trouble is that Chapter 11 is usually too expensive for smaller
undertakings and anyone other than the most wealthy individuals, because it
entails lots of meetings, court hearings, and big bills from bankruptcy
lawyers.
CHAPTER 12 BANKRUPTCY
* This type of bankruptcy is a lot like Chapter 13 except it’s available only
for family farmers and fishermen.
* It’s specially designed to help farmers and fishermen keep their livelihoods
while paying off debts under a court-approved plan.
* Chapter 12 has a higher debt threshold and more options to protect property
than Chapter 13.
CHAPTER 15 BANKRUPTCY
* Chapter 15 is for people or organizations that have debts and property in the
United States and another country.
* Under this chapter, federal bankruptcy courts can more easily limit their
involvement in the case to just the property and people in the United States.
Close
x
Bankruptcy FAQ >
Do I qualify for bankruptcy?
To qualify for Chapter 7 bankruptcy, you must show that either:
* Your income is below your state’s median income for your family size, or
* Your income and expenses, calculated together, leave you unable to pay your
debts. This is determined under a complex formula called the bankruptcy means
test.
If you don't qualify for Chapter 7, you may still be eligible to file under
Chapter 13. To qualify for chapter 13, your debt must be under the limit set by
the bankruptcy code, and you must be current on your tax filings for the last
four years.
See How Chapter 7 Bankruptcy Works or How Chapter 13 Bankruptcy Works.
Close
x
Bankruptcy FAQ >
Secured debt vs. unsecured debt: What's the difference?
Secured debt. A secured debt is backed up by property, like your home or a car,
also known as "collateral." The creditor can take back the collateral if you
don't repay the debt.
Secured debt can be voluntary -- for example, when you get a mortgage to buy
real estate or a car loan. It can also be involuntary -- say, if the government
puts a lien on your property for back taxes.
Unsecured debt. Unsecured debt isn't backed up by collateral. Lenders give you
credit without "security," relying on your credit history and your promise to
repay. Unsecured debt can include everything from your credit cards to your gym
membership, your medical bills to a loan from a friend.
In bankruptcy, unsecured debt is divided into priority and non-priority claims.
If there's any money available to pay your creditors, priority claims come
first. Non-priority unsecured debts are rarely paid in bankruptcy.
Common priority unsecured debts include:
* legal fees related to the bankruptcy filing
* child support and alimony
* federal or state income taxes
* a certain amount of wages and benefits owed to employees, and
* claims against you for operating a vehicle under the influence of alcohol or
drugs.
To learn more, see our articles on How to File for Bankruptcy.
Close
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Bankruptcy FAQ >
Do I need a lawyer to file for bankruptcy?
You're not legally required to use a lawyer to file for bankruptcy. Whether
you're a good candidate for handling your own bankruptcy depends on the
complexity of your financial situation and your willingness to take the time to
learn the rules of bankruptcy. If you're not the type of person willing to
carefully read a lot of information and follow instructions to the letter—or if
your situation has you feeling too overwhelmed to do so—then self-help is
probably not for you.
Evaluating your financial situation. If you owe only unsecured debt—like credit
card charges or medical bills—you may be able to file for bankruptcy on your
own. But you must also consider the amount and type of property you own. If you
own your home, have substantial retirement savings, or have other valuable
assets, you may want to consult a lawyer to ensure your property is not at risk.
An excellent way to approach the decision to hire a lawyer is to buy (and read)
Nolo's book How to File for Chapter 7 Bankruptcy. It will give you a good idea
of what issues may arise when you file and flags specific situations when a
lawyer's help is called for. It will also give you a good sense of whether the
complexity of the filing process is something you'll want to take on alone. (If
your financial situation is simple, but you just don't want to deal with the
forms, you might consider using a bankruptcy petition preparer to handle the
form preparation.)
Other resources, other opinions. Lots of people have opinions on the topic of
whether you should get a lawyer. Most lawyers—surprise!—think you should always
have a lawyer. But, seriously, they make valuable points worth reading as you
decide what to do.
The Moran Law Group, in addition to providing loads of valuable free information
about bankruptcy, also makes a case for getting a lawyer. The U.S. Courts
website also offers information about filing without an attorney. Nolo, too,
offers an article called Filing for Bankruptcy Without an Attorney. These
sources are all worth reading.
Finding a lawyer. For more information about finding a qualified bankruptcy
lawyer near you, see the Lawyers section of this website.
Close
x
Bankruptcy FAQ >
Where do I file for bankruptcy?
Most people file for bankruptcy in the federal district court closest to where
they live. However, if you run a business in a different district and most of
your property is located there, you may have to file in that location.
Also, if you've moved in the past six months (180 days), you may have to file in
the federal district court where you used to live. It all depends on where the
greater portion of your property has been for most of the past 180 days.
Wherever you're required to file, know that you can handle most of your business
with the court, including filing your bankruptcy forms, by mail. However, you
will need to visit the courthouse at least once to meet with the bankruptcy
trustee.
For more details and to find your local court, see our articles on Find Your
Local Bankruptcy Court.
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Bankruptcy FAQ >
Can I get free bankruptcy forms?
Yes! All official federal and local bankruptcy forms are available free of
charge. You can find the links you need by visiting our bankruptcy forms page.
You can also vistit the U.S. Courts website to find free, downloadable copies of
the federal forms.
If you want copies of bankruptcy forms with plain-language instruction and tips
for filling them out, you might want to use a good self-help book like How to
File for Chapter 7 Bankruptcy or Chapter 13: Keep Your Property and Repay Your
Debts Over Time, both published by Nolo.
Close
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Bankruptcy FAQ >
What happens to my property in bankruptcy?
When you file for bankruptcy, all your property becomes part of the "bankruptcy
estate." The bankruptcy trustee has control of your "bankruptcy estate property"
while your case is going on. This property is to be distributed for the benefit
of your unsecured creditors.
If that were the end of it, bankruptcy wouldn't be a very good deal because
you'd be left with no property. Fortunately, that's NOT the end of the story.
Every state has "exemption laws" that say that specific kinds of property,
generally up to a dollar limit in value, are exempt from collection by
creditors.
These laws are applied when you file for bankruptcy.
> So, even though bankruptcy is a federal law, your state’s exemption laws may
> determine how much and what kinds of property you get to keep.
As it turns out, most people who file for Chapter 7 Bankruptcy lose no property
at all because what little property they do have is, either
* fully protected by exemption laws, or
* pledged to secured creditors, and therefore not available to the bankruptcy
estate.
These so-called "no-asset bankruptcies" are so common that there's a checkbox
for it on the petition form. You can check a box to indicate that no assets will
be left to distribute to unsecured creditors once you're done claiming your
state's exemption laws.
Whether or not you file for bankruptcy, unsecured creditors cannot seize your
exempt property to pay off your debt. Even if the creditor goes to court, wins a
court judgment against you, and takes steps to attach a lien to your property,
you are still entitled to your exemption amount before the creditor gets any
proceeds from a sale.
If you sell your exempt property voluntarily, the creditor has a right to have
its lien paid from the sale proceeds before you receive anything.
As a practical matter, most of the property of people who file for Chapter 7
bankruptcy is exempt, so they don't want to sell what they have. If all of your
property is protected by exemption laws, you are said to be "judgment
proof,"—meaning that creditors can't collect anything from you, whether or not
you file for bankruptcy.
EXEMPTIONS APPLY TO YOUR EQUITY IN PROPERTY.
One important thing to remember is that an exemption protects only the "equity"
in your property. That's the difference between the value of the property and
what you owe to creditors—like your mortgage lender—who have a secured interest
in it.
> Example
>
> If you owe $18,000 on a $20,000 car, you have only $2,000 in equity. If your
> state has at least a $2,000 exemption for motor vehicles, that will be enough
> to protect the $20,000 car in bankruptcy—but you must continue to make the
> payments to the secured creditor.
>
> On the other hand, if you own the vehicle free and clear, then your equity is
> the full value of the vehicle, and a $2,000 exemption would not be enough to
> protect it. The trustee would force the sale of the car, you would get your
> exemption amount, and the trustee would get the rest of the proceeds to
> distribute to the unsecured creditors.
More Information
To learn what property is exempt in your state, see the Exemptions section of
this website.
Close
x
Bankruptcy FAQ >
Do I have to get credit counseling before I file for bankruptcy?
Yes. Before you file for bankruptcy, you must take a brief credit counseling
class and get a certificate proving that you have done so. If you are planning
to file jointly with your spouse, you can both attend the same counseling
session, but each of you must get a separate certificate. You can usually take a
class online or over the phone.
The counseling class usually costs around $50 to $75 or less. However, federal
bankruptcy law states that credit counseling agencies must provide credit
counseling services without regard to a client’s ability to pay and must
disclose the possibility of a fee waiver or fee reduction before beginning the
counseling session.
Many critics of federal bankruptcy law see the credit counseling requirement as
a bureaucratic obstacle for already-desperate debtors. Perhaps so. But try to
make the most of your 90-minute session by getting as much free information as
possible. You may be able to use it as a way to get a second opinion about your
financial situation and to gauge whether bankruptcy is, indeed, the right choice
for your situation. (Keep in mind, however, that a credit counselor is not
legally allowed to tell you whether or not you should file for bankruptcy.)
For more information, see the U.S. Department of Justice Credit Counseling FAQ.
When you’re ready to sign up for a counseling class, you can use this list of
court-approved credit counselors.
Once you’ve filed, you’ll need to take another online class- a “Debtor
Education” class- before receiving your final order discharging your debts.
