People oftentimes wonder what will happen to their property if they file for bankruptcy. They want to know, “Will I lose everything?” What will happen to my wedding ring, my house and my car? You’ll be pleased to know that, depending upon your circumstances, a bankruptcy lawyer can help you to keep much, if not all, of your property.
When a person files for bankruptcy, a trustee will be assigned to your case. This trustee has a duty to administer the case. One of the central duties of administering a bankruptcy case is looking at your property and determining whether you have anything that can be sold in order to pay something to your creditors. He’ll notice that some property simply isn’t available for consideration. This is so because state law will exempt much, if not most your property. You see, the Utah state legislature has decided that in order for a person to be put in a position to move forward with their lives after bankruptcy, they must be enabled to retain some of their property. This property is declared “exempt” from that which can be considered.
Here is a list of Important Utah Exemptions:
- Up to $2,500.00 of equity (value minus debt) in a vehicle ($5,000.00 for joint filers).
- Up to $20,000.00 of equity in your home ($40,000.00 for joint filers).
- Unlimited amount of equity in washer, dryer, microwave, stove, refrigerator, freezer, sewing machine, carpets in use, beds and bedding, family clothing, and 12 months of provisions.
- $500.00 for sofas and related furnishings ($1,000.00 for joint filers).
- Your 401(k) plan, IRA, KEOUGH or other ERISA qualified plan.
It may also be the case that one or more of your assets is partially exempt. This can happen because Utah’s bankruptcy exemptions are set at certain amounts, so if the equity in your car or house is above the exemption amount, the trustee could sell the property, pay you back the exemption amount, and use the rest to pay creditors.
So what happens if your property is only partially exempt or not exempt at all but you want to keep it? Is there a way to do that? You bet! You may still be able to keep the property by filing for a Chapter 13 bankruptcy.
A Chapter 13 bankruptcy (often called reorganization bankruptcy) allows you to make payments through a payment plan over a period of three to five years. These payments allow you to pay creditors the equivalent of what the creditors would have received had you simply allowed the trustee to take non-exempt or partially exempt property and sold it. In a Chapter 13 bankruptcy, you can also use your payment plan to catch up on overdue payments on any assets (like the arrearages on your mortgage) you may have. Also, a Chapter 13 plan may also allow you to simply rewrite the contract so that you pay less than what you owe. For example, if you purchased a vehicle more than 910 days prior to the date you file for bankruptcy, a creditor will be required to allow you to pay only the current market value of the vehicle rather than what is owed under your contract. This process is called a cram down.
Under Chapter 13 bankruptcy, you may also be able to get rid of a contract. For example, if you own a home that has a first and second mortgage, but the current market value of your home is less than what you owe on your first mortgage, you can challenge the second mortgage in bankruptcy and have the second mortgage eliminated. This process is called a lien stripping.
Because the Chapter 13 plan will require regular monthly payments, Chapter 13 is usually only appropriate for an individual debtor who has a regular source of income.
Looking at the above, you can probably now see what bankruptcy attorneys mean when they tell you that bankruptcy law is designed to give you a “fresh start.” The Bankruptcy Code has are many provisions designed to help you get out of the overwhelming debt and to move forward with a new beginning. Because the bankruptcy is one of the more complex areas of the law, you should keep something in mind: in order to ensure that you take full advantage of the Bankruptcy Code and Utah law to protect your property, you’ll need to consult with an experienced bankruptcy attorney.