Exemptions Inside and Outside of Bankruptcy

Exemptions Inside and Outside of Bankruptcy

Inside of bankruptcy, exemption laws shield certain items of property from the bankruptcy trustee. Outside of bankruptcy, exemption laws protect your property from judgment creditors.

The first rule to remember is that not all of your stuff is exempt. Each state and even the federal government have laws in place that outline what stuff debtors are permitted to keep no matter how much they owe to a creditor. The stuff that your state says is protected is considered exempt or untouchable. This means the bankruptcy trustee can’t sell it and creditors can’t attach it in satisfaction of a judgment.

Exemption Laws In Bankruptcy

Perhaps the number one misconception about chapter 7 bankruptcy is the belief that you will lose all of your property if you decide to file. This is not true. Many that file for chapter 7 bankruptcy don’t lose a single thing because their assets are fully exempt from the trustee. Inside of bankruptcy, exemption laws work to divide your property into two basic groups: exempt and non-exempt. Stuff that is considered exempt is property of a type and value that your state’s laws deem necessary to getting by. For example, everyone needs a car to get to work, so many states designate equity in your car exempt up to a certain dollar amount. The process in Georgia works as follows:

Debtors in Georgia are permitted to protect up to $3,500 of equity in all their motor vehicles. Value or equity that execceds this amount is considered non-exempt and potentially subject to sale by the trustee. For the purpose of determining the equity in a car, the fair market value is determined by reference to used car price guides customarily used by Georgia automobile dealers unless the debtor’s car is not listed in such a guide.

If you owned a car free and clear worth $15,000 in Georgia and filed for chapter 7 bankruptcy, it’s very likely the trustee would want to sell the vehicle and distribute the proceeds to your creditors (after taking 25% off the top). Keep in mind though that, were the car to be sold, you’d still be entitled to a check for the amount of the exemption, in this case $3,500 (this doesn’t factor in use of the GA wildcard exemption which could increase this amount). A sale doesn’t defeat your right to an exemption. You also have the option of paying the trustee the non-exempt value of your car in cash to avoid losing it at auction. You can usually negotiate a buyout through your attorney.

Exemption Laws Out of Bankruptcy

While the primary focus on our forum is their application to bankruptcy, exemption laws apply outside of bankruptcy court as well. When a consumer is judgment proof, all of the property they own is protected by exemption laws. This means that even if a creditor gets a judgment through a collection lawsuit, there is no property they can attach to satisfy the debt. One of your creditors could get a judgment against you for $1,000,000 and would have no rights to any of your stuff if it is all exempt. By contrast, judgment creditors can attach wages and property that are non-exempt. For example, the state of Alabama does not have a specific automobile exemption. Instead, debtors are permitted to protect up to $3000 worth of personal property (which includes cars, furniture etc.). If an Alabama debtor found themselves being pursued by a creditor, and owned a classic car worth $20,000, some of the equity in that car would be nonexempt and therefore exposed to attachment by creditors.

Are exemption laws the same in bankruptcy and collection lawsuits?

In some cases yes, the same exemption laws will apply to state collection actions and a bankruptcy, but it ultimately depends on your state’s laws and how long you’ve lived there. Thanks to bankruptcy reform legislation passed in 2005, the laws of your current state of residence might not apply to your bankruptcy. If you haven’t lived at your current home for the last 730 days, the laws of the state where you lived for the 180 days which preceded the 730 day period will apply to your case. Outside of bankruptcy court, each state determines how their collection laws will apply and the results can vary greatly. Some, such as Utah, have residency requirements before maximum homestead protection is triggered. If you have questions about how the law will apply to your case, contact a local attorney.

