Do I get to keep my stuff if I file bankruptcy? Bankruptcy Exemptions
This is a big question for those that file bankruptcy. What happens to your property – your money, your personal items, your car, your house, your guns, your retirement, and everything else – when you file bankruptcy?
Like I mentioned earlier, one side of the scales of justice in bankruptcy hold your assets while the other holds your debts. What happens when your assets outweigh your debts, but you still need to file bankruptcy?
This is where the exemption laws come in to play. An exemption is a state or federal law that protects a minimum quality of life (or value) in the things you own or acquire in certain categories. As a debtor in bankruptcy, you get to assert the exemptions to protect significant amounts of your personal property. As an Oregon resident, you can choose between the federal exemption schedule or the state exemption schedule.
For instance, as a general rule, the court has no interest in your clothes, furniture, dishes, food, pets, housewares, wedding bands or other personal effects.
What the court is really considering are the items of a larger value that may be easily ‘administered’ (think sold) to pay back some portion of your debt. Items that the court will always be interested in reviewing are bank account and cash balances, equity in homes, equity in cars or multiple vehicles, other investment properties or real estate, stock and bonds (generally outside of a 401(k) or IRA).
For instance, the federal bankruptcy exemptions allow you to keep $23,675 of equity in your home if your file bankruptcy (11 U.S.C. 522(b)(3)(B)), while the Oregon exemptions allow you to keep $40,000 of equity in your home (ORS 18.395). Note that these numbers are higher if you file a joint case as a married couple. So if you have a $300,000 home, but you owe $290,000 on it, the bankruptcy court will not be interested in the equity in your home if you exempt the equity properly.
However if your home is worth $350,000 and you owe $290,000, this provides about $60,000 of equity. If you protect the $40,000 as you can as an Oregon resident, this leaves $20,000 of equity the court will be interested in to pay your debts.
What the court will be interested in, just as which bankruptcy is right for you, is based solely on the facts and circumstances of your individual case. Most cases result in nothing collected from the Debtor, but this is not always the case. Filing a Chapter 7 bankruptcy and being wrong about your estimate of what the court may take from you is one of the scary places a bankruptcy can turn toward.