In Chapter 13 bankruptcy, there should be no risk of being forced to liquidate assets. Chapter 13 is a reorganization bankruptcy where borrowers pay debts according to a court approved payment plan. On the other hand, Chapter 7 is a liquidation form of bankruptcy. Borrowers won’t have to pay their debts, but in exchange, the trustee for the case will seek to liquidate assets. Not all assets are eligible for liquidation. A bankruptcy law firm may help you keep all of your assets in Chapter 7 bankruptcy. In most of our Chapter 7 cases, borrowers keep all of their assets and don’t have to liquidate anything.
In Chapter 7, there are generally four options on how to keep property in bankruptcy. The most often used tools to protect assets are exemptions. If the property has a loan/ lien, a statement of intention must be filed within 30 days of filing bankruptcy. See bankruptcy law 11 U.S.C. § 521. It is highly recommended to consult with a bankruptcy attorney prior to completing the statement of intentions. Without competent advice, you may accidentally limit the amount of relief bankruptcy can provide.
Reaffirmation of Debt
When a debt is reaffirmed, the borrower voluntarily agrees to pay all or a portion of the money owed. A borrower will usually reaffirm when the debt has collateral the borrower wants to keep. Common examples are cars and jewelry. Reaffirmation agreements are completely voluntary. The borrower in bankruptcy can never be compelled to reaffirm a debt. In addition, all reaffirmation agreements must be approved by the bankruptcy court before they can become binding. Normally, a court will only approve reaffirmation agreements if:
- It is in the best interest of the borrower
- It is entered into voluntarily
- The borrower has the ability to repay the debt
- The creditor gives something of value in return for the borrower signing the reaffirmation agreement
- The debtor is given 60 days to rescind the reaffirmation
If for some reason you stop making payments on a car loan after entering into a reaffirmation agreement, the lender not only can repossess your vehicle, but you also become personally liable for that remaining debt. So, make sure you truly want to keep that vehicle (or home) before entering into a reaffirmation agreement.
Redemption of Property
Another option to avoid liquidation is to redeem the property. In a redemption, the borrower pays the loan in full with a lump sum. If you redeem the property you will own it free and clear of any liens. However, careful planning should be done before redeeming property. Consult with a bankruptcy attorney to see if this option is right for you.
Surrender the Property in Bankruptcy
The third option is to surrender your property. If you surrender the property, you are walking away from it and forfeiting it to the Chapter 7 trustee. Further, you are not allowed to defend a foreclosure action against your home after you receive the discharge. See bankruptcy case Failla v. Citibank . When you choose to surrender real or personal property, you will no longer be personally liable for the debt connected to that piece of property. The surrender option exists to give you a “fresh start.” Therefore, a creditor cannot later come after you for the amount discharged from your decision to surrender.
Protect Assets with Exemptions
An exemption is special form of protection from liquidation in bankruptcy. See 11 U.S.C. § 522. The exemption removes an asset or part of an asset from the possibility of liquidation. There are both federal and state bankruptcy exemptions. The state exemptions will vary from state to state. Most often, the difference in federal and state exemptions is the amount of coverage the exemption provides.
Florida or Federal Bankruptcy Exemptions
In order to determine which bankruptcy exemptions apply, first look at whether your state is an “opt-out” state. “Opt-out” means that you are required to use your state’s exemption amounts, not federal. Florida is an “opt-out” state. So, if you file your case in Florida, you must use Florida’s exemptions for all of your property. Unlike an opt-in state, you do not get to pick and choose whether you use federal exemptions on some pieces of property. If you file the case in an opt-in state, you can choose either federal or state exemptions to protect your property.
Homestead Exemption
Typically, the most important exemption—especially in Florida is the “homestead exemption.” The Florida homestead exemption is one of the strongest homestead exemptions in the nation. In Florida, homestead protects all of the equity in your home. See Fla. Const. art. X, § 4. Some states will only protect a portion of the home’s equity. In Florida, there is no limit, your home can even be worth millions of dollars. To enjoy the homestead exemption, you must be domiciled in Florida for 730 days prior to filing your bankruptcy petition. “Domicile” is your place of residence with the intent to remain there permanently.
Wildcard Exemption
If you are not claiming the homestead exemption, you can receive the “wildcard exemption.” This provides you with $4,000 to apply to any piece of property you would like. For instance, wildcard can be used for a car, diamond ring, or your favorite china set. Fla. Stat. § 222.25. It exists to allow you to pick and choose what is protected in your bankruptcy because it is important to you. A bankruptcy attorney experienced in wildcard exemptions can assist with this. Although Florida has one of the most generous homestead exemptions, it does have lower exemption amounts than some federal exemptions. Just remember, you cannot choose to use some federal exemptions in Florida; you must use Florida’s exemptions in your bankruptcy case.