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Bankruptcy FAQ >
What is a 341 hearing (creditors meeting)?
Everyone who files for bankruptcy must attend a 341 hearing, which is also
called a "creditors meeting." The meeting is conducted by the bankruptcy trustee
assigned to your case. The trustee will put you under oath and may ask you
questions about the information you've provided on your bankruptcy forms.
Creditors may also show up at the hearing to ask you questions, but it's not
common for them to do so.
Bankruptcy law also requires the trustee to ask you questions to be sure you
understand how bankruptcy works and the potential consequences of filing
bankruptcy, such as the effect on your credit record.
For most bankruptcy filers, this will be your only trip to the courthouse (or
during the Cornavirus, a virtual trip to the courthouse, via a phone meeting.
See below). Most court websites post schedules of 341 hearings, and when you
file, you will be notified of your hearing date. When you show up for your
hearing, you will find that many other people have hearings set for the same
day. You will sit and wait for your name to be called--usually in a room
somewhere in the courthouse or federal building, but probably not in a
courtroom.
The book How to File for Chapter 7 Bankruptcy provides detailed information
about what to expect at your 341 hearing.
The Department of Justice offers Information about creditors meetings on
a district by district basis.
To go to your Local 341 Meeting Information page, click on this link:
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Bankruptcy FAQ >
What is the Automatic Stay?
The automatic stay is provided for in §362 of the Bankruptcy Code.
It is an automatic injunction that goes into effect when a person files for
bankruptcy.
The purpose of the automatic stay is to provide the debtor with a temporary
reprieve from their creditors.
When the automatic stay is in effect, creditors are generally prohibited from
taking any action to collect on a debt. This includes things like calling the
debtor to demand payment, garnishing the debtor's wages, or foreclosing on the
debtor's home. The automatic stay gives the debtor some breathing room to
reorganize their finances and work out a plan to pay off their debts.
The automatic stay is a powerful tool that can provide much-needed relief to
someone struggling with overwhelming debt.
But... the automatic stay is not a permanent solution. Creditors may be able to
get the stay lifted if they can show that it is necessary to do so to protect
their interests.
For example, it is often quite simple for a landlord to get a stay lifted to
proceed with an eviction.
And a Chapter 7 bankruptcy won't permanently stop a foreclosure or other
collection efforts by secured creditors, but a Chapter 13 bankruptcy can force
such collection efforts into a pay-over-time repayment plan.
It's important to consult with a bankruptcy lawyer before assuming that the
automatic stay will protect you from further collection efforts in your
particular situation.
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Bankruptcy FAQ >
What is an Adversary Proceeding?
An “adversary proceeding” in bankruptcy is a lawsuit within your bankruptcy
filing to settle a specific issue.
Certain benefits of the bankruptcy code, like the ability to discharge student
loans in cases of “undue hardship,” require an extra step in the process (an
“adversary proceeding,” essentially a lawsuit within the bankruptcy)
> MONEY TIP $$: When you hire a lawyer to handle your bankruptcy, ask whether
> the fee includes adversary proceedings. Most lawyers' upfront fees do NOT
> include the cost of doing an "AP."
An adversary proceeding in bankruptcy is a lawsuit filed within a bankruptcy
case. It is used to resolve legal disputes arising within a bankruptcy case
context. Aside from student loan undue hardship cases (under section 523(a)(8)),
issues that might be addressed in an adversary proceeding include any of 18
other categories about disputes over the dischargeability of a debt, the
ownership of property, or the validity of a lien.
To file an adversary proceeding, you must first have a bankruptcy case open. If
you do not have a bankruptcy case open, you will need to file a bankruptcy
petition and receive a case number before you can file an adversary proceeding.
Once you have a bankruptcy case open, you can file an adversary proceeding by
following the Federal Rules for court proceedings (Rule 7004), which includes
doing the following:
1. File a complaint: This legal document outlines the nature of the dispute and
the relief you seek.
2. Serve the complaint: You must serve a copy of the complaint on all parties
involved in the dispute. This is typically done through the United States
Marshal's Service.
1. This just got easier as of December 1, 2022: Look here: Effective
December 1, New Rules Simplify a Consumer Bankruptcy Practice.
3. File a proof of service: Once you have served the complaint, you must file a
proof of service with the court to show that the complaint was served on the
other parties.
4. Respond to the complaint: The other parties will have an opportunity to
respond to the complaint by filing an answer or other responsive pleading.
5. Attend hearings and participate in discovery: The case will proceed through
the usual litigation process, including any necessary hearings and
discovery.
6. Attend a trial: If the case is not resolved through settlement or other
means, it may go to trial.
It is important to note that adversary proceedings can be complex and
time-consuming, and it is often advisable to seek the assistance of an attorney
if you are considering filing one.
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Bankruptcy FAQ >
Glossary of Important Bankruptcy Terms
A | B | C | D | E | F | G | H | I | J | K |
L | M | N | O | P | Q | R | S | T | U | V |
W | X | Y | Z
A
adversary proceeding
A lawsuit arising in or related to a bankruptcy case that is commenced by filing
a complaint with the court. A nonexclusive list of adversary proceedings is set
forth in Fed. R. Bankr. P. 7001.
assume
An agreement to continue performing duties under a contract or lease.
automatic stay
An injunction that automatically stops lawsuits, foreclosures, garnishments, and
all collection activity against the debtor the moment a bankruptcy petition is
filed.
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B
bankruptcy
A legal procedure for dealing with debt problems of individuals and businesses;
specifically, a case filed under one of the chapters of title 11 of the United
States Code (the Bankruptcy Code).
bankruptcy administrator
An officer of the judiciary serving in the judicial districts of Alabama and
North Carolina who, like the U.S. trustee, is responsible for supervising the
administration of bankruptcy cases, estates, and trustees; monitoring plans and
disclosure statements; monitoring creditors' committees; monitoring fee
applications; and performing other statutory duties. Compare U.S. trustee.
Bankruptcy Code
The informal name for title 11 of the United States Code (11 U.S.C. §§
101-1330), the federal bankruptcy law.
bankruptcy court
The bankruptcy judges in regular active service in each district; a unit of the
district court.
bankruptcy estate
All legal or equitable interests of the debtor in property at the time of the
bankruptcy filing. (The estate includes all property in which the debtor has an
interest, even if it is owned or held by another person.)
bankruptcy judge
A judicial officer of the United States district court who is the court official
with decision-making power over federal bankruptcy cases.
bankruptcy petition
The document filed by the debtor (in a voluntary case) or by creditors (in an
involuntary case) by which opens the bankruptcy case. (There are official forms
for bankruptcy petitions.)
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C
chapter 7
The chapter of the Bankruptcy Code providing for "liquidation,"(i.e., the sale
of a debtor's nonexempt property and the distribution of the proceeds to
creditors.)
chapter 9
The chapter of the Bankruptcy Code providing for reorganization of
municipalities (which includes cities and towns, as well as villages, counties,
taxing districts, municipal utilities, and school districts).
chapter 11
The chapter of the Bankruptcy Code providing (generally) for reorganization,
usually involving a corporation or partnership. (A chapter 11 debtor usually
proposes a plan of reorganization to keep its business alive and pay creditors
over time. People in business or individuals can also seek relief in chapter
11.)
chapter 12
The chapter of the Bankruptcy Code providing for adjustment of debts of a
"family farmer," or a "family fisherman" as those terms are defined in the
Bankruptcy Code.
chapter 13
The chapter of the Bankruptcy Code providing for adjustment of debts of an
individual with regular income. (Chapter 13 allows a debtor to keep property and
pay debts over time, usually three to five years.)
chapter 15
The chapter of the Bankruptcy Code dealing with cases of cross-border
insolvency.
claim
A creditor's assertion of a right to payment from the debtor or the debtor's
property.
confirmation
Bankruptcy judges's approval of a plan of reorganization or liquidation in
chapter 11, or payment plan in chapter 12 or 13.
consumer debtor
A debtor whose debts are primarily consumer debts.
consumer debts
Debts incurred for personal, as opposed to business, needs.
contested matter
Those matters, other than objections to claims, that are disputed but are not
within the definition of adversary proceeding contained in Rule 7001.
contingent claim
A claim that may be owed by the debtor under certain circumstances, e.g., where
the debtor is a cosigner on another person's loan and that person fails to pay.
creditor
One to whom the debtor owes money or who claims to be owed money by the debtor.
credit counseling
Generally refers to two events in individual bankruptcy cases: (1) the
"individual or group briefing" from a nonprofit budget and credit counseling
agency that individual debtors must attend prior to filing under any chapter of
the Bankruptcy Code; and (2) the "instructional course in personal financial
management" in chapters 7 and 13 that an individual debtor must complete before
a discharge is entered. There are exceptions to both requirements for certain
categories of debtors, exigent circumstances, or if the U.S. trustee or
bankruptcy administrator have determined that there are insufficient approved
credit counseling agencies available to provide the necessary counseling.
creditors' meeting
see 341 meeting
current monthly income
The average monthly income received by the debtor over the six calendar months
before commencement of the bankruptcy case, including regular contributions to
household expenses from nondebtors and income from the debtor's spouse if the
petition is a joint petition, but not including social security income and
certain other payments made because the debtor is the victim of certain crimes.
