How to Protect Your Assets During a Bankruptcy

Most Long Island residents who are under financial duress look for relief. Some need a fresh start and some need a financial plan to prioritize debt, but most importantly, people need help. One such way to get assistance is by the protection of the bankruptcy laws. For an individual, there are two chapter filings that can provide relief, and they are Chapter 7 and Chapter 13.

To provide a sense of comfort, the term bankruptcy does not necessarily mean that you lose everything. This is a common fear, however, there are certain exemptions that are in place that allows you to protect your property. These exemptions allow certain items to be protected against being sold in the repayment to creditors. These exclusions vary from state to state and is totally dependent upon where you reside. Regardless of the state that you live in, an attorney is necessary who will work on your behalf. The Law Offices if Adam C. Gomerman are licensed in the State of New York and are happy to speak with any Long Island resident regarding bankruptcy and the oftentimes confusing questions surrounding asset protection and bankruptcy exemptions. 

In certain states, the person filing has the option to select between two systems: a state exemption system and the federal exemption system. Regardless of the system that you select, they are specifically designed to protect a specific asset such as:

• A residence
• A vehicle
• A specific piece of personal property
• A specific dollar amount of a protected asset
• A requested unspecified exemption

In addition, regardless of the bankruptcy system that you select, all exceptions of that specific system is all that a person is allowed to protect. Consequently, be aware that exemptions are used differently dependent upon the chapter filing.

Chapter 7 Bankruptcy Asset Protection

Chapter 7 bankruptcy is most commonly associate with the liquidation whereas the trustee will repay all creditors to the fullest extent. All of an individual’s property is considered to be a part of the bankruptcy’s estate less the exceptions. Upon selling the qualified property and acquiring any funds, creditors receive their portion at the direction of the court.

Regardless of the system for exemptions, whether federal or state, that you select, you more than likely will be able to maintain equity in your personal residence, vehicle, and other personal property. Some states allow an unlimited homestead exemption which prevents your residence from being liquidated. In general, clothing and certain goods are totally exempt unless they have significant value.

On the other hand, if you cannot fully exempt an asset, the trustee has the option to abandon it due to the excluded amount being slightly less than the overall value of the property. It is not worth the sale of an asset if the value of the item does not significantly exceed the exclusion. Therefore, if there is not enough revenue generated from the sale, you will be allowed to keep the asset. A competent lawyer would keep you abreast of all activity pertaining to your filing. If there are any discrepancies with the trustee, your attorney will have your information to support any legal arguments that are in your best interest.

For example, an attorney files a Chapter 7 on your behalf and provides all pertinent information to the trustee. The trustee assesses all equity in all assets and decides whether to sell it. So, if you owe $10,000 on a $20,000 car, the trustee must pay the $10,000. In the same example, if the vehicle is due an exemption of $10,000, the trustee will not sell the vehicle to satisfy any debts to creditors. Consequently, if the exclusion was $5000, the trustee will sell the vehicle and pay the creditor $5000, pay you $5000, and use the remaining $10,000 to satisfy other creditors.

Chapter 13 Bankruptcy Asset Protection

When filing a Chapter 13 bankruptcy, you having the ability to keep your property and being able to reorganize all debt in order to repay it within a 3 to 5 year period is key. Repayment is based upon exemptions, but priority and secured debts must be paid in full. Unsecured debt that is considered to be nonpriority does not have to be paid in full, but the value of certain nonexempt assets will determine the monthly payment that must be directed toward non-priority unsecured creditors.

Keep in mind that the trustee has no interest in selling your nonexempt assets to satisfy creditors, but you must pay the portion you cannot exempt prior to your plan being confirmed while on your way of obtaining a discharge. The objective by doing this is to ensure that your creditors are not left in a worse position because of you filing Chapter 13 versus a Chapter 7 bankruptcy.

For example, your lawyer chooses to pursue a Chapter 13 on your behalf and your income allows you to pay $2000 per month. The priority creditors will be due about $1000 which leaves you a remaining $1000 to satisfy any unsecured creditors. If your nonexempt assets are valued at $20,000, this amount will be due any unsecured creditors which can be satisfied with the available $1000 of income within a 40 month window.

On the other, if your monthly income is $500 and the priority debts total $400, there remains only $100 to pay any unsecured creditors. If your nonexempt assets are valued at $10,000 and you have 60 months to pay that $10,000 to unsecured creditors, then it would be deemed by the court to view your income as insufficient which means that you would need to have a significant increase in your income to satisfy any priority creditors before the plan (reorganization) is confirmed by the courts.

Conclusion

Identifying a qualified Long Island bankruptcy attorney with whom you can trust to guide you properly during the process of your filing will lift a heavy burden off of your chest. You must trust somebody to work on your behalf due to already being in a stressful situation. A competent lawyer can help you decipher the complex information that is contained within bankruptcy laws. The laws are designed to work the creditor and debtor. While the process is to discharge all debt, it is more important for you to get a fresh start. To speak with an attorney today regarding your bankruptcy related questions, contact The Law Offices of Adam C. Gomerman today.