What is exempt property in a Chapter 7 Bankruptcy?
Property Needed for Your Livelihood
Colorado, like every other state, has laws that protect certain property from creditors. The law is designed to help you keep the property that you need for your livelihood. On the day that you file your case, a “bankruptcy estate” is created. That estate is subject to the control of the bankruptcy trustee. His job it is to sell your nonexempt property for the benefit of the creditors.
Like a creditor with a judgment against you, the bankruptcy trustee cannot take away the property you own that you need to survive. This property is called exempt property and the law protecting that property is often referred to as the exemption codes.
House and vehicles:
- Your home. In Colorado, the homestead exemption allows debtors to keep their home if their positive equity interest is less than $75,000. If your or your spouse is either dependent or over the age of 60, then the exemption is $105,000. Call us to discuss the exemptions amounts that can be used for your home.
- Your car. In Colorado. the vehicle exemption allows debtors to keep their vehicles if their combined positive equity interest in the vehicles is less than $7,500. If you or your spouse is elderly or disabled, then the exemption is $12,500. (Call our Boulder Chapter 7 bankruptcy lawyers to discuss the exemption amounts that can be used for your vehicles.) If you do keep the vehicle, however, you will have to reaffirm on the loan.
Other types of exempt property include:
- Up to $3,000 in household goods.
- Up to $2,000 in clothing.
- Up to $2,500 in jewelry.
- Tools you use in your business up to $30,000.
- Call our Chapter 7 attorneys to learn how these and other exemptions apply to your property.
What happens to non-exempt property?
While most people who are ready to file bankruptcy have nothing but exempt property, some debtors will have non-exempt property in their possession. We often see debtors with vehicles that have more value than the exemption or a vehicle with a loan that is so small the debtor has more equity than the exemption. Debtors may also have savings, stocks or trust accounts in their name. Occcasionally debtors will own a 4 Wheeler ATV, camper or extra vehicle.
Our job as your Boulder bankruptcy attorney is to help these debtors convert these items to exempt property either by selling the property before filing or finding an exemption code that can protect it. However, the need to file may be pressing and these debtors are not able to protect their non-exempt property. They are willing to lose it in exchange for discharge of their debt and immediate protection from creditors.
Non-exempt property that has little or limited value is often ignored by the trustee. For example, many of us have an old lawnmower or various tools in the garage. We may also have old bicycles, televisions and computers. Trustees rarely take any interest in this property because the cost the trustee would incur to conduct a sale of these items usually exceeds the property’s value. This property is deemed to have no liquidation value.
Nonetheless, you must disclose all of your property so that we can file a thorough and honest petition that will not be subject to dismissal.
What about my checking and savings accounts?
As explained above, on the day that you file your case, a bankruptcy estate is created. The estate contains all of the property you have in your possession at that moment. Because cash and money you have is not exempt property, the money in your accounts is subject to the trustee’s control and he or she can take it. Exempt accounts that cannot be taken include your ERISA qualified retirement accounts and accounts where you are merely a signer and not an owner. Nonexempt accounts that can be taken include, savings, checking, Paypal, Certificates of Deposit, Money Market, stocks, bonds, etc.
We will work closely with you to time the filing when your accounts have less than a total of about $100 in them. There is no exact number that trustee’s ignore, but we have learned it is safest to have no more than this amount on hand in your accounts when you file. If you do have significant money in your accounts, the trustee will see it when you bring the required bank account statements to the 341 Hearing. At that moment, the trustee may ask for the money and give you but a few weeks to produce it. Our Chapter 7 lawyers will work to help you convert this kind of asset into categories that or protected so the trustee cannot take the property.
What about Tax Refunds?
Even though you may not have received your tax refund at the time you file bankruptcy, the trustee can demand that money when you do receive it. For example, if you file in the early part of this year, the trustee may ask for all of the tax refund you receive for the prior tax year. During the early part of the calendar year, we work closely with our clients to put off filing bankruptcy until the refunds are received and converted to exempt status. However, it is often necessary to file before the refunds are received and these clients simply plan to turnover the refund to the trustee.
As the year progresses beyond approximately May and June, most tax refunds have been received and long since spent on living expenses. After this time, trustees usually do not pay attention to refunds.
However, toward the end of the year after early August, trustees will begin asking for tax refunds again. Technically, they can ask for a portion of the current year’s refund that you will receive the following Spring. But they are only entitled to the portion of the refund you will have become entitled to up to the day that you file. For example, if you file on September 1, you will have worked 2/3 of the year, thus only 2/3 of your refund you receive in the Spring of the next year can be taken by the trustee. The rest is yours.
Our trusted bankruptcy attorneys will work carefully in your particular situation to maximize the protection of your tax refunds.
What about money that is owed to me?
If you are owed money at the time that you file your bankruptcy, even though that money hasn’t been received, it will still be property of the bankruptcy estate. This is called an “account receivable” and a trustee may keep a case open until the money is finally paid to you so he or she can take it. Often times, however, this money may be exempt, such as unpaid child support or alimony or an unpaid settlement for bodily injury or victim restitution. We will help you predict whether a trustee would take interest in your accounts receivable.
Can I transfer property out of my name then file bankruptcy?
Prefiling transfers of property are subject to rigorous scrutiny by trustees. Remember his or her job is to find property for the benefit of creditors. If you have non-exempt property in your name prior to filing and transfer it to a friend, family member or anyone else during the 2 years prior to filing bankruptcy, the trustee may refer to this as a “fraudulent transfer.” The trustee can demand that asset or its value be paid to him.
If you do have property that is non-exempt and of considerable value, the best way to get rid of it and still file within 2 years is through a bonafide sale for fair market value. You must then use the proceeds to purchase exempt property, for example, otherwise you’ll have nonexempt cash on hand.
Summarily, you must receive compensation and give away your interest in the property. In other words you cannot hide your property. If you do and the trustee discovers this transfer, you may be subject to criminal penalty and a denial of discharge.
Do not risk what you cannot afford to lose. The $4,000 motorboat you give to grandma is not worth the consequences of getting caught trying to hide it.
Contact a Colorado bankruptcy attorney today. Attorney Heath Isaacs will put his decades of experience focused solely on bankruptcy to work for you.