11 U.S.C. § 101(10A).
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D
debtor
A person who has filed a petition for relief under the Bankruptcy Code.
debtor education
see credit counseling
defendant
An individual (or business) against whom a lawsuit is filed.
discharge
A release of a debtor from personal liability for certain dischargeable debts
set forth in the Bankruptcy Code. (A discharge releases a debtor from personal
liability for certain debts known as dischargeable debts and prevents the
creditors owed those debts from taking any action against the debtor to collect
the debts. The discharge also prohibits creditors from communicating with the
debtor regarding the debt, including telephone calls, letters, and personal
contact.)
dischargeable debt
A debt for which the Bankruptcy Code allows the debtor's personal liability to
be eliminated.
disclosure statement
A written document prepared by the chapter 11 debtor or other plan proponent
that is designed to provide "adequate information" to creditors to enable them
to evaluate the chapter 11 plan of reorganization.
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E
equity
The value of a debtor's interest in property that remains after liens and other
creditors' interests are considered. (Example: If a house valued at $100,000 is
subject to a $80,000 mortgage, there is $20,000 of equity.)
executory contract or lease
Generally includes contracts or leases under which both parties to the agreement
have duties remaining to be performed. (If a contract or lease is executory, a
debtor may assume it or reject it.)
exemptions, exempt property
Certain property owned by an individual debtor that the Bankruptcy Code or
applicable state law permits the debtor to keep from unsecured creditors. For
example, in some states the debtor may be able to exempt all or a portion of the
equity in the debtor's primary residence (homestead exemption), or some or all
"tools of the trade" used by the debtor to make a living (i.e., auto tools for
an auto mechanic or dental tools for a dentist). The availability and amount of
property the debtor may exempt depends on the state the debtor lives in.
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F
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G
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H
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I
insider (of individual debtor)
Any relative of the debtor or of a general partner of the debtor; partnership in
which the debtor is a general partner; general partner of the debtor; or a
corporation of which the debtor is a director, officer, or person in control.
insider (of corporate debtor)
A director, officer, or person in control of the debtor; a partnership in which
the debtor is a general partner; a general partner of the debtor; or a relative
of a general partner, director, officer, or person in control of the debtor.
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J
joint administration
A court-approved mechanism under which two or more cases can be administered
together. (Assuming no conflicts of interest, these separate businesses or
individuals can pool their resources, hire the same professionals, etc.)
joint petition
One bankruptcy petition filed by a husband and wife together.
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K
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L
lien
The right to take and hold or sell the property of a debtor as security or
payment for a debt or duty.
liquidation
A sale of a debtor's property with the proceeds to be used for the benefit of
creditors.
liquidated claim
A creditor's claim for a fixed amount of money.
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M
means test
Section 707(b)(2) of the Bankruptcy Code applies a "means test" to determine
whether an individual debtor's chapter 7 filing is presumed to be an abuse of
the Bankruptcy Code requiring dismissal or conversion of the case (generally to
chapter 13). Abuse is presumed if the debtor's aggregate current monthly income
(see definition above) over 5 years, net of certain statutorily allowed expenses
is more than (i) $12,850, or (ii) 25% of the debtor's nonpriority unsecured
debt, as long as that amount is at least $7,700. The debtor may rebut a
presumption of abuse only by a showing of special circumstances that justify
additional expenses or adjustments of current monthly income.
motion to lift the automatic stay
A request by a creditor to allow the creditor to take action against the debtor
or the debtor's property that would otherwise be prohibited by the automatic
stay.
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N
no-asset case
A chapter 7 case where there are no assets available to satisfy any portion of
the creditors' unsecured claims.
nondischargeable debt
A debt that cannot be eliminated in bankruptcy. Examples include a home
mortgage, debts for alimony or child support, certain taxes, debts for most
government funded or guaranteed educational loans or benefit overpayments, debts
arising from death or personal injury caused by driving while intoxicated or
under the influence of drugs, and debts for restitution or a criminal fine
included in a sentence on the debtor's conviction of a crime. Some debts, such
as debts for money or property obtained by false pretenses and debts for fraud
or defalcation while acting in a fiduciary capacity may be declared
nondischargeable only if a creditor timely files and prevails in a
nondischargeability action.
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O
objection to dischargeability
A trustee's or creditor's objection to the debtor being released from personal
liability for certain dischargeable debts. Common reasons include allegations
that the debt to be discharged was incurred by false pretenses or that debt
arose because of the debtor's fraud while acting as a fiduciary.
objection to exemptions
A trustee's or creditor's objection to the debtor's attempt to claim certain
property as exempt from liquidation by the trustee to creditors.
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P
party in interest
A party who has standing to be heard by the court in a matter to be decided in
the bankruptcy case. The debtor, the U.S. trustee or bankruptcy administrator,
the case trustee and creditors are parties in interest for most matters.
petition preparer
A business not authorized to practice law that prepares bankruptcy petitions.
plan
A debtor's detailed description of how the debtor proposes to pay creditors'
claims over a fixed period of time.
plaintiff
A person or business that files a formal complaint with the court.
postpetition transfer
A transfer of the debtor's property made after the commencement of the case.
prebankruptcy planning
The arrangement (or rearrangement) of a debtor's property to allow the debtor to
take maximum advantage of exemptions. (Prebankruptcy planning typically includes
converting nonexempt assets into exempt assets.)
preference or preferential debt payment
A debt payment made to a creditor in the 90-day period before a debtor files
bankruptcy (or within one year if the creditor was an insider) that gives the
creditor more than the creditor would receive in the debtor's chapter 7 case.
presumption of abuse
see means test
priority
The Bankruptcy Code's statutory ranking of unsecured claims that determines the
order in which unsecured claims will be paid if there is not enough money to pay
all unsecured claims in full. For example, under the Bankruptcy Code's priority
scheme, money owed to the case trustee or for prepetition alimony and/or child
support must be paid in full before any general unsecured debt (i.e. trade debt
or credit card debt) is paid.
priority claim
An unsecured claim that is entitled to be paid ahead of other unsecured claims
that are not entitled to priority status. Priority refers to the order in which
these unsecured claims are to be paid.
proof of claim
A written statement and verifying documentation filed by a creditor that
describes the reason the debtor owes the creditor money. (There is an official
form for this purpose.)
property of the estate
All legal or equitable interests of the debtor in property as of the
commencement of the case.
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Q
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R
reaffirmation agreement
An agreement by a chapter 7 debtor to continue paying a dischargeable debt (such
as an auto loan) after the bankruptcy, usually for the purpose of keeping
collateral (i.e. the car) that would otherwise be subject to repossession.
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S
schedules
Detailed lists filed by the debtor along with (or shortly after filing) the
petition showing the debtor's assets, liabilities, and other financial
information. (There are official forms a debtor must use.)
secured creditor
A creditor holding a claim against the debtor who has the right to take and hold
or sell certain property of the debtor in satisfaction of some or all of the
claim.
secured debt
Debt backed by a mortgage, pledge of collateral, or other lien; debt for which
the creditor has the right to pursue specific pledged property upon default.
Examples include home mortgages, auto loans and tax liens.
small business case
A special type of chapter 11 case in which there is no creditors' committee (or
the creditors' committee is deemed inactive by the court) and in which the
debtor is subject to more oversight by the U.S. trustee than other chapter 11
debtors. The Bankruptcy Code contains certain provisions designed to reduce the
time a small business debtor is in bankruptcy.
statement of financial affairs
A series of questions the debtor must answer in writing concerning sources of
income, transfers of property, lawsuits by creditors, etc. (There is an official
form a debtor must use.)
statement of intention
A declaration made by a chapter 7 debtor concerning plans for dealing with
consumer debts that are secured by property of the estate.
substantive consolidation
Putting the assets and liabilities of two or more related debtors into a single
pool to pay creditors. (Courts are reluctant to allow substantive consolidation
since the action must not only justify the benefit that one set of creditors
receives, but also the harm that other creditors suffer as a result.)
341 meeting
The meeting of creditors required by section 341 of the Bankruptcy Code at which
the debtor is questioned under oath by creditors, a trustee, examiner, or the
U.S. trustee about his/her financial affairs. Also called creditors' meeting.
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T
transfer
Any mode or means by which a debtor disposes of or parts with his/her property.
trustee
The representative of the bankruptcy estate who exercises statutory powers,
principally for the benefit of the unsecured creditors, under the general
supervision of the court and the direct supervision of the U.S. trustee or
bankruptcy administrator. The trustee is a private individual or corporation
appointed in all chapter 7, chapter 12, and chapter 13 cases and some chapter 11
cases. The trustee's responsibilities include reviewing the debtor's petition
and schedules and bringing actions against creditors or the debtor to recover
property of the bankruptcy estate. In chapter 7, the trustee liquidates property
of the estate, and makes distributions to creditors. Trustees in chapter 12 and
13 have similar duties to a chapter 7 trustee and the additional
responsibilities of overseeing the debtor's plan, receiving payments from
debtors, and disbursing plan payments to creditors.
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U
U.S. trustee
An officer of the Justice Department responsible for supervising the
administration of bankruptcy cases, estates, and trustees; monitoring plans and
disclosure statements; monitoring creditors' committees; monitoring fee
applications; and performing other statutory duties. Compare, bankruptcy
administrator.
undersecured claim
A debt secured by property that is worth less than the full amount of the debt.
unliquidated claim
A claim for which a specific value has not been determined.
unscheduled debt
A debt that should have been listed by the debtor in the schedules filed with
the court but was not. (Depending on the circumstances, an unscheduled debt may
or may not be discharged.)
unsecured claim
A claim or debt for which a creditor holds no special assurance of payment, such
as a mortgage or lien; a debt for which credit was extended based solely upon
the creditor's assessment of the debtor's future ability to pay.
