PROPERTY YOU CAN KEEP IN BANKRUPTCY

housing-questionsIn a Chapter 7 Bankruptcy Case, all of a Debtor’s non-exempt property becomes the property of the bankruptcy estate and may be sold by the bankruptcy trustee. The sale proceeds are then distributed among the Debtor’s creditors.

In a Chapter 13 Bankruptcy Case, Debtors are generally permitted to retain all of their assets.

WHAT IS EXEMPT PROPERTY?

Under Federal and State exemption laws, certain assets are protected from collection by Creditors and from a Bankruptcy Trustee in a Chapter 7 case. In addition, exempt property is relevant in formulating a Chapter 13 Plan and calculating the required return to your unsecured Creditors.

WHICH EXEMPTIONS APPLY TO YOUR CASE?

An initial inquiry for all individuals contemplating bankruptcy is “Which State’s exemptions apply to my case?” Exemptions which apply to a Debtor’s case are based on the law of the State where the debtor was domiciled for the 730 days (2 years) prior to the date of filing the bankruptcy case. If you did not reside in a single State during the two years prior to filing, the exemptions are determined by the State where you were domiciled for the majority of the 180 days that preceded the 730-day period. Section 522(b). Section 522(b) also provides that if the effect of the domiciliary requirement is to render the debtor ineligible for any exemption, the Federal exemptions would apply.

WHAT PROPERTY IS EXEMPT IN UTAH?

The Utah Exemptions Act is set forth at the Utah Code – Title 78 – Chapter 23. The following is a brief summary of the most commonly claimed exemptions in this Statute. Please refer to the statute for a detailed analysis of the exemption(s) you seek to claim.

HOMESTEAD EXEMPTION. The Homestead laws in the State of Utah are presently very favorable to Debtors. Individuals can claim a homestead exemption in their primary residence in the amount of $20,000, and $5,000 if the property is not the primary residence of the individual. The homestead exemption is applied to home equity. Home equity is computed by deducting from the fair market value of the real property, the amounts of all outstanding mortgages and loans against such real property.

EXAMPLE: Your home is worth $100,000.00 and you have a first mortgage against your home in the amount of $40,000.00, and a home equity line of credit with a balance of $20,000.00. You therefore have $40,000.00 of equity in your home. If you are an individual debtor, your equity would not be fully exempt, and a Chapter 7 Bankruptcy Trustee would sell your property and distribute the sale proceeds among your Creditors. In this case, you should file Chapter 13. If you are filing jointly with your spouse, the full $40,000.00 equity in your home would be exempt and you may file Chapter 7 without losing your home.

The full text of the Utah homestead exemption laws is set forth at Utah Code Section 78-23-3.

courtPursuant to Section 522(o) of the new Federal Bankruptcy Code, Homestead Exemptions will be reduced by the amount a debtor put into the real property within ten years before the petition date using assets that would not have been exempt at the time of the transfer. Debtors will need to disclose transfers made within ten years to build exempt equity in homesteads. If Debtors make payments on mortgages from nonexempt assets, with intent to hinder, delay or defraud creditors, the principal reduction would be excluded from the homestead exemption.

VEHICLE EXEMPTION. Each individual is entitled to an exemption for one motor vehicle not exceeding $2,500 in value. If you are filing jointly with your spouse and you share one vehicle, you can each assert the vehicle exemption against the same vehicle. If the equity in the vehicle you share is not more than $5,000.00, it would be protected from bankruptcy. The vehicle exemption is applicable to motorcycles if the motorcycle is your primary means of transportation.

SUMMARY OF MOST FREQUENTLY CLAIMED EXEMPTIONS PERMITTED UNDER UTAH CODE 78-23-5: An individual is entitled to exemption of the following property (generally without regard to value):

one clothes washer and dryer, one refrigerator, one freezer, one stove, one microwave oven, one sewing machine, all carpets in use, provisions sufficient for 12 months for your family, all wearing apparel of every individual dependent, not including jewelry or furs, and all beds and bedding for every individual or dependent.

personal injury settlements, judgments, etc. accruing as a result of bodily injury of the individual, to the extent the proceeds are compensatory. (Wrongful death benefits may also be exempt – please review full text of statute.)

401K, IRA and other retirement benefits described in Utah Code Section 78-23-5(1)(x) and (xi) are exempt EXCEPT amounts contributed or benefits accrued by or on behalf of a debtor within one year before the debtor files for bankruptcy.

a burial plot.

health aids reasonably necessary to enable the individual or dependent to work or sustain health.

for other specific exemptions provided by this Code Section, and a detailed explanation of the specific exemptions summarized herein, please refer Utah Code Section 78-23-5.

SUMMARY OF EXEMPTIONS WITH DOLLAR LIMITATIONS:

money-houseAn individual is entitled to an exemption of the following property up to a total value of $500 ($1,000 per couple): SOFAS, CHAIRS AND RELATED FURNISHINGS REASONABLY NECESSARY FOR ONE HOUSEHOLD.

An individual is entitled to an exemption of the following property up to a total value of $500 ($1,000 per couple): DINING AND KITCHEN TABLES AND CHAIRS REASONABLY NECESSARY FOR ONE HOUSEHOLD.

An individual is entitled to an exemption of the following property up to a total value of $500 ($1,000 per couple): ANIMALS, BOOKS, AND MUSICAL INSTRUMENTS, IF REASONABLY HELD FOR THE PERSONAL USE OF THE INDIVIDUAL OR HIS DEPENDENTS.

An individual is entitled to an exemption of the following property up to a total value of $500 ($1,000 per couple): HEIRLOOMS OR OTHER ITEMS OF PARTICULAR SENTIMENTAL VALUE TO THE INDIVIDUAL.

TOOLS OF TRADE. An individual is entitled to an exemption, not exceeding $3,500 in aggregate value, of tools of his or her trade including tools, equipment, professional books, and other implements of a trade or profession. Therefore, if you utilize your tools, computer, etc. to perform your job responsibilities and make a living, they are exempt.

APPLYING THE NUMEROUS EXEMPTIONS PERMITTED UNDER STATE AND/OR FEDERAL LAW TO YOUR SPECIFIC ASSETS CAN BE QUITE COMPLEX. YOU MADE REQUIRE A BANKRUPTCY PROFESSIONAL TO ASSIST YOU IN THIS REGARD.

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