For many of my clients who come in for the initial consultation, one of the first questions is, “What about my ?” Usually the “blank” is a car, but often it is furniture, investment accounts and other personal property. As always in things legal, not just bankruptcy, there’s no short or simple answer. (And you thought I was going to say, “It depends . . .”). Although it does depend. The answer to the question about the car or the house or any other item of property depends initially on what you want to do with it. Next, it depends on what the Bankruptcy Code will let you do with it.
Of course I am talking about exemptions. Great. What’s an exemption? When a bankruptcy is filed (and I’m talking about consumer bankruptcies here, not the General Motors variety), something called “the Bankruptcy Estate” is created. What that means, for all intents and purposes, is that once you file a bankruptcy, all of your stuff now becomes property of the Bankruptcy Estate. Under Section 522 of the Bankruptcy Code, however, an individual debtor can exempt certain property out of the Bankruptcy Estate, up to specified values. For example, that car you were worried about . . .the Code allows an individual debtor to have a vehicle for his or her personal or family use, worth up to $3,675.00. That is, if you are permitted to use the Federal exemptions. In Pennsylvania, you are allowed to use either Federal or State exemptions (but not both . . .one or the other). Now, many people don’t own their car outright, and are paying a car loan or have a lease. In that case, it usually doesn’t matter what the thing is worth, because it is securing a debt, and if anyone (like the Chapter 7 Trustee) were to sell the car, they would have to satisfy that debt first. (There are other provisions relating to keeping a car which is subject to a loan, but that’s a topic for a different post.)
So, you have a car, you own it outright, and it’s worth . . .let’s say $7,000.00. Bye bye car, right? Not necessarily. Once you have exhausted that exemption of $3,6750.00 for the car, you are allowed to use a so-called “wildcard” exemption, which in most cases will eat up the excess non-exemptable portion of the car value. This same sort of exemption can apply to other personal property as well, allowing you to keep most, and in some cases all, of certain personal property that might otherwise exceed the allowable amounts. Of course, there is quite bit more analysis that goes along with the process and is best left up to your bankruptcy attorney.
This is why it is very important for you to provide your attorney with a complete and accurate inventory of your personal property (your stuff plus cash, bank accounts, and other types of accounts), so that he or she can do the necessary analysis to properly apply and claim the appropriate exemptions.