Posts Tagged ‘exemptions’
Bankruptcy Considerations – What to know before you decide to file.
February 17th, 2012 | 
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The decision to file for bankruptcy is not an easy one and it is not meant to be. However, it should not be an embarrassing one either. Bankruptcy enables a fresh start when one is needed and is even provided for in the U.S. Constitution.
The first step someone contemplating bankruptcy should think about is the type and amount of debt he or she is facing. Every state has a statute of limitations, so some debts may be too old to collect. Getting a recent copy of the credit report and looking it over for debts that are too old or that are unknown can eliminate some debts.
If this review does not eliminate enough of the debt load, the next step is to divide the debts into those that are secured by property, those that are unaffected by bankruptcy (e.g., certain taxes and student loans) and everything else. The reason for this analysis is to avoid heading down the path of bankruptcy when it cannot get rid of enough debt.
Within each category, the bankruptcy provides different options.
For example, secured debts that are in behind on payments, like mortgage or car payments, can be caught up through a Chapter 13 bankruptcy plan. In Chapter 7, the property will most likely be lost.
Child support, spousal support and certain taxes must be paid at 100% in Chapter 13, but not in Chapter 7, though they will not go away. Student loans receive no special treatment, but they remain even after a bankruptcy.
Loans that financed the purchase of a car two and half years prior to filing (910 days) can be altered with only the value of the vehicle being paid in full; the interest rate, however, can be reduced substantially to prime plus 1% to 3%. For other personal property, the time period is one year. In Chapter 7 cases, you just have to pay off the fair market value of the property, which may require another, high interest rate, loan.
Mortgages on real estate that is the debtor’s primary residence cannot be altered. However, some second and third mortgages can be removed in Chapter 13 cases if the first mortgage’s payoff is more than the property is worth. Loans on other real estate and on loans that cover more than real estate may be altered, but they would have to be paid within the time of the plan..
The next step is to review all property or equity in property. Not all property can be protected (exempted) from creditors. If you own enough property that cannot be protected and you want to keep that property, the liquidation test in bankruptcy will prevent filing a Chapter 7 petition. The liquidation test states that creditors are entitled to the same amount of money in Chapter 13 as they are in Chapter 7. The difference is that the debtor, instead of losing property, simply pays out the current value of that property over a period of 3 to 5 years.
An attorney can help evaluate the protections that your state provides. Bankruptcy law requires that you live in a state for 2 continuous years before using its property protections (known as exemptions). If not, you must look to the law of the state where you lived for at least 90 days prior to the last 2 years.
The 2005 revisions to the bankruptcy code added a means test to push certain high income individuals and couples into Chapter 13. If household income exceeds the mean standard income for family of the debtor’s size, the debtor must complete the means test. It uses IRS standards for certain expenses (e.g., transportation and living expenses) and actual expenses for others (e.g., health and life insurance and income taxes).
Income includes all income available to the debtor. For individual filers who are married, the spouse’s income is included only to the extent that it is available for household expenses. The spouse’s income is not included where it must pay for other expenses – individual credit cards, child support, and car and home loans in that spouse’s name only – but is included for everything else. Social Security income and other limited types of income are not included in this calculation.
Finally, the debtor’s current income and expenses must be calculated. If there is excess income that can pay a portion of the total debt over the next 3 to 5 years, a Chapter 7 petition might be considered to be filed in bad faith. This last income and expense test was the analysis for all cases prior to the 2005 amendments.
Property, income and type of debt all must be evaluated before determining that bankruptcy is the best option and whether Chapter 7 or Chapter 13 is the appropriate petition to file. A qualified attorney in your state can help you make the right decision for you given your specific circumstance.
If you have property to protect and a debt load to match, get help. If you are in metro Richmond, Hanover or Caroline Counties or anywhere in central Virginia, contact Consumer and Bankruptcy Attorney Mitchell Goldstein at mitch at mitchellpgoldstein.com or (804) 592-1674.
Photo Credit: Brian Hillegas at Flickr
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Posted in Bankruptcy, Student Loans | 
Tags: bankruptcy, consideration, exemptions, income, mortgages, student loans, taxes | 
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What happens to my property in bankruptcy?
Most property in bankruptcy can be protected from creditors. The bankruptcy code enables individual debtors to use so-called exemptions to protect property. Those exemptions include property used for personal, family and household purposes for the debtor and dependents.
