Bankruptcy: Assets and Exemptions
- What happens to my personal property, real property and other assets?
- What is an "Exemption"?
- What property is exempt?
- What states have "opted out" of the bankruptcy exemption scheme?
- Can I keep my home and automobile?
- Are pension plans and 401(k) plans exempt?
- Are IRA accounts exempt?
- How can I learn more about bankruptcy?
- What if my question isn't answered here?
What happens to my personal property, real property and other assets?
Once the bankruptcy is filed, all of your property at the time of the filing and certain other property to be received in the future, becomes the property of the bankruptcy estate. This means that the bankruptcy trustee may take control of this property to satisfy your creditors. You are required to file a schedule with the court describing all of your assets.
Certain property is either "excluded" from the bankruptcy estate or "exempt," and you will be able to keep that property. 11 U.S.C. sec. 541(b) describes what property is "excluded" from the bankruptcy estate and 11 U.S.C. sec. 522(b) describes what property is exempt.
Often, all of your assets can be protected. However, if any question exists regarding protection of assets, you should hire an attorney to ensure that the exemptions are properly chosen and applied to maximize the value of assets retained.
What is an "Exemption"?
Certain property is protected from creditors in bankruptcy by 11 U.S.C. sec. 522. This property is known as "exempt" property.
What property is exempt?
Exactly what property is protected depends on the exemption scheme chosen. In many states, including Massachusetts, you can either exempt the property listed in 11 U.S.C. sec. 522(d) or exempt any "property that is exempt under [other] Federal law...or State or local law that is applicable..." In other states, you can only choose the "other Federal and State law exemption scheme." These states have "opted out" of the bankruptcy exemption scheme.
Determining what property is exempt requires a complete understanding of the laws governing residency within states and the exemption laws of the relevant state.
What states have "opted out" of the bankruptcy exemption scheme?
As of January, 1995, it appears that the following states have passed laws limiting the exemptions available in that state:
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming.
Can I keep my home and automobile?
In many cases you can retain your home and automobile in a chapter 7 bankruptcy proceeding. You will lose your home or automobile in a chapter 7 if (1) you are behind in making payments on a loan secured by the home or automobile and can not reach a payment agreement with the creditor, or (2) the home or automobile has equity (I.E. a liquidation value in excess of the amount owed to creditors with liens against the property) in excess of what you are allowed to exempt.
If either of these two conditions exist, you might consider filing a chapter 13 petition, which allows you to develop a plan for repaying your creditors without necessarily liquidating assets.
Are pension plans and 401(k) plans exempt?
The United States Supreme Court has held that pension plans, 401(k) plans, and other "ERISA-qualified plans" are generally "excluded" from the bankruptcy estate under 11 U.S.C. sec. 541(c)(2).
Are IRA accounts exempt?
Unlike 401(k) plans, IRA accounts are not ERISA-qualified plans. However, in some states an IRA may be excluded from the bankruptcy estate or exempt because of a state statute. Some bankruptcy court judges have held that an IRA may be partially exempt under 11 U.S.C. sec. 522(d)(10)(E).
How can I learn more about bankruptcy?
The Internet is a useful resource for learning about bankruptcy. The Bankruptcy Lawfinder includes links to a number of on-line bankruptcy law guides, including one at Cornell School of Law. In addition, most law libraries will have copies of "Norton on Bankruptcy," a comprehensive treatise on bankruptcy law and "Chapter 13 Bankruptcy" by Keith M. Lundin.
What if my question isn't answered here?
Send your question to Law Offices of Paul D. Post, PA using the Feedback page and we will try to help you. Make sure you state where you live. Please keep in mind that we can not provide legal advice over the Internet or answer questions about state law (other than in Kansas).
You may want to contact an attorney. Most bankruptcy attorneys do provide free initial consultations and can provide you with the guidance you need to decide whether to file a bankruptcy petition.