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V
Voluntary transfer
A transfer of a debtor's property with the debtor's consent.
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W
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Z
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Bankrupty Exemptions FAQ
WHAT ARE BANKRUPTCY EXEMPTIONS?
"Exempt" property under bankruptcy law means that it is protected from creditors
and cannot be used to satisfy the debtor's debts.
Exemption laws are a key part of bankruptcy's fresh start, designed to give
debtors a solid foundation on which to launch their new financial life post
bankruptcy.
PROTECTING YOUR ASSETS IN BANKRUPTCY: PROPERTY EXEMPTION LAWS
PROPERTY YOU GET TO KEEP*
The law of what has come to be called "Asset Protection" is actually a mixture
of laws that allow you to keep certain property no matter what, even if you owe
money to others. Every state has laws that designate specific property you get
to keep so that you can continue living a productive life. That is, even if you
owe a trillion dollars to someone, the law won't make you sell the shirt off
your back to pay it. And in Texas and Florida, they won't even make you sell
your million dollar mansion, or in Nevada, your gun.
These rules are called "property exemptions." They vary from state to state.
They designate what property is off limits to your 'creditors '-- the legal name
for those who claim you owe them money.
WHAT ARE BANKRUPTCY EXEMPTIONS?
Every state has laws that designate certain types of property (your home, some
personal possessions, tools of your trade) that are off-limits to "unsecured"
creditors -- that is, creditors who do not have a lien on your property. Credit
card debt and medical bills are the two the most common types of unsecured debt
(unless you have a special 'secured' credit card).
Unsecured creditors cannot force you to sell your exempt property to pay off the
debt. Even if the creditor goes to court wins a court judgment against you, and
takes steps to attach a 'judgment lien' to your property, you are still entitled
to your exemption amount before any sale proceeds are distributed to the
unsecured creditor. (However, some debts, like child support, may be an
exception.)
If you eventually do sell your property voluntarily, the creditor has a right to
have its lien paid from the sale proceeds before you receive anything.
"NO ASSET" BANKRUPTCIES
As a practical matter, most people facing bankruptcy only own property that is
exempt, and have no interest in selling what they have. If all of your property
is protected by exemption laws, you are said to be "judgment proof" -- whether
or not you file for bankruptcy.
If you do file for bankruptcy and all your property is exempt, your case is
known as a "no asset" bankruptcy--which really means you have no non-exempt
assets.
In bankruptcy, a court official called the "bankruptcy trustee" represents the
rights of all unsecured creditors. The trustee can assert whatever rights the
creditors would have if they had a court judgment against you.
SECURED CREDITORS HAVE PRIORITY
Another important thing to remember about exemptions is that it only protects
the "equity" in your property. That is the difference between the value of the
property, and what you owe to secured creditors.
If you contractually agreed to pledge your property as collateral for a debt,
this property is known as "secured property," and the debt is called a "secured"
debt, and the person you owe is a "secured creditor" and they have a "security
interest" in the property. If the debt was incurred to purchase the property
itself (e.g. a car loan or first mortgage), the creditor is said to have a
"purchase money security interest" (PMSI). Exemption laws offer no protection
against such contractual agreements that give the creditor a PMSI.
EXAMPLE:
If you owe $10,000 on a $12,000 car, you have only $2,000 in equity. If your
state has at least a $2,000 exemption for motor vehicles, that will be enough to
protect the car in bankruptcy --(but you'll still need to make the car payments
to the secured creditor.
On the other hand, if you own the vehicle free and clear, then your equity is
the full value of the vehicle, and a $2,000 exemption would not enough to
protect it. The trustee would force the sale of the car, you would get your
exemption amount, and the trustee would get the rest of the proceeds to
distribute to the unsecured creditors.
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Bankrupty Exemptions FAQ
WHICH STATE'S EXEMPTIONS MUST YOU USE?
WHICH STATE'S EXEMPTIONS MUST YOU USE?
Legal test under the 2005 bankruptcy law:
IF you have not lived in State for at least two years...
Then, which state did you consider to be your domicile two years ago?
(If more than one state, choose the state in which you lived most for the six
months ending two years ago from this date.)
RESIDENCY REQUIREMENTS FOR USING STATE EXEMPTIONS
Prior to the new bankruptcy law, filers used the exemptions of the state where
they lived when they filed for bankruptcy. Under the new rules, however, some
filers will have to use the exemptions of the state where they used to live.
Congress was concerned about people gaming the system by moving to states with
liberal exemptions just to file for bankruptcy. As a result, it passed residency
requirements filers have to meet before they can use a state’s exemption system.
Here are the new rules that apply to exemptions for everything but a home:
* If you have lived or made your residence in your current state for at least
two years, you can use that state’s exemptions.
* If you have lived or made your residence in your current state for more than
91 days but less than two years, you must use the exemptions of the state
where you lived for the better part of the 180-day period immediately prior
to the two-year period preceding your filing.
* If you have lived or made your residence in your current state for fewer than
91 days, you’ll need to wait until you have lived there for at least 91 days
before you can file (and then use whatever exemptions are available to you
according to the rules set out above).
* If the state you are filing in offers a choice between the state and federal
bankruptcy exemptions, you can use the federal exemption list regardless of
how long you’ve been living in the state.
* If these rules deprive you of the right to use any state’s exemptions, you
can use the federal exemption list. For example, some states allow their
exemptions to be used only by current state residents, which might leave
former residents who haven’t lived in their new home state for at least two
years without any available state exemptions.
A longer residency requirement applies to homestead exemptions: If you acquired
a home in your current state within the 40 months before you file for bankruptcy
(and you didn’t purchase it with the proceeds from selling another home in that
state), your homestead exemption will be subject to a cap of $125,000, even if
the state homestead exemption available to you is larger. For detailed
information on homestead exemptions, see Ch. 4.
NOTE - a potential 'Catch 22': In some states, exemption rules can only be used
by a resident, or if you have your "domicile" there. But the federal rule says
you must use the state you moved away from. So.... IF your former state's
exemption laws, for which you may "qualify" under the federal formula, do not
apply to non-residents -- then your your answer gets more complicated. See the
site exemptionsexpress.com/How.htm for a more detailed explanation of this
issue.
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Bankrupty Exemptions FAQ
WHAT IS A “NO ASSET” BANKRUPTCY?
As explained elsewhere, Chapter 7 is about collecting any available property to
be distributed to your "unsecured creditors."
Non-priority unsecured creditors are "last in line" when it comes to being paid
off.
> If there is nothing left to distribute to these lowest priority creditors, the
> case is called a "no asset case" — and the trustee just collects their $60
> administrative fee. And when the debts are discharged, no property goes to the
> trustee.
Most Chapter 7 bankruptcies that are filed end up being so-called "No Asset"
bankruptcies — not because the debtor had no assets, but rather there were no
assets available to pay unsecured creditors.
This happens because of two main factors:
1. Property pledged as collateral: Valuable assets that are pledged as
collateral to a secured creditor, are not available to be liquidated and
distributed to unsecured creditors.
(Common collateral items are your car for a car loan and your equity in your
house for a mortgage or second mortgage or line of credit.)
2. Property & equity protected by "exemption" laws: whatever equity the debtor
does have is classified as "exempt" under state or federal law.
3. Debts owed to priority creditors, for child support and back taxes.
We explain all these concepts in other articles on this site on the law of
"secured debts", "exemptions" and "creditor priority".
The main takeaway is that if all equity in your assets are exempt, your case is
a "no-asset" case.
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Bankrupty Exemptions FAQ
COMMON EXCEPTIONS TO EXEMPTIONS:
The most common exceptions to bankruptcy exemption laws include:
1. Fraudulent transfers: If a debtor has transferred property to someone else
in an attempt to avoid paying creditors, the bankruptcy court may be able to
undo the transfer and recover the property for the benefit of the debtor's
creditors.
2. Willful and malicious injury: Bankruptcy exemptions do not protect debtors
from liability for willful and malicious acts that cause injury to another
person or their property.
3. Taxes: Certain types of tax debts, such as federal income taxes, cannot be
discharged in bankruptcy.
4. Child support and alimony: Bankruptcy exemptions do not protect debtors from
obligations to pay child support or alimony.
5. Student loans: Student loan debts are generally not dischargeable in
bankruptcy unless the debtor can demonstrate that repayment of the loan
would cause an undue hardship. Although, as an unsecured creditor, they
can't force the sale of your property.
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Bankrupty Exemptions FAQ
SPECIAL RULES FOR RETIREMENT ACCOUNTS
SPECIAL RULES FOR RETIREMENT ACCOUNTS:
Under the 2005 bankruptcy law, virtually all types of pension and retirement
accounts recognized by the IRS are completely exempt regardless of what state
you live in.
This provision exempts "retirement funds to the extent that those funds are in a
fund or account that is exempt from taxation under Sections 401, 403, 408, 408A,
414, 457, or 501(a) of the Internal Revenue Code."
This list covers 401(k)s, 403(b)s, profit-sharing and money purchase plans, IRAs
(including SEP and SIMPLE plans), as well as defined-benefit plans.
The exemption applies whether you rely on the list of federal bankruptcy
exemptions (11 U.S.C. 522(d)(12)) or the exemption laws of your own state (See
11 U.S.C. 522(b)(3)(C)). Section 522(b)(4) spells out the specific requirements
for qualifying under these provisions.