Free Consultation with a Bankruptcy Attorney

If you have a bankruptcy question, or need to file a bankruptcy case, call Ascent Law now at (801) 676-5506. Attorneys in our office have filed over a thousand cases. We will help you. Come in or call in for your free initial consultation.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews

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Fraudulent Transfers Before Bankruptcy

Fraudulent Transfers Before Bankruptcy

Perfectly honest consumer debtors sometimes make the mistake of transferring an asset to a friend or family member before filing bankruptcy.  This can happen innocently enough, as for example, where a debtor gives an old car of little value to an adult child months before he even considers filing bankruptcy.  Despite the fact that he had no actual intent to defraud any creditor, and despite the fact that if he had not transferred this old car of minimal value, he may well have been able to exempt it in Chapter 7 bankruptcy, the Bankruptcy Code nevertheless treats such a transfer as “fraudulent.” Sadly, bankruptcy law is full of such “gotcha” pitfalls for debtors, particularly when it comes to Chapter 7 bankruptcy, and the Bankruptcy Code is harsh and unforgiving when it comes to “fraudulent transfers” by debtors prior to bankruptcy.

11 U.S.C. Section 548

Fraudulent transfers are defined in 11 U.S.C. Section 548 as transfers by the debtor of an interest in property (either voluntarily or involuntarily) within two years before filing bankruptcy, where either the debtor actually did intend to defraud his creditors or, far more commonly, where the debtor did not receive “reasonably equivalent value” for the transferred asset and the debtor was either already insolvent or became insolvent as a result of the transfer.

Fraudulent Transfers Can Hurt Bankruptcy

Fraudulent transfers can have dire consequences in bankruptcy.  If the transfer involved actual fraud—meaning that the debtor transferred the asset with actual intent “to hinder, delay, or defraud” his creditors—and such transfer occurred within one year prior to filing bankruptcy, then under Bankruptcy Code section 727(a)(2)(A), the court may deny the debtor from obtaining a bankruptcy discharge at all!

Constructive Fraud

Far more common, however, are situations involving “constructive fraud” where, as described above, the debtor had no actual intent to harm anyone, she simply transferred an asset for less than “reasonably equivalent value” while she was either insolvent or became insolvent as a result.  As noted above, under section 548, if such a constructively fraudulent transfer was made within two years prior to filing bankruptcy, then the bankruptcy trustee can “avoid” the transfer.  This means that the trustee can sue the family member to whom that old car was given to get the car back. Obviously, this is a disastrous result for the adult child who received the car, and who is a completely innocent bystander in this scenario.

Getting Assets Back to Reverse Fraudulent Transfers Prior to Bankruptcy

In many cases, however, by carefully questioning our bankruptcy clients prior to filing, we can avoid these negative consequences by advising the client to try to get the transferred asset back prior to filing.  This is because if one is filing bankruptcy in Salt Lake City or anywhere within the Ninth Circuit, the bankruptcy court will allow debtors to reverse or undo a fraudulent transfer prior to filing bankruptcy.  Such a rule follows, what I think is a universally held common senses value that one should be allowed, if given the chance, to correct a mistake after receiving advice from an attorney.

That’s what the Ninth Circuit essentially said in the case In Re Adeeb, 787 F.2d 1339 (9th Cir.1986).  For a fraudulent transfer to exist in a bankruptcy case, the transferred asset must have remained transferred as of the bankruptcy filing date.  If the debtor recovered the asset, then it is no longer “transferred.”  No harm; no foul.

So, if you are thinking of filing bankruptcy in Utah or the Ninth Circuit, and you gave your daughter an old clunker last year as a gift, then you should have her sign title back over to you before filing bankruptcy!

Free Consultation with a Utah Bankruptcy Attorney

If you have a bankruptcy question, or need to file a bankruptcy case, call Ascent Law now at (801) 676-5506. Attorneys in our office have filed over a thousand cases. We can help you now. Come in or call in for your free initial consultation.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews

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How To File For Bankruptcy in Utah – Call Now (801) 676-5506

Utah Bankruptcy Lawyer

There are several steps required to file for bankruptcy relief in the State of Utah. I am going to go over how to file with our law firm. I will outline each step to get you going.

The first step is really figuring out which chapter you are going to file. There is chapter 7 (an eraser to all of your debt); a chapter 13 (a repayment plan over 3 to 5 years); a chapter 12 (for family farmers or fisherman); and a chapter 11 (for businesses or people with many assets).

