People are often concerned that they may have to give up their assets in order to qualify for bankruptcy protection. We are often asked, “Can I keep my things if I file for bankruptcy?” The short answer is yes…to an extent.
Part of filing for bankruptcy protection entails listing all of your assets: everything you own or is in your name: from your sofas to your CPAPs to your pets to your bicycles to your bank accounts. It stands to reason that if you are unable to pay your creditors and trying to get rid of debt, you should show what you have and/or own. All your assets are disclosed and shown in your bankruptcy petition. For most of these assets, a value is allotted: a “garage sale value.” In other words, what could you sell these items for at a garage sale? Your items are then categorized into household goods and furnishings, electronics, sports and hobby equipment, clothes, jewelry, etc. You are allowed to keep and protect property from creditors up to a certain extent or value, pursuant to statutory provisions commonly known as the exemptions. Each category has an exemption limit, and anything over that exemption amount would need to be further discussed, based on your particular circumstances. A Troy, MI chapter 13 bankruptcy lawyer can help you understand how your assets are valued, which exemptions may apply, and how your property may be treated during the bankruptcy process.
An exemption limit also applies to the equity you may have in the property. “Equity” is the difference between the value of the property and what you owe on it. For example, if you have a vehicle that is worth $2,000.00 and you owe $1,500.00 on it, the equity is $500.00. For a residence, if the fair market value is deemed to be $200,000.00 and the mortgage is $150,000.00, your equity is $50,000.00. The reason this is important is because, dependent upon the Chapter of Bankruptcy under which you seek protection from your creditors, there may be situations in which you must repay your creditors the amount of your equity that cannot be exempted.
In Michigan, there are the federal exemptions and the state exemptions, and whichever one is more beneficial in your particular circumstances would warrant further discussion. For example, per the federal exemptions, certain assets do not have a limit, such as retirement accounts and workman’s compensation claims.
Sometimes a client wants to retain and make payments on an asset that a Chapter 13 Trustee may object to. An extreme example would be if just prior to filing a bankruptcy case, a client purchased a luxury vehicle, such as a brand-new Corvette, for $90,000.00, with a $2,000.00 monthly payment. If the client proposes repaying nothing in the client’s unsecured creditors, and there are no extenuating or extraordinary circumstances to retain the asset, then the client would have an uphill battle to justify such a large car payment to the detriment of the unsecured creditors.
In conclusion, the retention of certain assets is generally allowed, and tailored specifically to your set of circumstances and what you are hoping to achieve by filing for bankruptcy protection. If you are considering bankruptcy and are concerned about keeping certain assets, contact Gudeman & Associates, P.C. to discuss your situation and learn about your available options.
