Exemptions

Understanding the bankruptcy code’s exemptions: If you qualify, you keep your personal property. Wipe out your debts!

If you are considering filing a bankruptcy in Washington, you probably have a lot of questions regarding your assets, including your personal property and retirement accounts. In many cases, our bankruptcy clients throughout Washington are able to completely eliminate or wipe out 100% of their debts while keeping 100% of their property and assets. Of course, every case is unique.

Many people imagine that, after filing bankruptcy, a debtor is left without any property at all, perhaps not even the shirt on his back. The reality is that the law offers generous protections for a debtor’s property in the bankruptcy process.

Let our Washington state bankruptcy attorneys help you to understand how the Bankruptcy Code’s exemptions can help you keep most or all of your property while wiping out your qualifying debts.

These legal protections are called “exemptions.” The idea of offering exemptions to a debtor who must seek bankruptcy protection is to give him or her an effective fresh start while still being fair to creditors. If a debtor was left with no property to build a new life, bankruptcy would not be much of a fresh financial start at all.

There are many different kinds of exemptions. In Washington, a debtor can choose between federal and state exemptions. The exemptions are classified by the type of property: equity in a home, an automobile, retirement accounts, work tools, legal settlements, back child support owed to a debtor and household goods are examples of exemptions under both Washington and federal law. Retirement accounts, back public benefits and back child support owed to the debtor are examples of property that is 100% exempt.

Both Washington and federal law offer a “wildcard” exemption that can be used by itself or combined with another exemption if that exemption does not cover the value of a certain piece of property. The federal wildcard exemption is $11,975 (this can be doubled for married couples), much more than what is offered under state law. Washington’s homestead exemption, which covers equity in a home, is $125,000, much more than what is offered under federal law. Because every person has a different situation, it is important to see an attorney to make sure he or she is claiming the right exemptions.

People considering bankruptcy also worry about whether they can keep homes and cars they are making payments on. Usually, as long as a debtor can keep making the payments, they can keep that property.

In a Chapter 7, the debtor will be asked to sign a reaffirmation agreement. A car company could repossess a car if the debtor doesn’t sign this agreement, even if he or she is current. However, signing that agreement puts the risk of default on the debtor and if the car is repossessed after a bankruptcy and reaffirmation agreement, the debtor may still owe money on the loan. Many car companies will not repossess a car after a bankruptcy without a reaffirmation agreement as long as the payments are current. Though car companies will usually ask for payment of the full amount of the debt in a reaffirmation agreement, creditors will often lower the debt for big ticket items like furniture or appliances.

In a Chapter 13, property that is not covered by exemptions can be protected if the payment covers what creditors would get in a Chapter 7. If creditors would get $10,000 in a Chapter 7 through selling property, a debtor can keep that property by paying $167 to them per month for five years instead. A Chapter 13 also allows a debtor to get caught up on a mortgage over five years and consolidate a car loan with the rest of his or her debt.

If you have questions about bankruptcy, whether or not you can qualify, and what will happen to our personal property and assets, we encourage you to give us a call today. One of our Washington state bankruptcy lawyers will be happy to provide you with a free case evaluation and then help you determine if bankruptcy is a good option for you and your family.