What Happens If I Have Too Much Cash When I File Chapter 7
You may be required to surrender cash if your cash exceeds the allowable exemption amount.However, if the amount of non-exempt cash is low, the Chapter 7 trustee may abandon the money if there are no other assets to sell. It depends on the amount of cash that is non-exempt and the amount you owe to unsecured debts.
Is There An Income Limit For Chapter 7 Bankruptcy
To automatically qualify for Chapter 7, your disposable income must be below the median level for your state. That number varies from state-to-state. If your disposable income exceeds the median in your state, you still may be able to qualify through a means test that includes looking at your income and reasonable expenses to see if you can get that number under the median income for your state.
Surrender The Property In Bankruptcy
The third option is to surrender your property. If you surrender the property, you are walking away from it and forfeiting it to the Chapter 7 trustee. Further, you are not allowed to defend a foreclosure action against your home after you receive the discharge. See bankruptcy case Failla v. Citibank . When you choose to surrender real or personal property, you will no longer be personally liable for the debt connected to that piece of property. The surrender option exists to give you a fresh start. Therefore, a creditor cannot later come after you for the amount discharged from your decision to surrender.
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Which One Should I Choose
Chapter 7 is, by far, the more popular form because its cheaper, quicker and effective at relieving responsibility for debt if you qualify! And thats a big if. You must pass a means test, meaning your disposable income is under the median income in your state. If you dont qualify for Chapter 7, you can always fall back on Chapter 13.
Debts That Are Difficult To Discharge In Bankruptcy
Student loans are notoriously difficult to discharge through bankruptcy it is only possible if you can demonstrate undue hardship to yourself or your dependents, such as being unable to maintain a minimal standard of living. In some cases, a court may discharge part, but not all, of your student loan debt. If student loan debt is a major reason for your considering bankruptcy, contact your loan servicer first and see if itâs possible to negotiate a repayment plan that would work for you. In the case of federal student loans, for example, several repayment plans are available.
You cannot have income tax debts discharged without a special exemption, which can only be obtained by petitioning the bankruptcy court and explaining why you deserve relief. So if you have income tax debts that you cannot repay, then you may be better off consulting with a tax attorney to discuss your options before filing for bankruptcy.
In the case of federal taxes, for example, the Internal Revenue Service can offer several alternatives to people who are unable to pay what they owe. One is an offer in compromise, in which the IRS agrees to accept a lesser amount. The IRS may also arrange for a payment plan, or an installment agreement, that will allow you to pay your taxes over an extended period of time.
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The Most Common Chapter 7 Exemptions
Even though every state will handle Chapter 7 bankruptcy exemptions a little differently, there are some common types of property that are usually protected. For example, your car, home, and clothes are usually protected. However, collectibles, investments, and vacation homes are less likely to be exempt.
Again, the Chapter 7 bankruptcy exemptions will vary by state and federal laws, so the following is only a rough guideline. For more specific information, research the laws in your area or consult with a bankruptcy attorney.
State Versus Federal Exemptions
Both federal and state bankruptcy exemptions exist. You’ll find the federal exemptions in section 522 of the Bankruptcy Code. These exemptions allow debtors to exclude certain property from the bankruptcy estate up to a certain dollar amount in value. In other words, filers keep exempt property.
Example. The Bankruptcy Code allows debtors to exempt up to $4,000 of value in one motor vehicle . .) If a debtor owns a car with $5,000 in equity, $4,000 of that equity is protected. The remaining $1,000 is nonexempt, meaning it becomes part of the bankruptcy estate.
States also have exemption lists. Federal bankruptcy law allows debtors to use state exemptions instead of federal exemptions. But ultimately, states decide whether a filer must use the state exemptions exclusively, or whether the filer can choose to use one list or the other .
Currently, sixteen states allow debtors to choose between state and federal exemption schemes. The remaining states require debtors to use the state exemptions. California is unique in that it allows debtors to choose from two different state exemption lists. Debtors using state exemptions may also use a list of exemptions called the federal nonbankruptcy exemptions.
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What Are The State Bankruptcy Exemptions
The Bankruptcy Code allows states to create their own rules for bankruptcy exemptions. States can enact state-specific exemptions for bankruptcy cases.
States may allow debtors to choose between state and federal bankruptcy exemptions or require debtors to use the state bankruptcy exemptions. Therefore, it depends on which state you live in whether you can use state bankruptcy exemptions or federal bankruptcy exemptions.
If you live in a state for 730 days or longer before filing Chapter 7, you must follow the state laws regarding bankruptcy exemptions. However, if you have not lived in the same state for at least two years before filing bankruptcy, you use the state laws of the state in which you resided for the greater portion of 180 days before the 730-day period.