These exemptions are unlimited, except for Roth and traditional IRAs, which are
capped at an aggregate IRA account value of $1,512,350 per individual (adjusted
every three years for inflation). (See 11 U.S.C. 522(n))
SEP and SIMPLE IRAs, along with all other types of non-IRA retirement accounts
such as 401(k)s and 403(b)s, are completely exempt.
REFERENCES TO THE INTERNAL REVENUE CODE
The new bankruptcy law exemption for retirement accounts includes all funds
"exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of
the Internal Revenue Code of 1986."
Those sections cover:
* 401 (a qualified pension, profit-sharing and stock bonus plan created under a
trust established by an employer for the exclusive benefit of employees or
beneficiaries)
* 403 (qualified annuity plans that are established by an employer for an
employee under IRC 404(a)(2) or 501(c)(3))
* 408 (IRAs)
* 408A (Roth IRAs)
* 414 (other retirement plan for controlled groups of employees such as
churches, partnerships, proprietorships, and governments)
* 457 (eligible deferred compensation plans) or
* 501(a) (retirement plans established and maintained by tax-exempt
organizations, e.g. churches, nonprofit organizations)
SPECIAL 'EXCLUSION' OF EDUCATION ACCOUNTS
Under the new bankruptcy law, education savings accounts or education IRAs
created under sections 529 or 530 of the Internal Revenue Code are 'excluded'
from the bankruptcy estate (not quite the same as 'exempt' but with the same
result).
See, 11 U.S.C. 541(b)(6), (529 Education Tuition Plans) and 11 U.S.C. 541(b)(5)
(530 Coverdell IRAS)
NOTE: Even though these education accounts are excluded from the bankruptcy
estate, you still must list them on your forms (See section (11 U.S.C. 521(c).)
Also excluded are:
* benefits governed by ERISA (Click here for government info on ERISA and
pensions.)
* 414(d)(governmental retirement plans),
* IRC 457 (deferred compensation)
* 403(b)( tax deferred annuity plan including church plans, etc)
See 11 U.S.C. 541(b)(7)
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Bankrupty Exemptions FAQ
INSURANCE EXEMPTION GLOSSARY
INSURANCE EXEMPTION GLOSSARY:
Insurance exemptions use a lingo all their own and some familiarity with the
jargon is essential to understanding what is exempt.
THREE KINDS OF INSURANCE ASSETS
You may own a property interest in life insurance in three different ways: you
may own an unmatured life insurance contract (with no cash value - e.g. a term
life insurance policy), you may own cash value in an unmatured life insurance
policy (e.g. a whole life policy), and you may, as a beneficiary, be entitled to
proceeds from a matured life insurance policy.
"Matured" simply means that the conditions of the policy have have been met. A
matured policy is paying proceeds to the beneficiary of the insured.
An unmatured policy is not paying proceeds, but, can still have a current value
in two ways:
1. In the case of a "term life" policy, the continued existence of the contract
itself can be said to have value, even if it cannot be converted to cash.
2. Other kinds of of policies can have accumulate value over time, and that
value that can be borrowed against, or turned into cash if the policy is
'surrendered' (see "avails" below).
READING INSURANCE EXEMPTIONS
Many states have unlimited exemptions for insurance proceeds. However, most
states offer only limited exemptions for the cash or loan value of an unmatured
policy.
A few states, however, offer unlimited exemptions for the cash value of such
policies, or policies offered by 'fraternal benefit societies.' In such states,
life insurance is often an important component of an overall asset protection
strategy.
OTHER TERMS
Avails: Any amount available to the owner of an insurance policy other than the
actual proceeds of the policy. Avails include dividend payments, interest, cash
or surrender value (the money you'd get if you sold your policy back to the
insurance company) and loan value (the amount of cash you can borrow against the
policy).
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Bankrupty Exemptions FAQ
CAN I ELIMINATE LIENS ON EXEMPT PROPERTY?
CONTENTS:
* Do I Qualify for Chapter 7 Lien Avoidance?
* How to Request Lien Avoidance
* "Lien Stripping" vs "Lien Avoidance"
* "Avoiding Liens": What it is. How to Do It
* "Stripping Liens": What it is. How to Do It
* Lein FAQs
* What does it mean to "perfect" a lien?
* What is "Lien Priority?"
* What is a "mechanics lien"?
* Where Do I Go to Find Out What Liens Are On My Property?
* What is a Judicial Lien or a Judgement Lien, and are they the same thing?
DO I QUALIFY FOR CHAPTER 7 LIEN AVOIDANCE?
If there is a judicial lien on your property (as a result of a court judgment
against you), you may have the right to remove it, if it "impairs" an exemption
on the property.
That is, if you have some equity in your property that is protected by an
exemption, you can get any judicial liens on it removed by the bankruptcy court
as another element of the "fresh start" that bankruptcy is designed to provide.
This "impairment" requirement is a catch 22, though. You might think that if
your property is completely under water, you should be able to strip off
judgement liens. But that is not the case. Because if the property is completely
under water, due to other secured claims, (such as a mortgage or secured auto
loan), then there is no equity to be protected by an exemption, and therefore
there is no exemption to be "impaired", because you have no equity.
So, to be eligible for this kind of lien avoidance, you must have at least some
equity in the property, and that equity must be protected by an exemption.
HOW TO REQUEST LIEN AVOIDANCE
Having this kind of lien removed ("avoided") is an extra step you have to
specifically request. It doesn't just happen automatically, and most lawyers
charge extra for it.
And some lawyers forget to check if any liens can be removed from your property,
while your bankruptcy case is open. Be sure to check if there are judicial liens
on your property, be sure to determine which ones can be eliminated, or reduced,
through a "lien avoidance" procedure.
Some liens cannot be removed however, including most tax liens and any judicial
lien that secures a domestic support obligation. 11 U.S.C.A. § 522(f)(1)(A).
For more information on lien avoidance, when it's available and step by step
procedural guidance how to do it, see Chapter 5 of How to File for Chapter 7
Bankruptcy, 22nd Edition, by Albin Renauer & Cara O'Neil.
Note that some judicial district web sites have links for those who provide free
legal assistance to debtors who need representation in a lien avoidance
proceeding.
"LIEN STRIPPING" VS "LIEN AVOIDANCE"
ARE LIEN STRIPPING AND LIEN AVOIDANCE THE SAME THING?
No, "lien stripping" and "lien avoidance" are not the same thing, although they
both involve removing liens from property in bankruptcy.
Lien stripping is the process of removing a wholly unsecured lien from a
debtor's property in Chapter 13 bankruptcy. This means that the value of the
property securing the lien is less than the amount of the lien. In this process,
the lien is treated (in whole, or in part, depending on the value of the
property) as an unsecured debt, which means that it is paid the same percentage
as other unsecured debts, such as credit card debt or medical bills.
Lien avoidance, on the other hand, is the process of removing a lien from
property in Chapter 7 or Chapter 13 bankruptcy when the lien impairs a debtor's
exemptions and the value of the property subject to the lien is less than the
amount of the lien. This process is used when the debtor wants to keep the
property that is subject to the lien and needs to remove the lien in order to do
so. In lien avoidance, the lien is treated as a secured debt, but it is removed
from the property and treated as unsecured debt in the bankruptcy process.
In summary, while both lien stripping and lien avoidance involve removing liens
from property in bankruptcy, they are different processes that are used in
different situations and under different bankruptcy chapters.
"AVOIDING LIENS": WHAT IT IS. HOW TO DO IT
> Liens can be "avoided" in bankruptcy when
>
> * they impair a debtor's exemptions, and
> * the value of the property subject to the lien is less than the amount of
> the lien.
This process is known as lien avoidance, and it allows the debtor to remove the
lien from the property and treat it as unsecured debt in the bankruptcy process.
Here are the step-by-step processes for lien avoidance in bankruptcy:
1. Determine eligibility: To be eligible for lien avoidance, the debtor must
file for bankruptcy under either Chapter 7 or Chapter 13, and:
* the lien must impair the debtor's exemptions.
* In addition, the value of the property subject to the lien must be less
than the amount of the lien.
2. File a motion: Once eligibility is determined, the debtor or their attorney
must file a motion with the bankruptcy court requesting that the court avoid
the lien from the debtor's property.
3. Serve notice: The debtor or their attorney must also serve notice of the
motion on the holder of the lien, as well as any other interested parties,
such as other creditors or lienholders.
4. Hold a hearing: The court will hold a hearing on the motion, at which the
debtor or their attorney will present evidence that the lien impairs their
exemptions and the value of the property subject to the lien is less than
the amount of the lien. The holder of the lien may also present evidence and
arguments in opposition to the motion.
5. Obtain a court order: If the court agrees that the lien should be avoided,
it will issue an order to that effect. The order will provide that the lien
is no longer a valid claim against the debtor's property, and that the
holder of the lien must release it.
6. Comply with the order: The holder of the lien must comply with the court's
order, which may include releasing the lien and executing any necessary
documents to transfer ownership of the property to the debtor.
Statutory citations from U.S. Bankruptcy Code.
* Chapter 7 Cases: Section 522(f) (liens that impair an exemption) provides the
authority for lien avoidance in Chapter 7 bankruptcy cases,
* Chapter 13 Cases: Section 506(d) (property worth less than it's value)
provides the authority for lien avoidance in Chapter 13 bankruptcy cases.
These sections allow debtors to avoid liens that impair their exemptions and are
secured by property that is worth less than the amount of the lien.
In addition, some state laws may provide additional authority for lien avoidance
in bankruptcy.