While the bankruptcy code lists a number of exemptions, many states have opted-out of the federal scheme and listed exemptions of their own. In some states, like Virginia, a document must be filed to claim certain of those exemptions even if the debtor claims them in the bankruptcy schedules.
Exemptions include clothing, motor vehicles, household furnishings and other items necessary for basic living. In addition, wedding and engagement rings are usually protected.
Employer-provided retirement accounts are protected through the Employee Retirement Income Security Act (ERISA). IRAs are protected through most states’ laws. Many of the items are protected up to a specified limit.
Finally, many states have a “wild card” exemption that protects everything else up to a predetermined limit.
Debtors that file for protection under Chapter 11 usually retain their property as a debtor in possession.
For debtors whose property exceeds the limits, it is possible to keep the property by paying out the liquidation value minus the exemptions over a period of between three and five years. A debtor must perform the liquidation test to determine whether any property might be lost through a Chapter 7 filing. The liquidation test is nothing more than listing all of the property the debtor owns and subtracting out the exempted property. The more that is left, the more likely the debtor will benefit from a Chapter 13 filing to keep the property.
Who can claim these exemptions?
The amendments to the bankruptcy code enacted in 2005 made two major changes to the exemptions.
First, it placed a cap on the exemptions a debtor can claim. Texas and Florida used to allow a debtor to exempt the the primary residence regardless of value.
The second major change is who can claim the exemptions. The old law allowed anyone to claim the exemptions of the state of residence for the majority of the 180 days prior to filing. To avoid forum shopping, the practice of searching for a forum that grants the greatest protection, the amendments require the debtor to live in the state for two continuous years. If not, the debtor must look to the place of residence for the majority of the 180 days prior to the last two years.
If you have property to protect and a debt load to match, get help. If you are in metro Richmond, Hanover or Caroline Counties or anywhere in central Virginia, contact Consumer and Bankruptcy Attorney Mitchell Goldstein at mitch at mitchellpgoldstein.com or (804) 592-1674.
Photo Credit: Vectorportal
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Posted in Bankruptcy |
Tags: bankruptcy, exemptions, personal property, real property |
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Bankruptcy A-Z: E is for Exemptions
Bankruptcy A-Z: E is for Exemptions.
At the risk of posting information similar to my colleagues, I have decided to post information on exemptions. Exemption laws are founded upon sound public policy and for the public welfare. They were created for the benefit of the wife and children, as well as that of the husband and father. Its manifest purpose is to secure the family a home, notwithstanding the misfortune or improvidence of the husband. The exemptions are, however, not only for the benefit of the family, but for the householder’s benefit also.
OK, so this is arcane language. The point is that bankruptcy law does not leave debtors with nothing. That wouldn’t be a fresh start, now would it?
E is for Exemptions.
Bankruptcy exemptions
Each state has different lists of assets you can keep in bankruptcy. These are called “Exemptions.” In a Chapter 7 case, you generally need to exempt assets that have equity in them to keep them. The availability and amount of property the debtor may exempt depends on the state the debtor lives in (or if multiple states have been lived in the past 2 years, there is a formula for deciding which state’s law applies).
Even if one state’s laws apply, that state’s law may still not apply if you are not a resident. See exemptionsexpress.com for more on this limitation.
The Bankruptcy Code contains its own set of exemptions, but it also gave states the ability to opt out. Like many states, Virginia opted out of the federal scheme (though many of us are trying to change that).
Virginia’s basic exemptions are:
Homestead/Wildcard – Allows for the protection of $5,000 plus $500 for each dependent for all real and personal property. If the householder is 65 years of age or older, the exemption increases to $10,000. Va. Code § 34-4.
Family Bible – Allows for the protection of the family bible regardless of value. Va. Code § 34-26(1).
Wedding and Engagement Rings – Allows for the protection wedding and engagement rings regardless of value. Va. Code § 34-26(1a).
Heirlooms – Allows for the protection of family portraits and heirlooms up to $5,000 in value. Va. Code § 34-26(2).
Burial plots – Allows for the protection of a lot in a burial ground and any preneed funeral contract up to $5,000. Va. Code § 34-26(3).
Wearing Appeal – Allows for the protection of all clothes p to $1,000 in value. Va. Code § 34-36(4).
Household Furnishings – Allows for the protection of all household furnishings including, but not limited to, beds, dressers, floor coverings, stoves, refrigerators, washing machines, dryers, sewing machines, pots and pans for cooking, plates, and eating utensils, not to exceed $5,000 in value. Va. Code § 34-26(4a).
