Keeping Personal Property When Filing Bankruptcy
You might have seen the classic Steve Martin movie The Jerk. Martin’s character and his girlfriend have become incredibly rich but are about to lose everything. Martin says “We might lose all our stuff but we’ll still have each other. “ She says “But I want the stuff!”
Fortunately, state and federal law allow debtors to keep significant personal property (a lot of stuff) when a Chapter 7 bankruptcy is filed. After a home, the biggest purchases for most people are their motor vehicles. Most people buy vehicles with loans and vehicles depreciate significantly as soon as they are driven off the lot. This means there is usually very little equity in a vehicle because the bank has a lien for the money owed. Federal exemptions currently allow a debtor to keep up to $3,670.00 in equity in one vehicle.
Personal Property You Can Keep
Similarly, Federal exemptions allow debtors to keep the following:
- $12,250.00 in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments
- $1,550.00 in jewelry, any other property valued up to $1,225.00
- $11,500.00 of any unused homestead exemptions
- $2,300.00 in value in any implements, professional books, or tools, of the trade.
Note that the value of all such items is liquidation, depreciated, yard sale value. In other words, no matter how much you value that classic Chevy you always wanted to restore but never did, it’s just junk to the Trustee. That’s good for you in bankruptcy.
The same is true with your priceless Hot Wheels, Star Wars, and Cabbage Patch Kids collections. The value is only what you can dump it for today, not what you paid for it or would like to sell it for. Your granddad’s civil war rifle however, may be worth much more than you realize.
Social security benefits, IRA’s, 401k’s and pension benefits are also exempt.
Dogs are considered property in the State of Washington, while cats are not. Cats must have lobbied for that rule. In any case, your highly trained hunting dog, or your prize winning show cat or stud horse may very well be valuable non-exempt property
Household goods are specifically itemized in the Bankruptcy Code to include:
“clothing, furniture, appliances, 1 radio, 1 television, 1 VCR, linens, china, crockery, kitchenware, educational materials and educational equipment primarily for the use of minor dependent children of the debtor, medical equipment and supplies, furniture exclusively for the use of minor children, or elderly or disabled dependents of the debtor, personal effects (including the toys and hobby equipment of minor dependent children and wedding rings) of the debtor and the dependents of the debtor and 1 personal computer and related equipment. “
Some of the terms are outdated, such as the VCR, but you get the idea. Congress decided that these items were part of the minimal American Dream; wedding rings, toys and furniture for children and television. Anything beyond these items would have to fall under another exemption.
Household Goods You Can’t Keep During Bankruptcy
Back to Congress. The Bankruptcy Code does not consider the following as Household Goods:
“works of art (unless by or of the debtor, or any relative of the debtor), electronic entertainment equipment with a fair market value of more than $650 in the aggregate (except 1 television, 1 radio, and 1 VCR), items acquired as antiques with a fair market value of more than $650 in the aggregate, jewelry with a fair market value of more than $650 in the aggregate (except wedding rings); and a computer (except as otherwise provided for in this section), motor vehicle (including a tractor or lawn tractor), boat, or a motorized recreational device, conveyance, vehicle, watercraft, or aircraft.”
In some situations, a debtor can convert non-exempt property to exempt property before filing bankruptcy. For example, non-exempt cash can be used to purchase exempt household goods. There are many more specific exemptions and the debtor may also be required to use state exemptions instead of federal or choose between state and federal. Some of the exemptions are doubled for a married couple, others are not.
Don’t Try To Answer These Bankruptcy Questions Alone
A debtor needs an experienced bankruptcy attorney to help sort through these rules and preserve as much property as possible under the circumstances.
A half an hour free consultation with an attorney who specializes in bankruptcy will give you a much better idea of how much stuff you can keep and how to move forward with your life after bankruptcy relief.