Thursday, April 19, 2012

What is Exempt Property in Chapter 7 Bankruptcy?

Filing for Chapter 7 bankruptcy is one of the most effective ways to get out from under a large amount of debt as quickly as possible. In almost all chapter 7 cases, your property is fully protected from your creditors through Missouri and Illinois exemptions your bankruptcy attorney applies to your assets. When you meet with your bankruptcy attorney in St. Louis or Fairview Heights, your lawyer will look at all your property which includes claims you might have against someone, such as tax refunds or personal injury claims. Your bankruptcy lawyer will then apply available exemptions and can give you advice whether all your property is save and protected. This type of property is known as exempt property, and it helps
protect some of your most important assets. One of the most common misconceptions about Chapter 7 bankruptcy is that you lose your house, your car and all of your property. In reality, most people get through Chapter 7 relatively unscathed. You might not lose any property when filing for Chapter 7, depending on your situation. An examples in which we could not advise a client to file for chapter 7, was where the client had an old valuable vehicle that was valued for $75,000 with no loan on it, the client who owned land in excess of $100,000 he did not want to sell to pay of his creditors.

Exempt Property

When filing for Chapter 7 bankruptcy, your bankruptcy lawyer will file the bankruptcy schedules with the court which includes your income, expenses and your property. The bankruptcy trustee that is assigned to your case will review these documents and find out information about the property that you own. Part of the schedules (Schedule C) is a list of exemptions that is applied to your property. Normally, all assets listed on your petition are exempt. In some cases a client wishes to surrender an asset to his creditor or pay a portion of an asset that is not fully exempt to the trustee. The trustee will be able to identify non-exempt assets on your bankruptcy schedules. Every state has different rules about what type of property can be exempted from bankruptcy proceedings. If you're working with a lawyer, the lawyer should be familiar with your state's laws to make sure that you list all of the exempt property that you are entitled to. If an exemption is not applied, it is not exempt. However, your attorney might be able to amend an exemption after filing. However, if an asset was purposely not listed, and the trustee discovers the asset after filing of the bankruptcy petition, the bankruptcy trustee might object to an exemption you wish to apply at this point. The trustee would argue bad faith.

Creditor's Meeting

You will be expected to attend a creditor's meeting as part of the bankruptcy proceedings. At the creditor's meeting, the bankruptcy trustee will ask you if everything is correct on your petition and will check your social security card and picture I.D to ensure you are the person listed on the petition. One of the purposes of this meeting is to determine if you are hiding any property from the court that could be liquidated.

What is Exempt?

While every state has some differences in what they allow for exempt property, they all have some similarities in what they allow. For example, you typically get to keep a certain amount of equity in your primary residence. You also get to keep your primary vehicle up to a specific amount, $3,000 in Missouri, and $2,400 in Illinois. You should be able to keep any groceries that you have in your house and any clothing that you own. Basic household items such as your appliances and kitchen utensils are yours to keep as well. The money that you have in a qualified retirement account such as a 401(k) or an IRA is also exempt from being taken by the court. Any money in a pension fund is also exempt. If you have tools for your trade, you will also be able to keep these up to a specific amount so that you can keep working. You can usually keep up to a certain amount of jewelry as well.

If you receive money from public assistance, from child support or spousal support, you shouldn't have to worry about losing these to bankruptcy either. In Missouri it is currently not clear if a personal injury claim is exempt or not. In the past, personal injury claims were exempt based on case law. But after the in re Benn decision, Trustees argue that personal injury claims are not exempt anymore. In order to avoid litigation most often trustees in St. Louis, and Wentzville offer to split the claim. Half of the personal injury claim would go to the trustee who will then distribute the money to creditors, the debtor would be able to keep the other half.

Nonexempt Property

While much of your property is safe when you file for Chapter 7 bankruptcy, some types of property are might not be exempt. For example, if you own more than one vehicle, you don’t have a second motor vehicle exemption. Your bankruptcy attorney will check then whether you can apply other exemption such as a wildcard exemption ($600 in St. Louis, $4,000 in St. Louis Metro East, Illinois) or a head of household exemption which is $1250 plus $250 for each dependent under the age of 18. If you have a vacation home or rental property, you cannot apply the homestead exemption. The homestead exemption is only for the residence you actually live in. Sometimes clients suggest in these situation to move into the rental or vacation home to be able to apply the homestead exemption. You want to discuss this question with your St. Louis or St. Charles Bankruptcy attorney. Even though some bankruptcy planning can safe a lot of money, we do not recommend to make lifestyle changes to avoid paying creditors. This can be viewed as exceeding bankruptcy planning and might be considered fraud. Your bankruptcy attorney also will advise you about the amount of money you can have in your bank account at the time of filing of the petition which will be exempt. If the amount in your bank account exceeds the exempt limit, the trustee might ask you to turn it over even though you might have spent it a few days after filing for paying bills or buying groceries. Any other investments that you have such as stocks or bonds could also be liquidated to pay back your creditors if it is not exempt. If you have collections of expensive items like baseball cards or stamps, you want to make sure your bankruptcy attorney knows about these items and that it is listed on the petition.
If you inherit, the bankruptcy trustee will have an interest in it within 180 days after you file your bankruptcy petition. That means even though your case is already discharged and closed you have an obligation to inform your bankruptcy lawyer about it who then will let the trustee know. If there are assets the trustee can administer, he will re-open your bankruptcy case.


Filing for Chapter 7 bankruptcy is a valuable process that can really help you get rid of your debt. Your bankruptcy attorney will discuss any issues in your case at your initial free consultation. Since you get to keep a lot of your property, you shouldn't worry about being left with nothing after the court is through. Your bankruptcy lawyer will explain to you whether any property would be non-exempt and the trustee would have an interest in it.