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FAQ'S

Monday, September 12th, 2005

by Theodore Sliwinski, Esq.

Covered in this Article:

• What are my bankruptcy exemptions?
• In New Jersey what property can I retain?
• What will happen to my home and car If I file bankruptcy?
• Can I own anything after bankruptcy?
• Can I protect some assets, such as a vacations home, by transferring the home to one of my relatives before I file for bankruptcy?
• Will a debtor lose his retirement account(s) or payment(s) from social security?

1. What are my bankruptcy exemptions?

The bankruptcy exemptions allow a debtor to protect property from the reach of the trustee and from creditors. The federal exemptions can be found in my site. The amount of the exemptions change every few years. The exemptions are increased on a yearly basis to allow for inflation.

2. In New Jersey what property can I retain?

In a chapter 7 case you can keep all property which the law says is “exempt” from the claims of creditors. New Jersey exemptions provides list of the exemptions available for New Jersey. To determine whether property is exempt, you must taken into consideration several factors. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement. You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 which is your equity if you sell it.

While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.

2. What will happen to my home and car if I file bankruptcy?

In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt.  Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13.

However, some of your creditors may have a “security interest” in your home, automobile or other personal property.  This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt.  Bankruptcy does not make these security interests go away.  If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.

There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth.  In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.

3. Can I own anything after I file for bankruptcy?

Yes!  Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.

4. Can I protect some assets, such as a vacation home, by transferring the home to one of my relatives before I file for bankruptcy?

Absolutely no way! At the meeting of the creditors, you will be asked whether or not you have transferred property within five years prior to filing. The trustee can cancel the transfer and recover the property for your bankruptcy estate. The trustee will then investigate to assess whether the transfer of the home was made in good faith. If the trustee discovers that you made the transfer with the intention of defrauding any creditor, you may be denied discharge and face charges of committing a fraudulent act.

In summary, a debtor must be very honest in the bankruptcy process. The bankruptcy trustees are becoming more vigilant all the time in trying to uncover bankruptcy fraud. Don’t play around! You certainly do not want to be the trustee’s next victim. Getting prosecuted for bankruptcy fraud is no fun, and it is “Not a nice thing!” Always be honest in the bankruptcy court. If you are not, then there is a very good chance that you will be severely punished for your deception.

5. Will a debtor lose his retirement account(s) or payment(s) from social security?

Generally, no. Retirement accounts that are ERISA-qualified are not considered property of an estate and cannot be taken. Social Security benefits are generally protected from assignment, or garnishment for debts in bankruptcy. The Social Security Administration’s responsibility for protecting benefits against legal process and assignment usually ends when the beneficiary is paid. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the “only” deposits into the account are direct deposits of Social Security benefits are “identifiable” and generally protected.

However, be advised that a trustee may require the debtor to repay more to the court to save the debtor’s home, if they have substantial equity in the home. A major issue in many bankruptcies is if the debtors can “slide into” a chapter 7, even when they have equity in the amount of $40,000 or more. Sometimes, the debtors can qualify for a chapter 7, and save themselves significant monies rather than filing for a chapter 13. Remember, filing a chapter 13 is much more expensive. The legal fees are much higher. Moreover, there is a 10 % trustee commission. There are no trustee commissions in a chapter 7. If the trustee believes that the debtor has a substantial retirement plan, or 401(K) plan, then he will require the debtor(s) to pay more to the court to save their home.