Many folks going through the bankruptcy process are surprised to learn they may be able to exempt the sale of some of their assets. If you're not sure how exemptions work, here are four things a bankruptcy lawyer can tell you about handling them.
Assets Aren't Always Sold
The type of bankruptcy you're pursuing dictates whether the court will even order the sale of your disposable assets. Petitioners restructuring their debts under Chapter 13, for example, will not be subject to asset sales. They will simply restructure their payments and retain their assets.
A court only orders the sale of assets under Chapter 7. This is the liquidation process. The goal is to sell your disposable assets, place the proceeds into a trust, and distribute the money to your creditors. Once this distribution is complete, the court will discharge your debts to those creditors, even if you still owe significantly more.
Know the Rules
It's important to have a good read on what the exemption rules are. Federal law allows you to ask the court to exempt the sale of anything essential. That means you won't see the sale of your clothes and furniture, for example.
Some states offer additional exemptions. These usually take the form of wildcard exemptions, meaning petitioners can ask for exemptions of any items, including luxury goods, up to a government-specified value.
However, you should always consult with a bankruptcy attorney who is licensed to practice law in your state. They will help you figure out which assets might be exempt and how to file for exemptions.
The Court-Appointed Trustee
Be aware that the judge will assign a trustee to handle the sale of your items. This individual is typically either a bankruptcy lawyer or an accountant by trade. More importantly, they must represent the interests of the creditors. If the trustee believes, for example, that a petitioner is hiding assets or trying to sneak something through the system, they can intervene to protect the creditors' rights.
Play It Straight
Your best hope for successfully receiving exemptions in bankruptcy is to be straight with the court about everything. Make a list of all of your assets. If you have a good-faith belief that an asset is essential, such as a car to get to and from work, include it in your application. However, don't test the court's forbearance by seeking ridiculous exemptions, such as claiming a luxury car is your daily driver. Even if it is, the trustee can still sell it and give you some of the proceeds to buy a more practical car.