Will I Lose Everything?
Jared W. Bennett, attorney
When meeting with potential clients for the first time many clients assume that they will lose all of their property or assets in a bankruptcy. Many are under the improper assumption that the Trustee, the person in charge of managing their bankruptcy case and making sure their creditors receive any funds that would be non-exempt, will come out to their house and take everything leaving them in an even worse position.
This is not how the bankruptcy laws work. Your assets are divided into two types, exempt assets and non-exempt assets. Exempt assets are the necessities of life, the things that you use or need to survive. Non-exempt assets are luxury items, things that could be sold to provide your creditors with some funds even though you filed a bankruptcy.
Every state is responsible for determining what their exemptions are and what should be protected. Some follow the federal exemptions. Other states follow the federal exemptions and supplement them with things that their state legislatures have deemed important to protect. States like Arizona have decided to opt out of the federal exemptions and created their own set of exemptions.
Under the new Bankruptcy Abuse and Consumer Protection Act (BAPCA) passed in 2005, to be eligible to use a state’s exemptions you must have lived in that state more than two years. If you wish to use the state’s homestead exemption you must live in that state more than two and half years.
Before the new BACPA passed, a person could move to a state and wait 90 days and then be able to use that state’s exemption. This was often called the OJ exemption, based on the fact OJ Simpson moved to Florida to take part in that state’s homestead exemption, which is based on the size of the property and not the value of the property.
How it would work is that a person who lived somewhere in a state with a small homestead exemption, like Georgia where the exemption is $10,000 per person, could sell their home and move to Florida. In Florida, they could purchase a new home and as long as it was not more than ½ acre of land they could protect all the equity of that home.
In Arizona, the equity of a home can be protected up to $150,000. During the boom of the early 2000s this could often be a problem, but rarely does anyone have the kind of equity that used to exist.
A person can protect up to $5,000 equity in a car in Arizona. If you are married you can either protect the equity in two vehicles up to $5,000 each or pool the exemption to protect up to $10,000 in one vehicle. Recent cases seem to suggest that the term vehicle can often be used to encompass any gas powered vehicle, like a golf cart.
Your household goods and furnishing like your television, couch, dinner table and chairs, beds and other items in your home are protected up to $4,000 per person. Again, this amount may be pooled together to protect $8,000 if you are married.
A person’s clothing in Arizona is protected up to $500. Your musical instruments can be protected up to $250. Domestic pets, horses and milk cows are also protected up to $500. You are allowed to protect a personal library up to $250. Engagement rings and wedding rings are protected up to $1,000.
Arizona also protects some odd items that at one time were deemed worthy of protection like one typewriter, which I believe will one day be changed to one computer as a sign of the times. Because we are a Wild West state we also allow an exemption of $500 in one rifle or pistol.
Retirement accounts like 401(k) s and IRAs are protected up to a million dollars based upon a Supreme Court case several years ago. Certain death benefits can be protected up to $20,000.
Perhaps one of the hardest areas for exemption planning when we file a bankruptcy case is your bank accounts. Arizona only allows an exemption of $150 per person in your bank account on the day of filing. So when we select a filing we make sure that you have less than $150 per person in that account.
For a lot of us, we live paycheck to paycheck and getting your account under $150 or $300 is not a hard thing. We just have to pick a day right before payday.
For some people, dealing with the bank account may take some planning. What you should not do is take the money out of your bank account the day before you file and then return it to the bank account right after you have filed. This could be seen as bankruptcy fraud and could get you in trouble. Instead you pay all of your monthly bills and once the bank account gets below the $150 or $300 mark, you file your bankruptcy case.
Things that would not be protected in bankruptcy are luxury items. They are the things that I am sure my wife would love me to quit spending money on. They include timeshares, motorcycles, fifth wheels, stocks and bonds not in a 401(k) or IRA, baseball season tickets that are prepaid for, quads, or undeveloped land that is paid in full.
These items are things that the Trustee in your case can seize and sell. They then can split that money among your creditors so that at least they get something out of your bankruptcy.
Right now the biggest non-exempt asset that most people have is tax refunds for 2008. If you file a bankruptcy before you receive that refund it has to be turned over to the Trustee. A portion of your 2009 refund is also non-exempt based on when you file.
Most bankruptcy cases we file are non-asset cases. Which means the trustee did not find any assets worth seizing and selling. Most of the stuff that people have accumulated over the years is not worth seizing and selling.
Therefore, if you are considering a bankruptcy but worried that someone will come to your home and cart away all your belongings to a warehouse to be sold, you should not be. A bankruptcy can help you achieve a fresh start! In most cases, a bankruptcy filing will stop the phone from ringing with creditors, and let you keep your assets. Please Call 800-435-5081 Today to get your specific Bankruptcy questions addressed.