"STRIPPING LIENS": WHAT IT IS. HOW TO DO IT
Stripping liens in bankruptcy involves:
> removing a lien that encumbers a debtor's property, and treating the lien as
> unsecured debt in the bankruptcy process.
This process is available in Chapter 13 bankruptcy, but not in Chapter 7
bankruptcy.
Here are the step-by-step processes for stripping liens in bankruptcy:
1. Determine eligibility: To be eligible to strip a lien in bankruptcy, the
debtor must file for bankruptcy under Chapter 13, and
* the lien must be entirely unsecured, or
* If the lien is partially secured, the debtor may still be able to strip
it, but only to the extent that the lien exceeds the value of the property
securing it.
2. File a motion: Once eligibility is determined, the debtor or their attorney
must file a motion with the bankruptcy court requesting that the court strip
the lien from the debtor's property.
3. Serve notice: The debtor or their attorney must also serve notice of the
motion on the holder of the lien, as well as any other interested parties,
such as other creditors or lienholders.
4. Hold a hearing: The court will hold a hearing on the motion, at which the
debtor or their attorney will present evidence that the lien is unsecured
and should be stripped. The holder of the lien may also present evidence and
arguments in opposition to the motion.
5. Obtain a court order: If the court agrees that the lien should be stripped,
it will issue an order to that effect. The order will provide that the lien
is no longer a valid claim against the debtor's property, and that the
holder of the lien must release it.
6. Comply with the order: The holder of the lien must comply with the court's
order, which may include releasing the lien and executing any necessary
documents to transfer ownership of the property to the debtor.
Citations:
The statutory citations for stripping liens in bankruptcy will depend on the
jurisdiction where the bankruptcy case is filed, as bankruptcy law is primarily
governed by federal law but also incorporates state law.
Federal Law:
The relevant sections of the Bankruptcy Code that allow for lien stripping in
Chapter 13 bankruptcy are:
* 11 U.S.C. § 506 and
* 11 U.S.C. § 1322(b)(2).
These sections provide the framework for how secured claims are treated in
bankruptcy, and allow the court to modify the rights of a lien-holder to the
extent that the lien is unsecured.
The extent to which an asset is under-secured will depend on
* the value of the property
* what other liens are on the property
* what exemption laws apply to any debtor's equity in the property
State & Local Laws regarding:
* Lien priority
* Mortgage rules
* Recording requirements for "perfecting" a lien
LEIN FAQS
WHAT DOES IT MEAN TO "PERFECT" A LIEN?
To "perfect" a lien means
> to take the necessary legal steps to establish a valid and enforceable claim
> against the property that is subject to the lien.
When a creditor has a secured interest in property, such as a mortgage on a home
or a security interest in a car, they must "perfect" their lien in order to have
priority over other creditors or parties with an interest in the property.
The process of perfecting a lien varies depending on the type of property and
the applicable laws.
Generally, it involves filing a notice or documentation with the appropriate
government agency, such as
* a county recorder or
* state agency,
to put others on notice of the creditor's claim to the property.
> Example: When a mortgage lender provides a loan to a borrower, they will
> typically record a mortgage with the county recorder's office to perfect their
> lien on the borrower's property.
Once a creditor has perfected their lien, they have a legal claim against the
property that gives them the right to foreclose or take possession of the
property if the debtor defaults on their obligations.
The creditor's lien also provides them with priority over other creditors in the
event of the debtor's bankruptcy or other legal proceedings.
In summary, perfecting a lien means taking the necessary steps to establish a
valid and enforceable claim against property that is subject to the lien, which
gives the creditor the right to enforce their claim and priority over other
creditors.
WHAT IS "LIEN PRIORITY?"
Lien priority refers to the order in which different liens on a property are
paid or satisfied in the event of a sale or foreclosure of the property. The
priority of liens determines the order in which creditors will be paid out of
the proceeds from the sale or foreclosure.
The general rule of lien priority is "first in time, first in right." This means
that the first lien recorded or perfected against the property has priority over
any liens recorded or perfected later in time.
> Example: If a mortgage is recorded on a property in 2010, and a second
> mortgage is recorded on the same property in 2015, the first mortgage has
> priority over the second mortgage, and will be paid out of the proceeds from a
> sale or foreclosure before the second mortgage.
However, there are some exceptions to the "first in time, first in right" rule.
For example, some liens are given priority by law, regardless of when they were
recorded or perfected.
For instance,
* property tax liens and
* mechanic's liens
are often given priority over other liens.
In addition, some liens can be "subordinated" by agreement. This means that the
lienholder agrees to give up their priority position to another lienholder. For
example, a second mortgage holder may agree to subordinate their lien to a first
mortgage holder, which would give the first mortgage holder priority in the
event of a sale or foreclosure.
Lien priority is an important consideration for both creditors and debtors, as
it affects the amount and order in which they will be paid in the event of a
sale or foreclosure of the property. It is important to understand the rules and
exceptions regarding lien priority in order to properly evaluate the value and
risk associated with a lien on a property.
WHAT IS A "MECHANICS LIEN"?
A mechanics lien, also known as a construction lien or a contractor's lien, is a
legal claim that can be placed on a property by someone who has provided labor
or materials for a construction or renovation project but has not been paid.
Mechanics liens are typically used in the construction industry to protect
contractors, subcontractors, and suppliers from non-payment for their work or
materials.
In general, mechanics liens give the lienholder the right to force the sale of
the property to recover the unpaid debt. This means that if a property owner
fails to pay a contractor or supplier for work or materials, the contractor or
supplier may be able to place a mechanics lien on the property. If the debt
remains unpaid, the lienholder can foreclose on the lien and force the sale of
the property to recover the amount owed.
Mechanics lien laws vary by state, but in general, a mechanics lien must be
filed within a certain time period after the work or materials were provided,
and the lienholder must provide notice to the property owner and other parties
involved in the project. In addition, the lienholder must usually take legal
action within a certain time period to foreclose on the lien and force the sale
of the property.
Mechanics liens can be complicated and involve a variety of legal requirements,
so it is important for contractors, subcontractors, and suppliers to understand
their rights and obligations when it comes to mechanics liens. Property owners
also need to be aware of the potential for mechanics liens and should take steps
to protect themselves from liens by ensuring that they have clear contracts with
their contractors and suppliers, and that they make timely payments for work and
materials.
WHERE DO I GO TO FIND OUT WHAT LIENS ARE ON MY PROPERTY?
To find out what liens are on your property, you can start by conducting a
search of the public records in the county where your property is located. The
records are typically maintained by the county clerk, recorder, or assessor's
office, and may be available online or in person.
Here are the steps to follow:
1. Identify the county where your property is located.
2. Visit the website of the county clerk, recorder, or assessor's office.
3. Look for a "property records" or "land records" section on the website.
4. Check if the records are available online, and if so, create an account and
log in.
5. Use the search function to look up your property by its address or parcel
number.
6. Look for any recorded documents that indicate a lien, such as a mortgage,
tax lien, or mechanics lien.
If you are unable to find the information online, you may need to visit the
county office in person and request a copy of the property records. In some
cases, you may also need to pay a fee for copies of the records.
It is important to note that not all liens may be recorded in the public
records, so it may be necessary to conduct additional research or seek the
advice of a qualified professional, such as a real estate attorney or title
company, to determine if there are any additional liens or encumbrances on your
property.
WHAT IS A JUDICIAL LIEN OR A JUDGEMENT LIEN, AND ARE THEY THE SAME THING?
Yes, a judicial lien and a judgment lien are the same thing. A judicial lien,
also known as a judgment lien, is a type of lien that is created by a court
order in a lawsuit.
When a court enters a judgment against a debtor in a lawsuit, the judgment
becomes a lien on the debtor's property. This means that the creditor has a
legal claim on the property and can enforce the lien by seizing the property or
obtaining a court order to force a sale of the property to satisfy the debt.
Judgment liens can be created on both real property (such as a house or land)
and personal property (such as a car or bank account). In some cases, the
judgment lien may have priority over other liens on the property, such as
mortgages or other secured debts.
It is important to note that judgment liens can have serious consequences for
debtors, as they can make it difficult or impossible to sell or refinance the
property. If you are facing a judgment lien, it is important to consult with an
attorney to understand your options for resolving the debt and protecting your
property.
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Bankrupty Exemptions FAQ
EXEMPTIONS & “SECURED DEBTS”
*EXEMPTIONS & "SECURED DEBTS"
Note that property that is collateral for a purchase-money loan (such as a car
securing a car loan or a home securing a first mortgage) is not protected by
exemptions from repossession actions by that lender. Any equity you may own in
the property is protected and may give you certain rights against holders of
judgment liens and second or third lien holders.
Let's repeat that first point before we go further: Exemption laws do NOT
protect you from losing property if you've voluntarily pledged the property as
security for a loan and you don't make the payments.
EXAMPLE:
UNSECURED VS SECURED DEBTS
So... for example. If you owe $30,000 to credit card companies, that debt is
"unsecured". There is no collateral attached to it. No matter what they
threaten, the credit card company can't take any of your exempt property.
Likewise, most medical bills and lawsuit settlements are "unsecured" debts. If
an unsecured creditor bothers to go to court get a judgment against you, they
can get the court to attach a "judgment lien" to your property. But if the
property is exempt, you typically can (and should) ask the bankruptcy court to
remove that lien from your property (but you have to ask -- its not automatic).
Continuing the example ... If you were persuaded to pay off your credit cards
and other unsecured debts with a lower interest, "secured" loan, say, from a
loan consolidation company, you probably pledged your home equity or other
property as collateral.
