When you file for bankruptcy you take a risk. You’re risking that the choice you’re making now will improve your financial future.
The good news is for most people that risk pays off.
They not only take a lot of the pressure off themselves as soon as they file, they also set themselves up for a brighter future, financially speaking. There are some negative consequences of bankruptcy, but more often than not whatever negative comes of filing is far outweighed by the positive.
The trouble is some people don’t approach bankruptcy the right way. They assume they can file on their own and that things will go smoothly without proper guidance and support. They end up making a bigger mess of their situation and are worse off than they were before they filed.
One of the biggest problems is with their exemptions – or lack of exemptions. A major mistake people make when they choose to “go it alone” when filing for bankruptcy is not properly using the exemptions available to them.
What does this mean?
What’s an Exemption?
First, it’s important to understand what an exemption is.
Exemptions are assets that are made safe from the bankruptcy trustee and your creditors when you file for bankruptcy.
Exemptions are available in both Chapter 7 and Chapter 13 bankruptcies, and usually include things like your home and your vehicle. Chapter 13 offers more flexibility with exemptions, but it’s possible to protect certain things in both types of bankruptcy, depending on your specific situation.
Seems simple enough, right?
Unfortunately, things are rarely as simple as they seem when it comes to the law. Especially bankruptcy law.
Filing for bankruptcy and protecting your assets is one of the most common mistakes made by those filing. Often, people filing on their own lose the right to their assets all together, and in other cases, a bankruptcy case is dismissed because exemptions were handled improperly.
This is one of the many reasons a bankruptcy attorney is indescribably valuable when you’re filing for bankruptcy.
In addition to choosing which assets you want to exempt, you’ll also need to consider the value of the asset, the ability the trustee has to turn that asset into cash to pay your creditors, and the value of any given asset when “all is said and done.”
Just to give you an indication of how complicated it can get, consider this:
Your home might be valued at $100,000. For argument’s sake, let’s say you have $20,000 of equity in the home and you owe $80,000 on its mortgage. The trustee decides to sell the home at auction and the realtor and auctioneer’s fees total $10,000.
There might be taxes owed after the sale. The trustee also gets a portion of what was sold as payment, so subtract another $5000 – these numbers aren’t exact, but they demonstrate a point. You have an asset with a value of $100,000, but that value is actually only a small portion of what you think it is when all is said and done.
And according to bankruptcy law, if the court doesn’t think it’ll be worth it to sell an asset, the trustee probably shouldn’t even bother. Knowing how it works ahead of time can save you a lot of frustration.
How does this apply to exemptions?
If you’re working with a bankruptcy attorney who understands the abilities and limitations of the trustee, he or she can help you device an exemption strategy that is in your best interest. You might assume you can only list your home as an exemption, putting many other assets in jeopardy, when in reality, there’s room in your bankruptcy to protect many of your assets. The only way you’ll know is by working with an expert.
That’s the secret to making the most of your exemptions – working with an expert who understands and can apply bankruptcy law to your case in a way that will benefit you most.
To learn more about the role of the trustee in bankruptcy, check out this information.
If you have questions about exemptions or you’re ready to begin the bankruptcy process, we can help. Contact the Law Office of Robert M. Geller at 813.254.5696 for more information.