Pets – Allows for the protection of all animals owned as pets. Va. Code § 34-26(5).
Medically prescribed health aids – Allows for the protection of all canes, walkers, glasses and other medically prescribed devices. Va. Code § 34-26(6).
Tools of the Trade – Allows for the protection of up to $10,000 in equipment, which is necessary for use for work. While this exemption, can include a car required for work (not for commuting), it is limited to the one main occupation. Va. Code § 34-26(7).
Motor Vehicle – Allows for the protection of a motor vehicle up to $6,000 (that was just increased on July 1, 2011). Va. Code § 34-26(8).
Retirement Accounts – In addition to employer provided accounts, this exemption allows for the protection of all IRAs. Va. Code § 34-34.
Personal Injury or Wrongful Death Claims – Allows for the complete exemption of personal injury claims and wrongful death claims. Va. Code § 34-28.1.
Wages – Allows for the protection of take home pay up to 40 times minimum wage ($290) per week or 75%, whichever is greater. However, this limit does not apply to child support and taxes. Va. Code § 34-29.
All amounts can be doubled if both spouses are filing.
Nonbankruptcy exemptions
Many other laws exist to protect property. There is the tenancy by the entireties exemption that protects all equity in real estate owned this way by married couples from all individual debts, except for federal taxes. Social Security proceeds are completely excluded from the bankruptcy estate. Virginia’s 529 education plans are considered spendthrift trusts and are exempt as well. Other exemptions can be found in a post here.
Functional exemptions
In addition to legal exemptions, there are also practical exemptions. No trustee is going to see a car that is only worth $500, even if it can’t be fit into other exemptions. Property of little value essentially is exempt, because it is not worth enough for a trustee to administer.
Exemptions are so complex that you should have a knowledgeable attorney assisting you. If you get it wrong, like by failing to list and exempt property, you can lose the property. Did I mention that Virginia requires you to file a deed within 5 days of the meeting of creditors to claim the wildcard/homestead exemption?
If you need to protect your assets from creditors and are in the metro Richmond area, or anywhere in central Virginia, contact bankruptcy and consumer lawyer Mitchell Goldstein at (804) 592-1674 or by email at mitch at mitchellpgoldstein dot com.
Other E posts:
E is for Executory Contract.
E is for Exemptions or Exemptions or Exemptions or Exemptions.
E is for Emergency Filing.
E is for Euphoria.
E is for Equitable Distribution.
E is for Examination.
E is for Eviction.
E is for Early Preparation.
E is for Eligibility.
E is for Everything.
Photo Credit: Scott Coulter
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Can I keep my (insert property here) in bankruptcy?
Many people ask whether they can keep property in bankruptcy. The short answer is that it depends.
First, what law applies? If you lived in the state where you are filing for the last 2 continuous years, then you look to that state’s laws. If not, you look to the state where you lived for the majority of the 180 days prior to those 2 years.
Does the state law that applies cover your situation? Some times, the law that you are directed to use does not apply to you. Maybe you no longer live there and it only covers residents. Maybe your property is located some place else.
Do federal exemptions apply? If no state law covers you, then federal exemptions apply. In some states, you can choose between state or federal exemptions.
Second, what property do you have? You need a complete list of everything. Some property is covered by specific exemptions, like Social Security and part of your wages. Some property is covered only by a wildcard exemption. You need to deduct all loans in which you pledged this property as collateral from the value of the property. Whatever is left is what you need to protect.
Third, is the property worth much and can it be sold? If the property has little value or would cost more to sell than it is worth, then it has no value to your bankruptcy estate and, therefore, the bankruptcy trustee is unlikely to sell it. See my prior posts on how to determine value of personal property and real estate.
Fourth, are you current on payments for secured loans? If you have a car note, a mortgage, or any other loan that is properly secured under your state’s laws and you are behind in payments, you may still be able to keep the property if you can propose a Chapter 13 plan of reorganization to catch up payments.
Everything depends on the unique circumstances of your case. See a local lawyer. If you are in metro Richmond or anywhere in Central Virginia, contact me and I can help. Call Consumer and Bankruptcy Attorney Mitchell Goldstein at (804) 592-1674 or contact by email at mitch at mitchellpgoldstein dot com.
