Feeling overwhelmed by unpaid bills and calls from debt collectors is an extremely stressful situation that seemingly has no end or solution. No one intends to get in over his or her head financially, but unanticipated events such as job loss or major illness can significantly impact one’s ability to earn sufficient income. While these issues can easily become the only thoughts a person has, there is an option that should provide some financial and mental relief – bankruptcy. This legal process allows the debtor to clear debts to certain creditors through discharge, forgiveness of debt, or a court-approved repayment plan. The goal of bankruptcy is to allow the debtor to gain a clean financial slate so he or she is not burdened by a lifetime of debt with no hope or ability to repay. Though the intent of bankruptcy is to replace the historical debt system that imprisoned those unable to satisfy their creditors, this does not mean the debtor gets to pick and choose which property is available to pay one’s debts. However, there are certain property exemptions given so the debtor is left with some property at the end of bankruptcy. An overview of the bankruptcy property exemptions extended to Indiana residents will follow below.

Figuring Out What Property a Debtor Can Keep: Chapter 7

While bankruptcy is designed to help consumers reduce or eliminate debt, it is important to remember that a downside to this process is the potential to lose ownership of one’s property. Determining how much property a person could lose depends on the type of bankruptcy case and the value of a person’s property holdings. Most people will elect to file for a Chapter 7 bankruptcy, which eliminates debt because the debt holder has no available income to make payments, and could face the seizure and sale of property to pay-off creditors. However, the law exempts certain property from seizure based on its worth. Indiana has its own set of exemption laws for bankruptcy filers, and permits couples who file for joint bankruptcy to double the exemption amounts and thereby keep a greater portion of their property. Some of the important exemptions include:

• Homestead exemptions for a debtor’s principal residence are $17,600 for a single debtor or $34, 200 for married couples filing jointly. This exemption protects equity in the debtor’s home up to these amounts, which means that if the equity in the home is less than $17,600 or $34,200, there will not be a forced sale.
• Life insurance policies and their proceeds are completely exempt;
• Deposit accounts or cash up to $350;
• Interests in qualified retirement plans are completely exempt;
• Public employee pensions and retirement benefits are completely exempt; and
• Wild card exemption that applies to any tangible personal property or real estate with a value up to $9,350. This exemption is a catch-all, and is used by many debtors to maintain possession of their car or retain bank deposit accounts with higher cash amounts.

Chapter 13

Chapter 13 bankruptcies present debtors with an option that allows them to keep their property if they agree to a three-to-five-year repayment plan. As long as the debtor stays current with the repayment terms, no property will be seized. Repayment plans must be court approved, and obligate the debtor to repay monies owed to creditors, although some creditors may not receive the entire amount owed. Chapter 7 debtors who face seizure of property may want to consider switching to a Chapter 13 bankruptcy so they have a chance to keep all or most of the things they own.

Talk to a Bankruptcy Attorney

Figuring out which type of bankruptcy is right for you and the short- and long-term implications of any bankruptcy plan are issues that are best addressed by an experienced bankruptcy lawyer. Christopher L. Arrington represents bankruptcy clients in the Indianapolis area and will help you determine which option is best for your situation. Contact him for an appointment.