One of the more common questions raised by individuals who are considering bankruptcy is “what will I be able to keep?” In a Chapter 7 case, the bankruptcy court appoints a Trustee who reviews the bankruptcy forms to see if the debtor properly exempted (protected) all his assets.
In California, there are two sets of exemptions that the debtor can choose from. He cannot take portions of one exemption type and portions of the other. The debtor must choose one or the other. The Code sections involved are sections 703 and 704 of the California Code of Civil Procedure. Debtors with significant equity in their home will usually choose Section 704, which offers a greater home equity exemption, but less protection for most other assets. Debtors who have no equity or rent, will usually choose Section 703, which offers greater protection for most assets as well as a Wild Card exemption that helps protect bank accounts and stock accounts, if any.
In the bankruptcy forms, the debtor lists all his real property and personal property assets, including assets he expects to receive but does not have yet (such as a tax return or an unpaid commission). Then, on a separate schedule, the debtor lists all the exemptions he is entitled to based on the exemption code he has chosen. If the available exemptions can protect all his assets (which is usually the case with Chapter 7 debtors), he gets to keep all his assets, and the Trustee does not liquidate anything.
One thing debtors often do not realize is that the Trustee will not try to liquidate an asset that has a secured loan with a balance that exceeds the value of the asset. For example, if the debtor has a car worth $10,000, and a car loan secured by that car with a balance of $12,000, the car does not need to be exempted because the Trustee is not going to sell a car only to pay off the secured lender, who is already protected by the security arrangement.
It is important to speak with an attorney before filing bankruptcy to make sure you will be able to protect your assets if you file Chapter 7 bankruptcy.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.