The type and amount of exemptions under state laws vary. Some states have lower cash exemptions compared to other states. Many states have wildcard exemptions that can help you protect excess cash. It just depends on the state.
Committing Fraud Can Cost You
If you intended to defraud your creditors by making the transfer, the court might deny your bankruptcy discharge altogether .
If the bankruptcy trustee discovers that you transferred property out of your name within one year of the bankruptcy filing with the intention of defrauding, hindering, or delaying your creditors, he or she has grounds to object to your bankruptcy discharge. The trustee also has grounds to object if you destroyed, harmed, or hid your assets. As a result, it is never a good idea to transfer or conceal property in an attempt to defraud your creditors before filing for bankruptcy.
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Exchanging An Exempt Asset For Nonexempt Property
Most debtors in Chapter 7 bankruptcy don’t have enough money to buy back a nonexempt asset from the trustee. If you want to keep a specific nonexempt asset, you can offer to give the trustee one of your other exempt assets in exchange. In general, whether the trustee will agree to accept a different asset in exchange for your nonexempt property will depend on the value of the asset and the cost and labor associated with selling each type of property.
Exemptions In Chapter : Protecting Your Property
Chapter 7 bankruptcy is a liquidation bankruptcy. A Chapter 7 trustee must liquidate the debtor’s nonexempt assets and use the money to repay creditors. Most Chapter 7 cases are no-asset cases because most debtors can use exemptions to protect all their money and property.
If the debtor is not able to exempt all his property, the debtor can either pay the trustee the nonexempt value of the property or allow the trustee to sell the property. Once the trustee has the funds from liquidating the property, he or she will distribute the money to unsecured creditors in the manner the Bankruptcy Code requires.
Example. If a debtor’s car is worth $5,000 and the debtor exempts $4,000 of that value, the debtor can either pay the trustee $1,000 to keep the vehicle, or the trustee can sell the car and pay the debtor $4,000 while distributing $1,000 minus sales costs to unsecured creditors.
Find out more about how Chapter 7 bankruptcy works in Chapter 7 Bankruptcy.
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How To Keep Your House And Car
To keep your house or car, you must be up-to-date on your payments. When you purchased your house or car, you secured the loan by agreeing to give the property back if you failed to keep your balance current. If youre behind on secured payments when you file for Chapter 7 bankruptcy, a creditor can ask the court to lift the automatic stay and allow the bank to proceed with foreclosure. The bank can repossess your car 45 days after you file for bankruptcy, as well.
When youre behind, filing for Chapter 13 bankruptcy can be a better choice because you can catch up on your payments over a three- to five-year repayment plan. In fact, even with your arrearages, your monthly car payment will be lower because you can spread your remaining car balance over your entire repayment period.
Not all property in your possession is included in your bankruptcy estate because you dont have to exempt assets you dont own. However, if youre borrowing your neighbors tractor, youll want to account for it in your bankruptcy petition. Otherwise, you might accidentally find yourself in hot water.
Sep What Happens When A Lender Refuses To Repossess A Vehicle Surrendered In A Bankruptcy
Unfortunately there is a growing problem of lenders that are refusing to take possession of vehicles surrendered in bankruptcy. We see this not only with motor vehicles but we are also seeing this occasionally in housing. Because of low values some lenders are unwilling to to foreclose to the detriment of the neighborhood. The lender simply finds the cost of paying maintenance, insurance, and back taxes exceed the value of the home.
The same problem exists with lenders that will not repossess certain motor vehicles. This is true because sometimes the costs of repossessing, refurbishing, warehousing and reselling exceed the vehicleâs value. As an example, in 2002 I filed a Chapter 7 bankruptcy for an individual with a 1999 Honda CB750X Nighthawk motorcycle. In 2002 the client owed HSBC over $6,000 on the bike, and the wholesale value of the vehicle was about $3,500. He indicated that he wished to surrender the vehicle but HSBC refused to come out and take possession. So my client kept the motorcycle having it insured with only a liability policy and riding it occasionally when the mood suited him. Since the debt was discharged HSBC was not allowed to try and collect the money from him and they were unwilling to enforce their lien and take back the vehicle.
Raymond Schimmel is a bankruptcy lawyer in San Diego.
Boats & Bankruptcy: Can I Keep My Boat In Bankruptcy
A lot of people have asked the boats and bankruptcy question over the years. You can usually keep your boat during your bankruptcy case. Boats, however, are usually considered non-essential items in bankruptcy. Because they are considered non-essential in bankruptcy, certain factors may play into whether you will ultimately be able to keep your boat through the bankruptcy case.