Once you know which chapter of bankruptcy to file, you need to get some information together and you need to complete many pages of paperwork.

How to File For Bankruptcy in Utah

Here is the list of information you would need:

Step One to File Bankruptcy

You are going to need to obtain pre-bankruptcy credit counseling from an approved agency. You need to get a “credit counseling certificate” before we can file your case. You can have them fax the certificate to me at 801-676-5508. Sometimes the companies take 5-10 days to issue the certificate, so I recommend that you get it done ASAP. We reccomend that you go to www.debtorcc.org – it will cost you about $14.95. This is mandatory. Without this, you cannot file a bankruptcy case.

Step Two to File Bankruptcy

We need you to bring in your Social Security Card.

Step Three to File Bankruptcy

We need you to bring in your Drivers License

Step Four to File Bankruptcy

We need you to bring in your last 6 months of paycheck stubs. This is a requirement because the Bankruptcy Code requires us to make a determination of your disposable income. This can only be done with your last six months of paycheck stubs.

-> What if I don’t have my last 6 months of paycheck stubs? Great question: You go to your Human Resources Department at work (“HR”) and you ask for copies.

-> What if I haven’t been working the entire last 6 months? No problem, just give us what you have from when you were working.

-> What if I am self employed. No worries, you just need to complete a profit and loss statement, we are happy to provide you with one, just ask. We will also need a monthly business budget from you and we have a questionnaire for you to complete.

Step Five to File Bankruptcy

We need you to bring in your most recent mortgage statement. If you don’t own a home, no problem, bring us your lease or a copy of your rent statement (if you get one). If you don’t have a lease or rental agreement, just let us know. Not a problem.

Step Six to File Bankruptcy

We need you to bring in all of your debts, invoices, statements, bills and other paperwork that you have for any financial obligation that you have. For example, if you have any credit card bills, medical bills, car loan statements, dental invoices, past due cell phone bills, cancelled cable contracts or any other bill or information about people you owe money to, we want that. Bring it in.

Step Seven to File Bankruptcy

We need you to bring in your last 2 years of state and federal tax returns. If you haven’t filed your tax returns, you need to. The current bankruptcy code states that if you haven’t filed your tax returns for the last 8 years, the court will dismiss your case. This is bad news. A dismissal essentially means throwing your case out of court. So if you don’t have them done, get them done.

Step Eight to File Bankruptcy

We need copies of your last month’s bank statement from all financial accounts you have. This would include any retirement accounts, credit union accounts, etc. Keep in mind the after your case is filed, we will need a statement that covers the date of your case filing.

Step Nine to File Bankruptcy

If you have made any monetary charitable contributions to any church or charity in the last 60 days, we need you to bring proof or documentation of those contributions with you when you come in. Most people aren’t making money donations to charities when they are looking at bankruptcy, but if you are, that’s okay, we just need proof of it, so bring it in.

Step Ten to File Bankruptcy

Have you ever filed for bankruptcy before? If you have, we need to know when and where you filed.

Step Eleven to File Bankruptcy

Schedule your first meeting with us to do an intake. You can do this over the phone or in person, your choice. Give us a call now (801) 676-5506.

After Your Bankruptcy Case is Filed

After your case is filed, you will need to take a course on personal financial management. Go to www.debtorcc.org and get the second class. It’s also called the “Debtor Education Certificate.” This is mandatory and if you don’t get this course done in time, your case can close without a discharge. The discharge is the court order that states you no longer owe the money listed in your bankruptcy case.

Question: How long will bankruptcy stay on my credit report?

I suggest you watch this video where a lawyer from our office explains how long a bankruptcy stays on your credit report:

How to File for Bankruptcy Conclusion

Well, I hope you’ve got those steps down now. Feel free to bookmark this page and come back if you have any questions or concerns. As an attorney, one of my favorite things to do is speak with people and take care of my clients. I love helping people, that is why we do bankruptcy work.

If you are ready for bankruptcy help or need additional information, please give us a call right now for your Free Consultation (801) 676-5506.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.7 stars – based on 45 reviews

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