Most people who file Chapter 7 bankruptcy in San Diego get to keep all of their property because it may be considered “exempt” under the law. So how do we protect your exempt property in bankruptcy? And what exactly are these “exemptions”? Let’s take a look.
Chapter 7 bankruptcy allows you to protect or keep certain assets by providing a system of “exemptions” that debtors may claim in order to keep their property. You may think of these exemptions as categories of property (for example, “home furnishings”, “clothing”, “tools of the trade”, “homestead” and equity in “vehicles”) that require us to estimate and honestly report values and then “claim” the exemptions. This system is based on a complex combination of State law and Federal Bankruptcy law that work together to provide a rather generous opportunity for the average person to file bankruptcy and still keep all of their property.
This system of asset protection requires some planning, accurate disclosure and carefully prepared “claims” for your exemptions so that you can keep your property. Mistakes may lead to denial of these exemptions and turnover of the property to a Trustee. Poor planning may cause you to lose exemption opportunities, delays or the failure to get the maximum combined value of your potential exemptions under the law. This is another area of the law where a highly skilled lawyer may be crucial to your case.
We protect your property in bankruptcy primarily with careful exemption planning. But sometimes people think that if they transfer title to their property then it can’t be taken away. This simply not true. And it will likely cause serious harm, often resulting in the loss of property that you might have saved or protected in your bankruptcy case. Here is a quick look at some of the harm that could occur.
If you transfer property, or if you attempt to hide it or conceal it, in an effort to keep the property out of reach of your creditors, there is risk that you will be prosecuted for bankruptcy crimes. It may also result in the denial of your discharge. And guess what? The Trustee will still be able to recover the property (or its value in money) from anyone that received the property from you or that benefitted from the transfer. And if the Trustee does recover the property, you will not be able to claim any exemption that might have otherwise protected that property or some of its value for you. It will be totally lost to you.
An important part of the exemption planning that we do for clients is to identify any potentially “non-exempt assets” and then look carefully at your alternatives. Sometimes non-exempt assets can be sold or traded for assets that are exempt. Sometimes this is not possible. So if there is risk that one of your assets may have to be surrendered to the Chapter 7 Trustee because of its high value, then we’ll review your options for a Chapter 13 Plan that would pay creditors an amount equal to the value they would have received from your non-exempt assets if you had filed under Chapter 7.
The bottom line is that an expert San Diego bankruptcy lawyer will be able to quickly determine whether any of your assets are “non-exempt” and then assist you with planning. You should understand your alternatives. Avoid any schemes that are designed to transfer, conceal or hide assets.
The Bankruptcy law was designed to allow each state to pass its own exemption laws and then to choose how and whether its exemption laws would apply if you file bankruptcy in that state. Think of the Bankruptcy law for exemptions like an umbrella law that enables each state to have its own rules about the exemptions you will get if you file under your state’s part of the umbrella. If you move to a different state, you’ll be under a different part of the umbrella, and different exemption rules will apply to your property (although the date you move and the location of your property are also relevant).
California exemption laws are generous, so if you file bankruptcy in San Diego you will be required to choose the exemptions available to you from one of two “lists” of exemptions that are provided under California law. This is a little confusing to some people (because there are two lists), but we’ll try to explain your options here.
In California, the two lists of exemptions are provided in California Code of Civil Procedure (CCP) §703 and §704. You’ll have to choose one list (§703) or the other list (§704), but you can’t mix and match the exemptions from both lists. The lists are similar in some respects, but there are important differences.
Don’t trust your choices or your exemption planning to anyone but a lawyer who is a bankruptcy expert. Your bankruptcy lawyer must exercise special care both in advising you of your options and in making the proper exemption claims in your case. For example:
* Sometimes there are Court decisions (opinions or rulings by the Court) that affect the handling of these exemptions and these Court decisions may affect the way these California exemption laws are applied and interpreted.
* Sometimes an item of property may be “cross-covered” by more than one exemption; and this may be very important if the property has equity or value that won’t be fully exempt under the primary exemption that applies.
* Your state of residence before bankruptcy may also affect exemptions you are allowed to claim. If you moved to California from another state within 730 days before filing your bankruptcy case, Bankruptcy law may require that you use some exemptions from a prior state of residence instead of California exemptions.
What if your property has more net equity than the exemption amount that you are allowed under the law? Keep in mind that sometimes we can use multiple exemptions to protect your property, but of course such multiple exemption claims must be carefully and clearly spelled out. But if this is not enough to fully protect the “equity” in an asset, then let’s take a look at what happens in Chapter 7. When available exemptions are not enough to fully protect an asset and the equity you have in the asset, then the bankruptcy Trustee is allowed to liquidate or sell the asset. Of course, at the time of the sale, the Trustee must pay to you, the debtor, the dollar amount of the exemption(s) you claimed. The amount left over (after paying any valid liens, costs of sale and your exemption claim) will be used by the Trustee to pay administrative costs first, and then any remainder will be paid pro rata to creditors.
This process that a Trustee must use is also part of our analysis of the risks you may face in Chapter 7 if you have a valuable asset. Depending on the nature of the asset, it may not be easy for the Trustee to market and sell, and the net sale proceeds may not be enough to pay the liens, the costs of such a sale and your exemption amount. Sometimes Trustees abandon attempts to sell assets if they aren’t fairly certain that the net proceeds will generate enough money to pay their costs and generate a reasonable net pay out to creditors. The type of asset, the market for sales of such assets, the costs of sale, the likelihood and amount of a significant net payment to creditors—these factors will impact your decision-making process concerning your exemptions (and whether to file under Chapter 7 or Chapter 13) if you get proper expert bankruptcy advice.
Call the the Bankruptcy Law Center today to set up a FREE consultation at 1-(800)-551-7922. Don’t live the rest of your life buried in debt. Call today to begin your exemption planning and set up a FREE consultation with one of our lawyers at (800) 551-7922.