What Types Of Property Can I Keep

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What most people are concerned about when they come in to file a bankruptcy is what types of property they’d be allowed to keep through the bankruptcy process. It really depends on who you ask as far as what they were anticipating prior to the consultation. We’ve heard some pretty elaborate rumors that float around on what you do or don’t keep.

We’ve had people pretty convinced that the courts send someone to your home to itemize everything that you own (of course that’s not true). With the number of bankruptcies filed in this federal district which also happens to be defined by the state of Colorado, it’s just simply impractical to approach it that way. Primarily you list the major significant assets in your home anything you think that the state could possibly have interest in and as long as your house is filled with the same stuff that most of our houses are filled with (couch, bed, TV, maybe a computer or whatnot) those are going to fall within Colorado’s exemption limit meaning that they’re all protected and wouldn’t be taken away from you.

Another asset we get asked about fairly often is retirements. People have their 401ks, their Perez, their 401Bs. There’s several out there but most of them come from federal ARISA statue which governs retirement programs as long as it’s under ARISA and all of those certainly would be. You can have as much money in your retirement plan as you choose to and have it perfectly protected within a bankruptcy.

Most everybody especially in the greater Denver area or maybe a little beyond has to have a car to get to work or to get their kids to school. Of course, they are naturally concerned whether or not they can keep their vehicle in a bankruptcy. By and large the answer is YES. There are some rules on it so there could be some instances where cars could be in danger but buy in large it’s a very rare event that you would see somebody with a car they wouldn’t be perfectly protected in a bankruptcy.

The basic rules on vehicles are that you have two parties who can conceivably have an interest in the vehicle in a bankruptcy. You have the bankruptcy trustee and then you have the auto lender if the car’s financed. So with the bankruptcy trustee what they’re interested in looking at is whether or not this vehicle has any we call a non-exempt equity. Any equity that we can’t protect for the filer that could possibly be taken by the bankruptcy court sold auction and then have the money distributed to creditors. The rules on that are fairly straight forward. If you are under the age of 60 and not disabled then you are allowed $5,000 vehicle exemption. So you are allowed to have $5,000 worth of equity in your car, equity real quick definition of it is the value of the vehicle you can see something like Kelly blue book to give you a pretty quick rough idea of the value. Less the amount of leans against it and so the difference between those two numbers would be your equity. Generally if it’s a financed vehicle and there wasn’t a large amount put down on the car there wouldn’t be any equity. You have a loan which hasn’t interest rates so it doesn’t reduce but then you have on the vehicle which is depreciating asset so of course overtime its value is going to go down that usually results in no equity on the vehicle.
If you have no lender, well then you have nothing to subtract. You just look at the value of the vehicle and as long as that is less than the $5,000 limit then you’re okay.

Now there are couple of instances where that you can increase the exemption limit on the vehicles. If you’re over the age of 60 the $5,000 limit becomes a $10,000 limit. Also, if you’re disabled, the $5,000 limit again increases to a $10,000 limit. And this isn’t just a limit for one vehicle. You know if you have no leans limit on vehicles but say you had 3 of $1,000 vehicles, that’s fine as long as the total amount of equity between in all vehicles doesn’t add up for our individual filer under the age of 60 who is not disabled. As long as it doesn’t add up more than $5,000 you’ll be perfectly fine with that.

Now then if you have joint filings, which is husband and wife generally, you can double those exemptions and it’s not just $5,000 a piece, it’s $10,000 for all of vehicles that are housed in that filer’s household.

With houses we follow a pretty similar type of pattern. It’s all based on equity and the lender. So just like a vehicle payment, as long as that car lender is receiving their payment, they’re perfectly happy with allowing you to keep making their interest earning payment and keep the car. They may send what’s called reaffirmation agreement in some point but the way those usually work out in practice is that most lenders aren’t very dogmatic about it. There are a couple, a few lenders out there that do actually require an reaffirmation agreement to keep property. But essentially all that is signing an agreement that says that you’re going to continue paying for the vehicle or the home the same way you pay for the vehicle or the home. The plus side to signing it is that some lenders nowadays won’t continue to report those payments positively to the credit bureaus if you don’t. So if you’ve signed it and those payments continue to report properly as a positive reporting it’s just helps you out that much more rebuilding your credit after the bankruptcy’s been filed.

Like everything it’s not all rosy. There’s a downside signing reaffirmation agreements. The downside being is that it plucks that loan outside of the bankruptcy’s court protection. So, in an example where you filed the bankruptcy you had a car that was financed and you always made the payments, never been late on one, but then all of a sudden, you’ve filed the bankruptcy, and you continue to make the payment but maybe 6 months or 8 months after the bankruptcy was over something happened. You got sick, got injured, a lot of job layoff, or something’s happened that prevents you from being able to make those vehicle payments going forward and the car’s eventually been repossessed.

If you’ve sign the reaffirmation agreement and that agreement has been approved by the bankruptcy court, then that loan is no longer under the bankruptcy court’s protection. That lender who repossessed the vehicle long after the bankruptcy was over could still come after you for what we call a deficiency judgment – the amount of the loan that wasn’t paid from the repossessed vehicle being auctioned.

Now if you haven’t signed a formal reaffirmation agreement (that agreement hasn’t been approved by the court) you don’t have that problem. The loan remains under the bankruptcy court’s protection under the discharge order and they can certainly come and take the car, repossessed it once the payment have stopped being made. However, what’s left of the loan after the repossession, after the vehicle is auctioned and the proceeds applied to the balance of the loan, that deficiency amount isn’t unsecured deficiency amount just like a credit card or medical bill might be. And so that would be something that would be discharged for you and you wouldn’t have following you around after the bankruptcy.

Now with houses, it’s very similar to the formula we are talking about with cars. The only main difference here is beside from the obvious (that it’s a house not a car), is that we are generally talking about larger numbers. And so to accommodate for that, we’ve got a larger amount of exemption that we can apply to it. So whereas with vehicles, if you are under 60 and not disabled, you’re allowed to $5,000 exemption. With homes, if you are under 60 and not disabled, you’re allowed a $60,000 exemption. Now if you are over 60 or disabled or both then you are allowed to exempt $90,000 worth of equity in your home. In Colorado, it’s unfortunately pretty rare that we see that – a house with more than $60,000 or $90,000 worth of equity (actually I had one in a consultation just yesterday) that was over those limits, it doesn’t prevent them from filing. It does have some impact on the type of chapter 13 that they can file but they were still allowed to file a bankruptcy and get their debts reigned in without risking the loss of their home. But it did eliminate the ability for that person to file a chapter 7 because there was a non-exempt equity that we just simply could not protect that point.

Most of these issues with secured loans run a very similar pattern where it simply becomes a question of determining the amount of equity, looking at the statutes to figure out if your equity is protected and then just making sure that the payments that are going to those secured lenders are on time and will continue to be so if the person intends to keep those properties.

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  1. Who Qualifies For Bankruptcy?
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