Other Bankruptcy Exemptions
There are other exemptions you can apply to a wide range of personal property as well. Some examples are motor vehicles, boats, household furnishings, household goods and clothing. Additionally, appliances, musical instruments, tools of trade, health aids, life insurance policies, wages, and retirement accounts may also have exemptions.
The exemptions are categorical and cannot spill over to other items. For example, each person who files bankruptcy in Florida is given $1,000 to protect his or her car. If you and your spouse are filing jointly, you will be given $2,000 towards your cars. For example, if you have a car worth only $750, you cannot apply the leftover $250 towards other assets. If you don’t use all of the exemption the remaining amount is lost.
Property of the Estate
Determining which assets are property of the estate in Chapter 7 or Chapter 13 requires careful consideration. It is highly recommended to consult with a bankruptcy lawyer in Tampa before taking action. Failure to properly plan for your bankruptcy may have devastating consequences. You may be forced to lose assets you acquired after the bankruptcy was filed. For instance, in Chapter 13 bankruptcy everything you purchase post-petition will be property of the estate. Additionally, if you inherit money within 6 months after filing that money usually becomes property of the estate.
There are several items that never become property of the bankruptcy estate. These items include funds in a retirement account, employee benefit plan, and health insurance plans. Additionally, any interest you may have as a lessee under a lease of nonresidential property is protected. Also, deferred compensation plans and tax-deferred annuities may be protected as well. Further, if you work and earn income post-petition, the income is not property of the estate. See bankruptcy law 11 USC 541.
Hiding Assets in Bankruptcy
Hiding assets from the bankruptcy trustee is not something that should be done. The concealment is a violation of the bankruptcy code and may have criminal penalties. Still, one of the most common forms of fraud associated with bankruptcy is the concealment of assets. This includes transferring title of property and other assets to third parties. See Bankruptcy Law 11 USC 548.
The amount of time a court can look back at transferred property to consider such property for fraud during a bankruptcy case varies. This is one of the many reasons why it is important to consult with a lawyer if bankruptcy may be in your future. The best method for protecting assets in bankruptcy will vary from case-to-case. A bankruptcy lawyer in Tampa can help formulate a plan to protect your assets without engaging in unnecessary criminal activity.
Fraudulent Transfers
Fraudulent transfers occur when property is transferred to a third party with the intent to hinder, delay, or defraud creditors. Moreover, under bankruptcy law even innocent transfers without the intent to defraud creditors can be considered fraudulent. An example of fraudulent transfers without intent can be found in Jackson v. Jackson. Other common examples of fraudulent transfers can include changing title on a car from one spouse’s name to the other spouse or to their children.
The Trustee has the right to bring an action to prohibit the discharge of debts or avoid transfers that occurred prior to the bankruptcy filing. The law is very broad and includes many different types of transfers and debt obligations. Further, a transfer can be deemed fraudulent even if you have no intent to defraud the creditors.
Bankruptcy Law Firm in Tampa
If you are struggling with debt Florida Law Advisers, P.A., may be able to help get a fresh start. Regardless if you need help with Chapter 13 or Chapter 7, we provide legal advice you can trust. We are dedicated to providing effective representation, individualized attention, and affordable fees to our clients. All of our initial consultations are free and convenient payment plans are always available. Call us now at (800) 990-7763 to speak with a Tampa bankruptcy lawyer.
Frequently Asked Questions
Yes, homestead (primary residence) is protected in both Chapter 13 and Chapter 7 bankruptcy. Therefore, you may not have to lose your home as a condition of the bankruptcy.
Yes, you can reaffirm the car loan in bankruptcy. When a debt is reaffirmed, the borrower voluntarily agrees to pay all or a portion of the money owed. A borrower will usually reaffirm when the debt has collateral the borrower wants to keep.
If you surrender the property, you are walking away from it and forfeiting it to the bankruptcy trustee. When you surrender property you will no longer be personally liable for the debt connected to that piece of property.
Yes, retirement accounts are protected in bankruptcy. Regardless if you file Chapter 7 or Chapter 13, retirement accounts are exempt (protected) property. Social security wages are also protected in bankruptcy.
No, you may be able to keep your car in bankruptcy. Additionally, you may be able to lower the amount you owe on the car loan. In certain situations, you can reduce the car loan down to the current market value of your car. Therefore, if you owe more than what your car is worth, you may be able to eliminate thousands of dollars from your car loan.
No, Chapter 13 is considered a restructuring bankruptcy because the debtor makes payments to their creditors according to a court approved payment plan. On the other hand, Chapter 7 does not involve a payment plan. Instead of making monthly payments, the bankruptcy trustee will liquidate non-exempt assets to pay creditors.
Most unsecured debts are discharged in Chapter 7 bankruptcy. Unsecured debts are loans that don’t have collateral, like credit cards and medical bills. The debts are eligible to be discharged regardless if you are current on the monthly payments or not.
