Exempt vs non-exempt assets

One of the most common doubts for bankruptcy filers is in determining what assets are exempt when filing bankruptcy, this is not always clear especially if there are versified assets involved. As always it is best to consult a bankruptcy attorney to determine this with precision, but this post should give you an idea.

Exempt assets are those that can not be included in the bankruptcy estate, for example your retirement account. 401K, IRA accounts and other retirement accounts are in most states exempt from liquidation, however some states do consider these types of assets non-exempt so it’s important that you check with your attorney to make sure that yours will be safe.

Non-exempt assets are those that will be included in the bankruptcy estate and you must surrender in order to process your bankruptcy discharge. The bankruptcy trustee will use these assets to liquidate them and use the cash proceedings to pay your creditors before any debt can be discharged.

The law currently states that $16,500 of your home’s equity is exempt or double that amount if you’re married. Also you may exempt up to $2,500 of your vehicles total value. Home items like your furniture, items in your wardrobe and home collectibles may be exempt up to a value that can be determined by your attorney since this also varies per state. Any health or medical aids that you need for treatment or life support that are of high value are also exempt.

Any personal injury compensation, and disability payments that you’re receiving may also be exempt depending on which state you’re in.

Other assets like pension plans in which employees contribute to ERISA qualified plans, or deferred compensation plans, health insurance plans and certain annuities can be considered bankruptcy exempt assets.

Education funds to your child’s college education, or state tuition programs that were started at least one year prior to filing for bankruptcy, can be excluded from the bankruptcy estate. These funds educational funds however must clearly have as a beneficiary a child or grandchild of the debtor.

Can I exempt my house entirely?

Typically no, but in today’s crashing real estate market it is difficult to find a home with a significant amount of equity worth liquidating for the bankruptcy trustee. So presently you may be able to keep your house if the trustee is not interested in selling it, but you must continue to pay the mortgage on it even after you get a discharge since this is a secured debt.

If there’s more equity in the home than the allowed exempt amount of $16,500 or double if you’re married, then it is likely that the trustee will move forward with including the property in the estate and sell it. However if the equity is below the allowed amount then you should be fine just make sure you pay the mortgage. Also remember that the lender is not interested in the house, they’d rather you got caught up on payments and will only proceed with foreclosure as a last resort since this is typically an expensive and time consuming effort for the lender.

Can I exempt my vehicle?

Vehicles normally depreciate in value rather quickly, so unless you own luxury or vintage vehicles that hold good value and are above the allowed exemption value of $2500, the trustee will also probably choose to overlook this asset. Most people own vehicles that they’re either leasing or still paying for and because of the depreciation value of most vehicles it is difficult to consider them in the bankruptcy estate as worthy assets. So if your vehicle is a couple of years old with moderate to high mileage you probably have little to worry about.

When can I exempt everything?

If you’re filing chapter 7, more than likely you won’t have to try too hard to exempt certain things you own since most people who file chapter 7 bankruptcy have already exhausted their own resources to get caught up and failed. Including selling some of those assets. In most cases there were never really any assets to begin with. This is why often chapter 7 bankruptcy cases are no-asset-cases, in which the largest if any assets at all are the individual retirement accounts the filers have through their employers. Even if there are assets that can be liquidated they’re often overlooked due to the exempt assets rules.

There will be cases in which the filer has a significant amount of non-exempt assets and there are legal ways of converting non-exempt assets into exempt assets, these circumstances are unique and this will not apply to everyone who has a lot of assets. This can only be done by a seasoned bankruptcy attorney so do not make any assumptions on your own, this can be very serious if it is determined that you tried to purposely defraud or hinder the proceedings. If this is the case for you, then take this very seriously and talk with a bankruptcy attorney because bankrutpcy excemptions are a very important part of the process and most people simply do not have the knowledge to do this correctly.

Should you include your spouse in your bankruptcy petition?

Situations like this are very common, typically one spouse for one reason or another ends up accumulating a mountain of debt or by other circumstances one spouse simply takes on the responsibility of debt alone. Whatever the reason may be for you, it’s probably puzzling you how to go about being married filing bankruptcy alone. It all really depends on who owes what, who owns what and what state you’re in.

Either spouse can file bankruptcy alone in any state, however you have to understand what the laws are in your state as far as how jointly held property is seen. For example California and Nevada are considered community property states. Meaning that in these states whether a married person files alone or with their spouse all community property is considered to be part of the bankruptcy estate, which is liquidated by the bankruptcy trustee to pay creditors before a bankruptcy discharge can be granted.

Typically the filing spouse’s own individual properties or assets will be liquidated first to repay creditors then the non-exempt assets within the community estate will follow. These are properties such as real estate, vehicles and other tangible assets like jewelry and furniture, savings accounts, stocks, and any other assets or earnings that were acquired during the marriage.

States that do not follow community property laws are known as common law states, where only property that is held jointly can be liquidated to pay creditors, if the non-filing spouse holds individual assets he/she does not need to worry about losing anything. Needless to say, community property states certainly complicate the process for any married person needing to file bankruptcy as an individual.

