Chapter 7 bankruptcy offers a lot of relief for individuals who have no reasonable way to pay off financial obligations to creditors, but it is a liquidation process, so anyone considering this legal option should first understand what is required in exchange for relieving a petitioner from paying outstanding debt. The ultimate purpose of a Chapter 7 bankruptcy is to discharge a debtor from the legal obligation to pay debts owed to creditors in order to provide the debtor with a fresh start. However, Chapter 7 is a liquidation process, which means that all property that is not exempt from the bankruptcy process is subject to seizure and sale by the bankruptcy trustee. The bankruptcy trustee then distributes any funds generated from the sale of non-exempt property among the creditors according to status. While federal law has its own list of property that is exempt from bankruptcy, states are free to override this provision and establish their own law on this issue, which Indiana has opted to do. Any property that falls outside the list of those exempted is not protected, and the debtor will lose the property to the benefit of the creditors. Thus, understanding what a person stands to lose in bankruptcy is an important consideration that should be weighed before filing. An overview of Indiana law on property exempted from bankruptcy will follow below.
Exemption Generally
Determining how much property may be subject to seizure in bankruptcy is largely dependent on its value. Property that is worth less than the exemption limit would escape confiscation, and that which exceeds the exemption guidelines could be taken for liquidation. In addition, certain secured property, such as a car, can avoid seizure even if the value is more than the exemption amount if the debtor is willing to sign a reaffirmation agreement. This agreement says the debtor consents to continued liability for the car loan in spite of filing for bankruptcy. However, if the debtor later falls behind on payments, he or she could lose the vehicle. The point is not to completely deprive a debtor of all property, but to allow the person the ability to rebuild his or her life, so some property must be left to the debtor.
Indiana Exemption Rules
The items people most frequently worry about losing in bankruptcy are the house and the car. In Indiana, the bankruptcy exemption for real estate is referred to as the homestead exemption, and the maximum exemption amount for an individual is $19,300 and $38,600 for married couples filing jointly. This means if a debtor owns a house with more than $19,300 in equity, it would have to be sold and the sale proceeds above the exemption amount distributed among the creditors. For vehicles, there is no specific exemption, but Indiana does offer a wildcard exemption that may be used to exclude any real or tangible personal property up to $10,250. Thus, if the value of a debtor’s car is less than $10,250, he or she would be able to keep it, but if the value is higher, the debtor may be forced to get sell it. In addition to these exemptions, Indiana also offers exemptions, among others, for:
- $400 for intangible property, except money owed to the debtor;
- All funds in a medical care or health savings account;
- All unemployment compensation; and
- All workers’ compensation.
Contact a Bankruptcy Attorney
Making the decision to file for bankruptcy is not easy, but sometimes necessary to climb out of an untenable financial situation. An experienced bankruptcy attorney can advise you on whether bankruptcy is right for you, and if so, which kind will offer you the most benefit. If you live in the Indianapolis area, bankruptcy attorney Christopher L. Arrington can assist you with the complicated bankruptcy process so you can start the next chapter of your life. Contact him for an appointment.