If I file for Bankruptcy Can I keep my House and Car?
One of the most common questions we receive is; can I keep my home and/or vehicle if I file for bankruptcy? Many people are in need of financial relief through bankruptcy but hesitate to file or learn about filing because they incorrectly assume they will lose an asset, such as their home or car. The general goals of bankruptcy are to provide the filer(s) a fresh financial start and to protect your assets. To that aim, the bankruptcy laws have a clearly defined series of exemptions which protect your property from creditors.
Although incorrect, the assumption that one loses their assets when filing bankruptcy is understandable. I get it, most people do not want to think about bankruptcy, can’t spell the word bankruptcy and their exposure to the word bankruptcy is from a prime-time game show involving a spinning wheel. Currently, our bankruptcy exemptions enumerated in 11 USC 522(d) are quite generous and offer bankruptcy filers great protection while seeking financial relief. Below you will find a comprehensive list of bankruptcy exemptions for your review.
Firstly, let me provide an example of how bankruptcy exemptions operate with respect to a home. In this example, my assumption is that the filer is single and has a mortgage in the sum of $100,000 and the home value is $135,000. The instant example also applies to filing in Pennsylvania and New Jersey where Sadek Bankruptcy Law Offices practices Bankruptcy and related areas of law.
Take the $135,000 house value and subtract 10 percent as a cost of sale for a figure of $121,500, then subtract the mortgage in the amount of $100,000 from the $121,500 for a figure of $21,500. In this example the subject residence is deemed fully exempt by the bankruptcy court because under 11 USC Section 522(d)(1) each deeded owner may exempt or protect up to $27,900 of equity.
Let’s take this a step further and say that after the applicable 10% cost of sale reduction and bankruptcy exemption there is still $10,000 remaining in non-exempt equity. If nonexempt equity exists, then the filer would repay their creditors back based on the non-exempt equity while retaining their home. If the filer has $30,000 of unsecured debt (credit cards, personal loans, etc), they would repay only the $10,000 based on the non-exempt equity back to their creditors through a Chapter 13 Plan. In the Chapter 13 Plan instead of a minimum payment outside of bankruptcy of approximately $750-$900 for 10-15 years towards the $30,000 in debt, the filer would keep their home and reduce their monthly payments to as low as $225 per month over 5 years while bolstering savings and their credit scores. In this case although the filer is paying something back to their creditors, they are reducing the years of repayment, substantially reducing the monthly amount of repayment and bolstering their ability to save monthly. Further, if the filer does not incur any new debt in the form of credit card or personal loans, their credit score will continue to rise as well.
Although the above concept is difficult to read, it is most easily grasped during conversation. In fact, the first topic we discuss during an initial consultation is one’s assets, because I want to provide assurance right away that one’s hard-earned home, vehicle or other property will be retained, and the debt forgiven. Numerous times I have served as an expert witness on this very topic and welcome discussing it with you.
Of course, bankruptcy also allows filer(s) to surrender unwanted property. Often unwanted property such as an upside-down vehicle that is unreliable, an expensive timeshare that is not being used, a camper that was an impulse purchase or a home that is the money pit can all be voluntarily surrendered through bankruptcy without future financial obligation on the filer(s).
I hope this answers some questions you may have regarding your financial situation. To discuss if a bankruptcy is right for you and to review your situation please call 215-545-0008 or 856-890-9003 or click https://calendly.com/
2022 -2025 Exemptions (per person):
$27,900 of equity in your principal residence 11 USC § 522(d)(1)
$4,450 of equity your motor vehicle 11 USC § 522(d)(2)
$1,875 for jewelry 11 USC § 522(d)(4)
$14,875 for household goods, furnishings, appliances, clothes, books, animals, crops, musical instruments 11 USC § 522(d)(3)
$2,800 for tools of the trade 11 USC § 522(d)(6)
$14,875 in loan value, accrued dividends, or a life insurance policy interest 11 USC § 522(d)(8)
$27,900 for personal injury 11 USC § 522(d)(11)(D)
Retirement accounts such as a 401(k), 403(b) or 457(d) are fully exempt in bankruptcy. The federal bankruptcy exemption limit for IRA’s is $1,512,350
$13,950 for any property owned 11 USC § 522(d)(5)