Chapter 7 bankruptcy, commonly referred to as “straight” bankruptcy, is a court supervised liquidation of assets for the benefit of unsecured creditors. The liquidation is the sale of assets, reducing them to cash that is distributed to unsecured creditors based upon a prioritization laid out in the Bankruptcy code. One very important caveat is that some property is exempt from liquidation as prescribed in state and Federal law. Navigation of the appropriate exemption scheme to apply in each case is critical to achieve the objectives of the debtor. Absent sufficient understanding of the multiple laws can leave assets unprotected and subject to sale by the court appointed Trustee.
Most states have their own specific laws that provide for exemption from sale, various types of property and usually a dollar cap or percentage of equity that can be exempted. Federal law also has a list, but the caps and type of coverage can be quite different from your applicable state’s law. Here in Texas, we have very generous exemptions with respect to your homestead, if you own a home and for cars but very little to protect cash. Federal law only protects about $26,000 in equity in your homestead for joint debtors but if you do not own a home, this exemption can be used for ANY assets that are not covered by some other specific exemption. This Federal exemption is called the “wildcard” and becomes extremely powerful in protecting what you own. The Bankruptcy law requires that you utilize either the state or Federal exemptions, so you cannot pick which individual exemptions to apply to each asset, you must evaluate the entirely of the estate and choose whether State or Federal will protect all or at the very least, most of the assets of the Debtor.
There will be cases where the specifics of what type of property is owned and how much is owed on it will result in the possibility of losing some property to liquidation. It is the role of the experienced Bankruptcy Attorney to analyze each scenario and clearly explain the potential risks of loss to the client so they can make an informed decision on how they proceed. At LoBue Law, we understand application of exemptions and we are 100% committed to fully appreciate what our clients are seeking to get out of their bankruptcy. Call today for a free case evaluation and consultation.