As a general principle, once you've voluntarily (i.e. through a contract or
signing something) pledged your property as security for a loan, the exemption
laws no longer protect you. The creditor can repossess the property you pledged
regardless of whether it is protected by an exemption.
Note that this is a general principle, among other factors -- more than we can
go into here.... That's why we wrote a book... Specific facts might lead the
court to apply other principles to, for example, undo a recent transaction if it
unfairly benefited a single specific creditor at the expense of many others.
See Chapters 3, 4 and 5 of the How to File for Chapter 7 Bankruptcy for more
about this.
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Bankrupty Exemptions FAQ
DEALING WITH SECURED AUTO LOANS IN BANKRUPTCY
Note that property that is collateral for a purchase-money loan (such as a car
securing a car loan or a home securing a first mortgage) is not protected by
exemptions from repossession actions by that lender. Any equity you may own in
the property is protected and may give you certain rights against holders of
judgment liens and second or third lien holders.
Let's repeat that first point before we go further: Exemption laws do NOT
protect you from losing property if you've voluntarily pledged the property as
security for a loan and you don't make the payments.
EXAMPLE:
UNSECURED VS SECURED DEBTS
So... for example. If you owe $30,000 to credit card companies, that debt is
"unsecured". There is no collateral attached to it. No matter what they
threaten, the credit card company can't take any of your exempt property.
Likewise, most medical bills and lawsuit settlements are "unsecured" debts. If
an unsecured creditor bothers to go to court get a judgment against you, they
can get the court to attach a "judgment lien" to your property. But if the
property is exempt, you typically can (and should) ask the bankruptcy court to
remove that lien from your property (but you have to ask -- its not automatic).
Continuing the example ... If you were persuaded to pay off your credit cards
and other unsecured debts with a lower interest, "secured" loan, say, from a
loan consolidation company, you probably pledged your home equity or other
property as collateral.
As a general principle, once you've voluntarily (i.e. through a contract or
signing something) pledged your property as security for a loan, the exemption
laws no longer protect you. The creditor can repossess the property you pledged
regardless of whether it is protected by an exemption.
STATING YOUR INTENTION OF WHAT YOU PLAN TO DO ABOUT YOUR COLLATERAL
The court will ask you to declare what you intend to do about your secured
debts, and the collateral that secures them.
The so called "Statement of Intention" form lays out your options.
REAFFIRM? REDEEM? SURRENDER? RIDE THROUGH?
* Choose to keep the car, and
* reaffirm your personal liability on the debt, via a "reaffirmation
agreement with the lender — which keeps you responsible for the debt,
despite your bankruptcy.
* or redeem the property by paying its current value to the creditor, done
and done.
* Surrender it back to the car lender, and
* wait for the lender to come pick it up (get the keys or tow it), or
* ...or "ride through" by keeping making monthly payments on the property as
long as the creditor doesn't repossess the car — even though you can't be
sued for any personal liability, and hope they creditor lets you keep the
car.
(This "informal" practice varies widely across the nation. Talk to a local
bankruptcy lawyer to determine the custom in your district. Also with used
cars rising in value, this practice of letting debtors retain the vehicle
is less common if the used vehicle can be easily sold in a hot market.)
* If you surrender the car, your obligation to pay the car loan is
discharged along with your unsecured debts. That's why creditors may be
disinclined to let you "ride through", because if the car stops working
or is damaged, you can simply walk away from it, and not owe anything
more — and all the creditor may be left with is the damaged or neglected
vehicle's salvage value at the junk yard.
HOW MUCH COULD THE TRUSTEE GET FOR "THE BANKRUPTCY ESTATE" IF THEY SOLD YOUR
VEHICLE?
Would there be anything left after the trustee has paid off:
* the costs of sale
* creditors liens
* your exemption amount
REDEMPTION OPTIONS FOR SECURED AUTO LOANS IN BANKRUPTCY
Bankruptcy offers the option of keeping your secured property by immediately
paying it's current replacement value of the object rather than the loan amount.
This can be an attractive option for those with auto loans where the value of
the car has most likely depreciated faster than the loan balance. However,
coming up with the full amount in cash can be difficult if not impossible. In
the past few years, a few alternatives have arisen.
VENDORS OF "REDEMPTION FINANCING"
The companies listed below specializes in making auto loans to bankrupt debtors
seeking the bankruptcy option of "redemption" of their vehicle, whereby the
debtor keeps the car by immediately paying the vehicle's current market value
(replacement value) rather than the full loan amount over time. These companies
will finance a new auto loan (generally through a bank) to produce the cash to
pay the redemption amount to your original creditor, and then you pay the
redemption amount to the new lender over time. Of course, if you miss payments
under the new loan, you'll still lose the vehicle, but at least your monthly
payments should be smaller. The new lender takes ownership of the lien on your
car. Debtors must have an otherwise good credit history to qualify, and the car
must be in good enough condition (i.e. worth enough) to protect the bank's loan.
722 REDEMPTION FINANCING (VIA US BANK)
This company specializes in making auto loans (through US Bank) to debtors
seeking the option of "redemption" available to those in bankruptcy whereby the
debtor can keep a car by paying the current market value (replacement value) of
the automobile rather than the loan amount. The company will finance redemption
of your existing automobile, or arrange financing for a replacement automobile.
Debtors must have an otherwise good credit history to qualify. See the site for
more information.
The site has special home pages for debtors, debtors attorneys, creditors,
creditors attorneys, bankruptcy trustees, auto dealers.
Of course, if you can't make the payments on this revised amount loan, you'll
still lose the car, just to a different lender. So this option is only a
solution if you can make the payments on the reduced amount.
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Bankrupty Exemptions FAQ
50-STATE EXEMPTION UPDATES
STATE UPDATES - 2022
CALIFORNIA - APRIL 1 2022
California updates its exemption amounts every three years. (§703.150) (The last
revision was in 2022; the next will be April 1, 2025.) As a result, the amounts
listed in this chart (from the 2019 revisions) may not match the amounts that
appear in the cited statutes. The 2022 exemption amounts can be found on form
EJ-156 the California Judicial Council Website.
INDIANA - MARCH 2022
Indiana adjusts its exemption amounts every six years, starting in 2010, most
recently in 2022, and next in 2028.
MARYLAND - APRIL 1, 2022
Maryland homestead amount is keyed to the inflation adjusted amount of the
federal exemptions which change every three years and was last changed in 2022.
OHIO - APRIL 2022
Ohio adjusts the exemption amounts found in section RC 2329.66 every three
years. The latest inflation adjusted amounts for 2022 can be found here.
APRIL 2022 - FEDERAL BANKRUPTCY AMOUNTS UPDATED FOR EXEMPTIONS, DEBT LIMITS,
ETC.
Source: Adjustment of Certain Dollar Amounts in the Bankruptcy Code A Notice by
the Judicial Conference of the United States on 02/04/2022
Affected sections of Title 28 U.S.C. and the bankruptcy code Dollar amount to be
adjusted New (adjusted) dollar amount 1 28 U.S.C. Section 1409(b)—a trustee may
commence a proceeding arising in or related to a case to recover: (1)—money
judgment of or property worth less than $1,375 $1,525. (2)—a consumer debt less
than $20,450 $22,700. (3)—a non-consumer debt against a non-insider less than
$25,000 $27,750. 11 U.S.C. Section 101(3)—definition of assisted person $204,425
$226,850. Section 101(18)—definition of family farmer $10,000,000 (each time it
appears) $11,097,350 (each time it appears). Section 101(19A)—definition of
family fisherman $2,044,225 (each time it appears) $2,268,550 (each time it
appears). Section 101(51D)—definition of small business debtor $2,725,625 (each
time it appears) $3,024,725 (each time it appears). Section 109(e)—debt limits
for individual filing bankruptcy under chapter 13 $419,275 (each time it
appears) $1,257,850 (each time it appears) $465,275 (each time it appears).
$1,395,875 (each time it appears). Section 303(b)—minimum aggregate claims
needed for the commencement of an involuntary chapter 7 or 11 petition $16,750
(each time it appears) $18,600 (each time it appears). Section 507(a)—priority
expenses and claims: (1)—in paragraph (4) $13,650 $15,150. (2)—in paragraph
(5)(B)(i) $13,650 $15,150. (3)—in paragraph (6) $6,725 $7,475. (4)—in paragraph
(7) $3,025 $3,350. Section 522(d)—value of property exemptions allowed to the
debtor: (1)—in paragraph (1) $25,150 $27,900. (2)—in paragraph (2) $4,000
$4,450. (3)—in paragraph (3) $625 $13,400 $700. $14,875. (4)—in paragraph (4)
$1,700 $1,875. (5)—in paragraph (5) $1,325 $12,575 $1,475. $13,950. (6)—in
paragraph (6) $2,525 $2,800. (7)—in paragraph (8) $13,400 $14,875. (8)—in
paragraph (11)(D) $25,150 $27,900. Section 522(f)(3)—exception to lien avoidance
under certain state laws $6,825 $7,575. Section 522(f)(4)—items excluded from
definition of household goods for lien avoidance purposes $725 (each time it
appears) $800 (each time it appears). Section 522(n)—maximum aggregate value of
assets in individual retirement accounts exempted $1,362,800 $1,512,350. Section
522(p)—state homestead exemption, limit for interest acquired 1215 days before
filing $170,350 $189,050. Section 522(q)—state homestead exemption, limit under
particular circumstances $170,350 $189,050. Section 523(a)(2)(C)—exceptions to
discharge—presumption of nondischargeability: (1)—in paragraph
(i)(I)—consumer debts for luxury goods or services incurred ≤90 days before
filing owed to a single creditor in the aggregate $725 $800. (2)—in paragraph
(i)(II)—certain cash advances obtained ≤70 days before filing, in the aggregate
$1,000 $1,100. Section 541(b)—certain property of the estate exclusion limits
$6,825 (each time it appears) $7,575 (each time it appears). Section
547(c)(9)—minimum preference avoidance value in cases with primarily
non-consumer debts $6,825 $7,575. Section 707(b)—dismissal of a chapter 7 case
or conversion to chapter 11 or 13 (means test): (1)—in paragraph
(2)(A)(i)(I) $8,175 $9,075. (2)—in paragraph (2)(A)(i)(II) $13,650 $15,150.
