Can I Keep My Car Or House when Filing for Chapter 7 or Chapter 13 Bankruptcy?
Contrary to some common Bankruptcy Myths, you need not be penniless and without income to file for Bankruptcy protection. While Bankruptcy is a Federal Law, every state contributes to it by providing its own set of exemptions, which protect debtor’s assets. Exemptions are not automatic and must be claimed by the debtor within the petition. Schedule C of the petition should list all personal property owned by the debtor along with the appropriate exemption statute being claimed.
Often a major worry people express in considering whether to file for bankruptcy is whether they can keep certain property, usually a vehicle. A client may say “I don’t want to include my car in the bankruptcy because I want to keep it”. That’s understandable, but it must be explained that ALL assets and debt must be LISTED in the petition. Since public nudity is unlawful, a debtor who lists no property better in fact have nothing and walk into the Creditor’s meeting with nothing but borrowed clothes on their backs. Failing to list all assets can have devastating consequences.
What Is An Asset?
What is an asset? Some things may not intuitively seem like assets. It can be anything of value or a right to receive something regardless if you actually physically possess it now or where the item may be located. If a car is registered in your name, you are the registered owner, even if you don’t drive or pay for the vehicle so you list it. Real property, regardless of where it may be is an asset, as are tax refunds, insurance proceeds, money owed to you, or a right to sue someone. Cash obviously is an asset but so are negotiable instruments, CDs, money market accounts, stocks, bonds, unpaid vacation and holidays, licenses, retirement accounts, and many other tangible and intangible things.
What Is Exempt?
What is exempt? Every state lists their exemptions. California’s can be found under California Civil Code section 704 and 703. The list is updated every 3 years and currently offers 2 systems so a debtor should select the best one for their circumstances. System 1 provides for a homestead exemption which allows debtors to exempt real estate up to certain value, while system 2 offers a wildcard exemption, of over $20,000, which can be applied to any property of debtor’s choosing. This was meant to equalize the homeowner with the renter. Think of the exemptions as buckets, assets as water. You get to keep everything in the bucket. What spills over is mopped up for the benefit of the creditors, though the puddle needs to be big enough for the Trustee to go through the trouble of getting the mop out of the closet.
Establishing Value & Equity
The other term commonly used when considering exemptions is equity. In determining whether a debtor can keep a vehicle or a house we must establish the value of the item, deduct from it balance of loans against it, and what remains is the debtor’s equity. There must be an exemption equal to the equity for the petitioner to keep that property. When a financed car has a loan balance that exceeds the value of the vehicle, there is no equity. We still list the vehicle on the petition but claim $0.00 as an exemption in that case. You can check Kelly Blue Book and Zillow to obtain valuations.
Kathryn U. Tokarska, Esq. is admitted to practice in State of California. Graduate of California Western School of Law in San Diego, California, Ms. Tokarska concentrated her legal studies in area of Bankruptcy, Estate Planning, Taxation, Securities Regulations, and Real Estate Finance. She has over fourteen years of experience working for major financial investment institutions, offering financial planning services, investment products, wealth building and preservation strategies. Ms. Tokarska holds a Financial Paraplanner certificate, was a licensed stockbroker, and is currently enrolled in an LL.M. in Bankruptcy/Finance at Thomas Jefferson School of Law.
For assistance, contact Tokarska Law Center online, by Emailing Us, or by phone (619) 285-1992. We are a FEDERAL DEBT RELIEF AGENCY. We help people file for Bankruptcy Protection under the Federal and State Laws.