Closer look at Bankruptcy | Bankruptcyfilingfees

Federal law and some states offer a “wildcard” exemption in bankruptcy that can protect any property you choose from creditors

A wildcard exemption comes in handy because it allows you to save property that you wouldn’t be able to protect otherwise. For instance, you might use it on sentimental (yet valuable) property, such as your grandmother’s player piano, or your childhood collection of baseball cards.

In this article, you’ll learn how the wildcard exemption works to save the property that’s important to you.

How Bankruptcy Exemptions Work

When you file for bankruptcy, you’re allowed to use bankruptcy exemptions to protect property you’ll need to work and maintain a home, such as a modest car, household belongings, clothing, and a small number of tools for your business or profession. Each state has a set of state exemptions. Some states provide a choice between the state and the federal exemptions (but you can’t mix and match between the sets).

Most exemptions protect particular property. For example, if your state has a motor vehicle exemption, you’ll be able to use the amount of that exemption towards your car or another motor vehicle, but not another asset type. For instance, you couldn’t use your leftover motor vehicle exemption to exempt money in your bank account.

Here are a few federal bankruptcy exemptions (check your state exemption laws):

$23,675 of equity in a residence
$3,775 in a car or motorcycle
$12,625 in household goods (furnishings, appliances, bedding, clothing, garden tools, and the like), and
$2,375 for tools that you need in your business or profession (amounts will change in 2019).

What will happen to property you can’t exempt? It will depend on the bankruptcy chapter you file.

Chapter 7 bankruptcy. You’d typically be required to relinquish the property to the Chapter 7 bankruptcy trustee—the person responsible for overseeing your case—to be sold for the benefit of your creditors.
Chapter 13 bankruptcy. You can keep all of your property, but you’ll have to pay at least the value of your nonexempt property over the course of your three- to five-year Chapter 13 repayment plan.

A Wildcard Exemption Lets You Choose the Property You Protect

A true wildcard exemption isn’t limited to a specific property type. You can use it to exempt any property of your choosing. For instance, you’ll decide whether to use it on your car, money in the bank, expensive artwork, or any other asset you own. You can also split it between multiple assets, or combine it with other exemptions.

Example. Your state has a $3,000 motor vehicle exemption and a $5,000 wildcard exemption. If you own two cars worth a total of $8,000, you can use the motor vehicle exemption to exempt $3,000 of one car, and the wildcard exemption to exempt the remaining $5,000 in equity. Without the wildcard, the Chapter 7 trustee would likely sell both vehicles, pay you the $3,000 exemption amount, and use the balance to pay creditors. In a Chapter 13 case, you would have to pay for the nonexempt portion in your repayment plan.

How Much Is the Wildcard Exemption?

Not all states have wildcard exemptions, but for those that do, the value will vary. You’ll find a wildcard in the federal bankruptcy exemption scheme, too.

Federal wildcard exemption. The federal wildcard exemption is currently $1,250 plus up to $11,850 of any unused portion of the federal homestead exemption. (If you’re married and filing a joint bankruptcy, you can double these amounts.) For a single filer without home equity, the federal wildcard exemption is $13,100. Residents of Alaska, Arkansas, Connecticut, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, Wisconsin, and the District of Columbia can use the federal bankruptcy exemptions instead of your state exemptions. Residents of other states cannot.
State wildcard exemptions. You’ll need to check your state exemption statutes to determine whether your state has a wildcard exemption and if it does, how much you can protect. Some states have additional rules, too. For instance, you might be able to apply the unused portion of your homestead to any property (which essentially acts as a wildcard exemption).

Questions? Call us for your free evaluation 734-722-2999

Bankruptcy Myths #1: If I file for bankruptcy, I will lose everything.

This is a common misconception that keeps people who really should file for bankruptcy from doing it. Federal and Michigan laws provide exemptions that can protect (up to a certain value) assets, such as your house, your car, money in qualified retirement plans, household goods and clothing. For most people, they’ll lose nothing in the bankruptcy process!

Bankruptcy Myths #2: If I file for bankruptcy, I will never again be able to buy a house or a car.

Many of our clients are able to obtain new cars after completing the bankruptcy process. However, each lender varies in their business practices so you may need to shop around. Lenders take other factors into account as well, such as current employment, current income, and credit history.

To purchase a new home it usually takes a bit longer. It typically takes about two years to get a house after you file for bankruptcy.

Bankruptcy Myths #3: If you’re married, both spouses have to file for bankruptcy.

If one spouse has a significant amount of debt in their name only, it may make sense for only one spouse to file. However, if there are joint debts then it may be prudent for both spouses to file. If there are joint debts and only one spouse files then the creditor may still attempt to collect the debt from the non-filing spouse.

Bankruptcy Myths #4: I won’t ever be able to get credit after my bankruptcy.

Many of our clients are shocked by how quickly they’ll start getting credit card offers in the mail again. By opening a new credit card and habitually making on-time payments your credit score will quickly improve beyond pre-filing levels. Please see our credit repair kit to view other ways to increase your credit score. We help our clients increase their credit scores through bankruptcy. It’s also important to monitor your credit score.

Bankruptcy Myths #5: People who file bankruptcy are financially irresponsible.

There are a multitude of reasons that people need to file for bankruptcy, many of which are out of their control. Often it is because people run into very serious personal problems such as a job loss, serious medical issues, or a divorce. Unemployment, the cost of running two households following divorce, or the cost of medical care have all driven well-intentioned Americans into bankruptcy. It’s financially irresponsible to avoid your creditors, ignore your bills and drive yourself further into debt. Millions of well-intentioned Americans have filed for bankruptcy and come out stronger and more successful!

Bankruptcy Myths #6: You can’t get rid of back taxes in Bankruptcy.

Certain federal, state and local taxes can be discharged under the bankruptcy laws. There are several qualifications that must be met, but once these are met, the taxes may be discharged.

Bankruptcy Myths #7: It’s really hard to file for bankruptcy

Although there were new laws enacted in 2005, the new laws were drafted to prevent fraud and bankruptcy abuse.

Bankruptcy Myths #8: Everyone will know you have filed for bankruptcy.

It is unlikely anyone will know that you have filed for bankruptcy unless you tell them. While bankruptcy is a matter of public record, someone would have to specifically track down the information using your personal information in order to find out if you filed for bankruptcy.

Bankruptcy Myths #9: You can’t afford to hire an attorney.

At Firebaugh & Andrews , initial consultations are FREE! Money is never a reason we turn clients away. We pride ourselves on our flexible payment plan options which can be customized to your unique circumstances. In our experience, the worst thing a client can do is obtain legal advice from the internet, co-workers, family or friends.

Bankruptcy Myths #10: There is a minimum amount of debt required to file for bankruptcy.

There is no minimum amount of debt required to file for bankruptcy. Every situation is unique.

Call Firebaugh & Andrews today for your free consultation 734-722-2999

Category Archives: Closer look at Bankruptcy

The Wildcard Exemption in Bankruptcy