(3)—in paragraph (2)(A)(ii)(IV) $2,050 $2,275. (4)—in paragraph (2)(B)(iv)(I)
$8,175 $9,075. (5)—in paragraph (2)(B)(iv)(II) $13,650 $15,150. (6)—in paragraph
(5)(B) $1,375 $1,525. (7)—in paragraph (6)(C) $750 $825. (8)—in paragraph
(7)(A)(iii) $750 $825. Section 1322(d)—length of chapter 13 plan, current
monthly income, 4+ household $750 (each time it appears) $825 (each time it
appears). Section 1325(b)—confirmation of chapter 13 plan, current monthly
income, 4+ household $750 (each time it appears) $825 (each time it appears).
Section 1326(b)(3)—payments to former chapter 7 trustee $25 $25. 1 The New
(Adjusted) Dollar Amounts reflect a 10.97347880254584 percent increase, rounded
to the nearest $25.
STATE UPDATES 2021
ALABAMA – APRIL 2021
* Homestead Exemption Ala. Code § 6-10-2, § 6-10-3, § 6-10-4; Const. Art. X, §
205 increasing from $15,500 to $16,450
* Personal Property Exemption Ala. Code § 6-10-6 increasing from $7,750 to
$8,225
WASHINGTON - MAY 2021
* 735 ILCS 5/12-901 Homestead exemption has been increased to the greater of:
$125,000.00; or the county median sale price of a single-family home for the
year preceding the petition date – May 2021
WEST VIRGINIA - JULY 2021
* Homestead/Motor Vehicle Exemption Amount Increase – July 2021
* District of West Virginia allows the use of Federal Exemptions effective July
7, 2021
Changes to Exemptions of Property in Bankruptcy Proceedings
WEST VIRGINIA §38-10-4.
Exemptions of property in bankruptcy proceedings
EFFECTIVE WITH CASES FILED ON OR AFTER JULY 7, 2021
The changes allows a bankruptcy debtor filing in WV to use either the exemptions
under WV Code 38-10-4 or the federal bankruptcy exemptions in 522(d)
Some of the exemptions are limited by “reasonably necessary” in the statute.
These are designated with an *
PROPERTY
WV CODE 38-10-4
11 U.S.C. 522(d)
residential real estate or burial plot
$35,000.00—per debtor (a)
$25,150.00 per debtor (1)
ONE vehicle
$7,500.00—per debtor (b)
$4,000.00 (2)
household furnishings, household goods, wearing apparel, appliances, books,
animals, crops or musical instruments,
No more than $400.00 in any ONE particular item;
Total exemption of $8,000.00 (c)
$625.00 item limitation; $13,400.00 total (3)
jewelry
$1,000.00 (d)
$1,700.00 (4)
ANY PROPERTY
$800.00 plus any unused exemption in (a)(e)
$1,325.00 plus up to $12,575.00 of (1)(5)
implements, professional books or tools of the trade
$1,500.00 (f)
$2,525.00 (6)
unmatured life insurance contract owned by the debtor; DOES NOT INCLUDE credit
life insurance
the value of the contract (g)
Value of the contract (7)
The debtor’s interest in any accrued dividend or interest under, or loan value
of, any unmatured life insurance contract owned by the debtor under which the
insured is the debtor or an individual of whom the debtor is a dependent
$8,000.00 (h)
Up to $13,400.00 (8)
Professionally prescribed health aids
Value of the health aids (i)
Value of the health aids (9)
A social security benefit, unemployment compensation or a local public
assistance benefit;
Amount of the benefit (j)(1)
Amount of the benefit (10)(A)
A veterans’ benefit;
Amount of the benefit (j)(2)
Amount of the benefit (10)(B)
A disability, illness or unemployment benefit;
Amount of the benefit (j)(3)
Amount of the benefit (10)(C)
Alimony, support or separate maintenance
Amount of the payment* (j)(4)
Amount of the payment* (10)(D)
Payments under a stock bonus, pension, profit sharing, annuity or similar plan
or contract on account of illness, disability, death, age or length of service
Amount of the payment* (j)(5)
Amount of the payment* (10)(E)
An award under a crime victim’s reparation law;
Amount of the award (k)(1)
Amount of the award (11)(A)
Wrongful death payment
Amount of the payment* (k)(2)
Amount of the payment* (11)(B)
Death benefits from life insurance policy
Amount of the proceeds* (k)(3)
Amount of the proceeds* (11)(C)
Personal injury payment
$15,000.00 (k)(4)
$25,150.00 (11)(D)
Lost FUTURE wages
Amount of lost future wages* (k)(5)
Amount of future wages* (11)(E)
Payments to prepaid tuition trust fund
Amount paid to prepaid tuition trust fund (k)(6)
n/a
Individual Retirement Account
$1,362,800.00 (j)(5)(D)
$1,362,800.00 (12)
CALIFORNIA - JULY 2021, DEC 2020
* Deposit Accounts C.C.P. § 704.220 is based on the state Minimum Basic
Standard of Adequate Care and is adjusted annually. The current MBSAC floor
for a family of four in Region 1 is $1,826.00 – July 2021
* California also increased its Homestead Exemption - Dec. 2020
MAINE - OCTOBER 2021
General Changes
In general, amounts of the exemptions are increased, as many of the exemption
amounts have not changed in decades. The following chart shows the changes in
amounts.
Property
Prior Amount
New Amount
Residence (individual)
$47,500*
$80,000*
Residence (over 60 or disabled)
$95,000*
$160,000
Motor vehicle
$7,500
$10,000
Clothing; furniture; appliances; and similar items
$200
$500
Jewelry
$750**
$1,000**
Tools of the trade
$5,000
$9,500
Life insurance dividends, interest and loan value
$4,000
$5,000
Retirement funds
$1,000,000
$1,054,550
Legal awards (personal bodily injury)
$12,500
$20,000
Other property (sometimes referred to as wildcard)
$400
$500
Unused residence exemption for other exemptions
$6,000
$10,500
Cash; bank account (new)
$0
$3,000
*The residence exemption has certain features that enhance the amount and other
conditions, as discussed below.
** The jewelry exemption had a provision that courts have interpreted to allow a
wedding and engagement ring in an unlimited amount. The new law attempts to
close that loophole by limited the aggregate amount of a wedding and engagement
ring to $4,000.
In addition, these amounts are to be indexed to the Consumer Price Index for All
Urban Consumers every three years. In a nod to simplicity, the new law rounds
those indexed amounts to the next $50.
https://www.preti.com/publications/maines-exemption-laws-are-changing/
===
EARLIER
GEORGIA 2016
The 2012 Amendment: This amendment increased the amount of exemption for a
debtor’s residence from $10,000.00 to $21,500.00 and increased the amount of
such exemption from $20,000.00 to $43,000.00 where title to the residence “is in
one of two spouses who is a debtor.” O.C.G.A. §44-13-100(a)(1).
The 2013 Amendment: This amendment increased the amount of the exemption
available on motor vehicles from $3,500.00 to $5,000.00. O.C.G.A.
§44-13-100(a)(3).
The 2015 Amendment: This amendment increased the amount of the basic “wild card”
exemption in “any property” from $600.00 to $1,200.00. It also increased the
amount by which a debtor may convert (or carry-over) an unused residence
exemption to a wild card exemption from $5,000.00 to $10,000.00. O.C.G.A.
§44-13-100(a)(6).
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Bankrupty Exemptions FAQ
CONDITIONS OF USE & COMMON SENSE ADVICE BEFORE YOU USE EXEMPTION INFORMATION
Conditions of use & common sense advice before you use these exemption listings—
Permission to use these materials is given only on the condition that the user
will be solely responsible for verifying the accuracy of the information
contained here.
This list was last updated, January 2020. Laws can and do change. Before relying
on this or ANY information you find on the internet, confirm that it is current.
(If you find something incorrect or out of date, please report it here. Thanks.
)
Every effort has been made to report these laws accurately. However, there could
be errors or omissions which could change the effect of the law in a particular
case.
If you see a law listed here and want to know how it applies to you -- that's
what lawyers are for. A lawyer can tell you whether and how a law would apply to
your specific situation, and give you other ideas of how the laws might work in
your favor, in your particular case. There are resources on this website to help
you locate a lawyer in .
Laws are interpreted and applied by trustees and judges, and often even the
judges don't agree on what the law means and when it applies. Over time, and
hundreds of cases, there develops a pretty clear picture of what exemptions are
allowed or routinely challenged within the local bankruptcy practice. Local
customs can vary one district to the next, or even depend on the trustee. An
experienced local bankruptcy professional should have a good sense of what flies
and what doesn't with your local judge and trustee.
See the disclaimer, for other important limitations regarding this information.
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