Common mistakes made by individual bankruptcy filers

Once bankruptcy filers become aware of how community property and common law work, they often believe they can get around the system by transferring property to the non-filing spouse or someone else in the family. This is a big mistake and it’s not worth attempting. Should the bankruptcy trustee suspect that to be the case, your bankruptcy file can be seen as fraudulent and all assets may be included in the estate or in other cases the case could be thrown out and the filers may end up paying a fine. Under the new laws, jail sentences are also given if deliberate falsification or fraud is proven. These mistakes are mostly common among pro-se filers, or people who file without a bankruptcy attorney.

Often the non-filing spouse will worry about the effects that bankruptcy will have on their credit. The law states that each individual has a separate credit record and the filing of one spouse should not effect the other. Although it’s also important to consider that debt that is held together, such as mortgages and joint credit card accounts can be an issue. For the non-filing spouse, this could result in negative credit entries if the accounts are in default. This can also mean that the non-filing spouse can now be seen as the person responsible for the debt since the other is under bankruptcy protection.

This is an issue best explained by a bankruptcy attorney, if your case resembles what’s explained here, you should consult a professional at once and get a good and clear picture about how your case will be seen by the bankruptcy court.

You should not pay for a Bankruptcy Consultation, most law offices will give you 30 minutes to an hour of time to explain the process and what you can expect. You can begin your free bankruptcy evaluation here.

Not everyone can be a credit expert, most of us are only content with a decent credit score and often don’t bother to find out enough about how credit works, much less what it takes to repair credit. This credit thing can be complicated but like anything else it can start to make sense once you understand what you need to do to steer clear of trouble and to seek appropriate help when you do find yourself in trouble. Here’s a short list of FAQs about credit repair that I think will shed light on some of the most common questions I’ve found people to have doubts about:

What is the Fair Credit Reporting Act all about? The FCRA is a federal law that governs the collection, reporting, and use of consumer credit information. What does this mean to you? These are specific regulations that are in place to protect consumers, without them you’re basically at the mercy of your creditors and credit bureaus. The specific code can be found here.

Does credit report really work? Yes, when used correctly. And it is absolutely essential that you do all you can within your powers to make sure that your inaccurate negative entries are fixed. Ignoring them will eventually affect your quality of life and no one else has the responsibility of making sure it is accurate but you. Credit repair works and it works particularly well when you make use of the right resources. For more information read the previous posts on credit repair.

Can I remove negative entries from my credit report on my own? You can most certainly repair your credit on your own. You need to begin by first getting a copy of your credit report from all three bureaus, you’ll find often that they differ by a lot and sometimes the inaccuracies do not spread across the board. Review all entries that you feel are inaccurate and begin your dispute process by contacting the credit bureaus through their dispute systems listed here:

TransUnion Credit Disputes 1-800-916-8800

Experian Credit Disputes 1-888-397-3742

Equifax Credit Disputes 1-800-685-1111

You may find that depending on the seriousness of the credit inaccuracies, some of these negative entries will prove to be more difficult to correct than you expected. The process may take longer or you may be denied by either the creditor that reported the entry or the credit bureau.

If I fail in my dispute with the credit bureaus, should I contact the creditors directly? Of course it won’t hurt to try, however you’ll need concrete proof that their negative entry was wrong. Bringing up an argument that you remember making the payment on time will not cut it. Creditors will listen but they won’t volunteer help, they’re looking for concise proof that they were wrong and since consumers don’t know the law and don’t have the resources some credit repair agencies have, they’re not likely to be as successful in these credit disputes.

Can credit repair agencies really help? Yes and no, that all depends on the status of your credit report and the circumstances around your inaccuracies. I’ve mentioned throughout credit posts on this blog that if you have accurate negative entries in your credit history, you are probably not going to succeed at removing them from your credit report. However, when it comes to the entries that are truly inaccurate, you have some options and the most effective one to take is to hire a credit repair agency.

With that said, you now have a new problem, and that is to find a reputable and honest credit repair agency to handle your case. It should not surprise you that the field of credit repair is filled with scams. Anyone can pose as a credit repair agency, get a catchy name and throw a website together and offer you their service. Making sure that you’re dealing with legitimate companies will save you time, money and a lot frustration. Once again start your search with the BBB and make sure that your candidates are legit.

How long can negative entries remain on my credit report? There are varied opinions on this issue, I have heard them all. It goes from 7 to 10 years, depending on the type of entry it is. For example a defaulted loan account will remain as such for 7 years even after you pay it off, whereas a bankruptcy will stay on your credit report for up to 10 years. Meaning that these periods can change for a variety of reasons that in fact only credit bureaus know about. It probably would have to do with an increasing number of consistent positive entries in your credit history that would eventually bump any old negative entries off the map.

How long will it be till the credit bureaus respond to my dispute? The Fair Credit Reporting Act states that credit bureaus shall respond to you withing 30 days of having received your dispute letter. Just remember that the credit bureaus can exercise the right to use their own discretion in the consideration they give your dispute. Because credit bureaus deal with so many frivolous requests and the dispute system is heavily abused by scam artists and illegitimate credit repair companies, they can simply deny process of the dispute without specifying a reason why.

Will removing negative entries really raise my credit score? That’s the general idea, however don’t be surprised if your score remains the same for a while. Despite what some credit repair companies may claim, credit repair may not cause the immediate results you were hoping for. The computer systems that calculate your FICO score work with the available data and time to determine your overall score. If you have several negative entries in your credit report but only some of them are inaccurate your score will probably climb a little slower as well after you repair them.