Many people who are contemplating filing a bankruptcy petition to relieve themselves of pressing financial obligations often wonder if they will forfeit their home, car or personal property to the bankruptcy court or creditors. The answer often depends first upon the amount of assets a debtor (or a married couple) possesses. The answer also depends upon the kind and amount of assets that the debtor may shield from the claims of creditors. When filing bankruptcy in Kentucky, persons can use federal exemptions, which are often more expansive in their protections.
The family home
People who file bankruptcy can designate certain assets as out of the reach – that is, exempt – from claim of creditors. The asset that most people worry about the most is their family home. An individual can declare up to $25,300. of the equity value of their residence exempt from creditors’ claims. If a couple files a joint petition and owns the home jointly, the amount of the exemption is doubled to $50,600. This amount adjusts periodically based upon inflation and cost of living adjustments.
Whether the amount of this exemption will completely protect the family residence depends on the amount of equity the owners have accumulated and the amount remaining on the mortgage loan. If nothing else, the automatic stay issued by the bankruptcy court will prevent continuance of any foreclosure proceeding during the pendency of the bankruptcy case.
The biggest asset owned by many working people is their pension, 401K or 403B account, or IRA. Fortunately, with few exceptions, these are exempt from creditors claims in a bankruptcy. Furthermore, debtors are generally allowed to continue paying loans from these accounts so that they do not have tax penalties or lose their investments.
Household goods and other personal property
Generally, most of debtors’ interests in household goods, which are defined as household furnishings, household goods, clothing, appliances, books, animals, crops or musical instruments held primarily for personal, family or household use, can also be protected. The amount allowed for an individual is $13,400., and for a couple the amount doubles to $26,800. The equity in a vehicle owned by a single debtor is exempt up to $4,000 and that amount doubles for a vehicle owned by two debtors filing jointly. The protection allowed for jewelry is $1,700 for a single debtor and $3,400 for joint debtors.
It should be noted that the federal exemptions also allow what is referred to as a wildcard exemption. This can be applied to property that may not fit within other specific categories. The number changes based upon the amount of the exemption used to protect equity in a person’s residence.
Even when a person has few assets, those assets should be protected to the full extent allowed under law to allow for a new start. For this reason, the advice of an experience bankruptcy attorney can be essential in deciding which assets to designate as exempt.