Chapter 7 Wipes Out Mortgage Debt Not Mortgage Liens
A mortgage loan is a secured debt. When you entered the loan contract, the lender created a lien on the property by taking the home as collateral to secure payment of the loan. If you don’t pay your mortgage, the lender can enforce its lien by foreclosing on the house. It’s the lien that makes the mortgage a secured debt.
Even though your Chapter 7 discharge wipes out your obligation to pay back the loan, it doesn’t eliminate the mortgage lien. If it did, everyone could file bankruptcy and then own their homes free and clear. As a result, if you want to keep your home, you need to continue making timely mortgage payments .
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Secured Debt And Liens: What You Need To Know
A creditor is “secured” if it has the right to take a borrower’s property to satisfy the borrower’s debt. By contrast, an unsecured creditorsuch as a credit card or utility companyis limited to calling or sending letters asking for payment .
A lien can be voluntary or involuntary.
- Voluntary liens. Typically, secured creditors include mortgage companies and car lenders. In both transactions, the borrower voluntarily agrees to guarantee the loan by giving the lender an interest in the property purchased with the loan proceeds. For instance, when taking out a home loan, the borrower gives the lender a lien by agreeing to put up the house as collateral. If the homeowner falls behind on the payment, the bank can initiate a foreclosure proceeding, sell the home at auction, and use the proceeds to pay down the loan. A car buyer gives a lender similar lien rights when financing a vehicle. If the borrower doesn’t pay as agreed, the creditor can repossess the car, sell it at auction, and apply the money toward the loan balance.
- Involuntary liens. Not all liens are voluntary. If you fail to pay your income taxes, the federal government can take steps to obtain a lien against your assets without your consent . An unsecured creditor can do the same by filing a lawsuit and winning a judgment for the amount you owe. While most voluntary liens are limited to particular property, such as a home, car, or boat, an involuntary lien can extend to all of a debtor’s assets.
Debts That Can And Cant Be Discharged In Chapter 7 Bankruptcy
Chapter 7 should dismiss most of the debts you owe, but there are some hard-and-fast debts that cant be discharged in Chapter 7.
The list of non-dischargeable debts includes:
- Child support
- Student loans must prove undue hardship
- HOA fees if you surrender your home or condo
- Any other form of unsecured debt.
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Doubling Federal And State Exemptions
The federal exemptions allow spouses to double exemptions on joint property. However, whether you can double exemptions under state law depends on the state.
Example. Ted and Mary live in Michigan. Michigan allows bankruptcy filers to choose whether to use the federal exemptions or the state exemptions. Ted and Mary choose the federal exemptions because they have a tax refund they want to protect, and Michigan law does not provide an exemption to protect it. Ted and Mary can double their exemptions on any property they own jointly, including their joint tax refund.
Example. John and Leanne live in Louisiana and file bankruptcy. Louisiana has opted out of the federal exemptions, so John and Leanne must use Louisiana state law to exempt their property. They own their house together however, Louisiana law states that spouses may not double their exemptions for their homestead. The Louisiana homestead exemption at the time they file their case is $35,000, and they cannot exempt more than that of their home equity.
Keeping Out Of The Way
Power-driven vessels must keep out of the way of sailing vessels, vessels engaged in fishing, vessels that are not able to manoeuvre, as well as rowing boats and other craft with restricted handling.You must take early action to keep clear of these vessels unless being overtaken by one of them.
Vessels less than 20 metres long and fishing vessels must not get in the way of larger vessels within a narrow channel.
When changing course or speed to keep out of the way of another vessel, make it clearly visible to the stand-on vessel that you have taken appropriate action.
If you are not sure what another vessel is going to do, give 5 short blasts on your whistle. If the vessel doesn’t make a clear change in course, change your course to get out of its way.
Take it with you: You can order a free, waterproof quick reference card that explains the basic rules of the road from the Transport Canada website. Search shop.tc.gc.ca for Rules of the Road .
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How Liens Impact Bankruptcy Exemptions
Note that exemption amounts refer to your equity in the asset. If you co-own the asset, only your share of the equity is relevant. If an asset is subject to a mortgage or a lien, your equity is the value of the item after deducting the amount of the lien or liens .
Imagine that you purchased a home that is currently worth $300,000 and you have an outstanding mortgage loan of $250,000. Your equity in the home is $50,000. If an exemption protects more than $50,000 of equity in your home, creditors cant touch it. Now imagine you bought the same home but only owe $75,000 on your mortgage loan. In that scenario, you have $225,000 of equity. Unless your states exemption protects more than $225,000 of equity, the bankruptcy trustee can sell your home, pay you the amount of the exemption, and give the rest to your creditors.
Generally, the trustee wont sell an asset if you only have slightly more equity than the exempt amount. Theyll only sell if you have enough nonexempt equity to make a meaningful payment to creditors.