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Posted in Bankruptcy, exemptions |
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Of Guns, Cars, and Homes in Virginia
Among the new laws which became effective July 1st in Virginia were little-noticed changes to the Virginia Homestead Act. The Homestead Act spells out the maximum property Virginia citizens are permitted to keep when the rest of their assets are being sold by the bankruptcy court to pay creditors. A bankruptcy judge once wrote the “main purpose of the act is to protect debtors and their families from homelessness and destitution during bankruptcy.” About 100,000 Virginians have had to file for bankruptcy protection since 2008, and the Homestead Act is designed to give these citizens a foundation on which to build to provide for themselves and their families. This is a far better result than taking everything from them and seeing them become dependent on welfare and other government programs. Because of this, the Homestead Act holds a great deal of significance, yet it has been neglected by the Virginia legislature to the point where it is becoming irrelevant. For example, in the year 1867, a Virginian could exempt $2,000 of equity in their home. Today, that number stands at a mere $5,000.
This year, the legislature did tweak a couple provisions of the Act (See House Bill 1422 and Senate Bill 835). Looking out for the little guy, earlier this year Delegate Mark Cole introduced a bill to make significant improvements to the Act, but when it was all said and done, the legislature made only a few minor changes. A Virginia resident is now allowed to keep a firearm worth up to $3,000. Realizing perhaps, that $3,000 for a gun while the exemption for a car was $2,000, the legislature added on a provision to increase the car exemption to $6,000, a very welcome addition for thousands of Virginians. But the fact remains there are many other changes needed to the Act to bring it into line with modern times and the rest of the nation.
As presently drafted, the Homestead Act now allows Virginians more equity in a car, and nearly as much for a firearm, as it allows for a person’s house. The original intent of the Act has been lost… to protect Virginians from homelessness. Instead, the Act encourages Virginians to own expensive firearms. Some states such as Texas and Florida allow unlimited exemptions for their residents’ homes. Others such as Colorado, with a $90,000 exemption for elderly citizens, have a specific dollar amount exempted, and it is well above Virginia’s $5,000 exemption. This is ridiculous!
The Virginia legislature needs to continue to make changes to the Homestead Act to keep the law relevant and protect Virginians and their families from “homelessness and destitution.” We need to reelect Mark Cole to the Virginia House of Delegates so that he can continue to push the reforms needed to protect Virginia’s families in these perilous economic times.
Richard Bolger, Bolger Law Firm, PLLC
Member, Virginia Association of Consumer Bankruptcy Attorneys
PHOTO CREDIT: Images_of_Money at Flickr
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Virginia Adopts changes to exemptions for first time in over 20 years
I am proud to be one of a handful of attorneys who fought hard to update Virginia’s exemptions. Exemptions were created to protect a basic amount of property from creditors, keep individuals and their dependents from losing everything and becoming dependent on the state.
Homestead exemption laws are founded upon sound public policy and for the public welfare. These laws protect the family. The idea is to secure a home for the family, notwithstanding the misfortune of the parents.
Other than increasing the protection for veterans with service-related disabilities of forty percent or more and residents over 65, most exemptions have not been updated for more than 20 years. Protection for the home and general personal property, known as the wildcard exemption, has not been updated in almost 35 years.
During the 2011 General Assembly Session, consumer attorneys in Virginia created what became House Bill 1471. The bill would have updated Virginia’s exemptions. Notably, the bill would have created a real homestead exemption protecting up to $25,000 of home equity. For many people, this protection would protect the cost of sale. It would also help them file for bankruptcy protection under Chapter 7 instead of being locked out of Chapter 13 because of too little income.
The bill would have protected a firearm, school books, personal property of dependents (which really isn’t part of your estate anyway, but some creditors could argue otherwise), educational material and equipment of dependents who are minors (same thing), the Earned Income Credit (for the poor) and the Child Tax Credit (same thing). The bill would have removed the lifetime cap of $5,000 on protecting home equity and the wildcard. It would have increased the motor vehicle exemption as well.
Unfortunately, very little of the proposal passed. Instead, House Bill 1422 and Senate Bill 839 passed protecting one firearm up to $3,000 and increasing the motor vehicle exemption from $2,000 (last set in 1990) to $6,000. The bills just became Chapters 761 and 835 of the Virginia Acts of Assembly.
We have much more to do to protect Virginians, but this is a start.
If you need help protecting your property and are in metro Richmond or anywhere in Central Virginia, just email me at mitch@mitchellpgoldstein.com or call me at 804-592-1674.
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