Personal Property Losses in Bankruptcy

What Assets are Protected in Bankruptcy?

One of the biggest concerns of people considering bankruptcy is the thought of losing their belongings to their creditors. However, this is also one of the biggest misconceptions about filing bankruptcy. The US Bankruptcy Code provides exemptions to consumers filing bankruptcy, which allows them to keep certain property, based on the value of the property.

Whether you use the federal exemptions or the state exemptions depends on where you file the bankruptcy petition and where you have resided in the two (2) years prior to filing the bankruptcy petition. Sometimes, using one set of exemptions over another will be more beneficial to you, so it is important to do pre-bankruptcy planning. For example, the federal exemption for a vehicle is currently $2,400, whereas the Arizona state exemption is currently $6,000. This means that if you have a vehicle with equity of $4,000, you will want to use the Arizona exemption versus the federal exemption, if you are able to.

The federal exemptions, and most state exemptions, allow consumers to keep a certain amount of equity in a home, a vehicle, household goods and furnishings, certain jewelry, money in a bank account, and retirement funds. However, if you have property that does not fall under the exemptions that you are required to use, then that property is considered “non-exempt”. In Arizona, these items might be watercrafts, recreational vehicles, stocks and bonds, etc. In a Chapter 7 bankruptcy, any non-exempt property will be required to be turned over to the bankruptcy trustee to be sold at auction for the benefit of your creditors. In a Chapter 13 bankruptcy, you usually get to keep the non-exempt property, but you will need to pay into the plan the total value of the non-exempt property for the benefit of unsecured creditors.

In Arizona, some items to consider planning for are for tax refunds, funds in a bank account and wages that have been earned but not yet paid at the time of filing. Certain laws apply to each of these items, but there are ways to minimize the effect of the laws on these types of property and it usually comes down to timing the filing properly. A knowledgeable bankruptcy attorney will be able to assist you in determining the best time to file a bankruptcy petition for your situation. Mallory Powers is a co-contributor to this press release.