Most people who file for bankruptcy are able to protect most if not all of their assets, including cash bank accounts, household goods and furnishings, 401(k) plans and IRAs (as well as other types of retirement accounts), cars and vehicles, their homestead and more. Assets are protected in a bankruptcy by way of exemptions, meaning that an asset is protected when it is ‘exempt from the bankruptcy estate’. When an asset is exempt, it is outside of the reach of both creditors and the bankruptcy trustee and will not be liquidated to cash to be applied to debts. When an asset is non-exempt, it must be surrendered to the Chapter 7 trustee or otherwise the value liquidated and paid into a Chapter 13 plan.
In both Chapter 7 and Chapter 13 bankruptcy, all assets must be fully disclosed on the bankruptcy Schedules A and B. Assets include any interest in real property as well as all conceivable forms of personal property, bank accounts, and even certain intangible property such as rights to sue and future interests. Exemptions are listed on the bankruptcy Schedule C which restates the property claimed exempt, its value and the amount claimed exempt, and the basis for the exemption under either federal exemptions or Minnesota state exemptions. Both the federal and Minnesota bankruptcy exemptions provide for various categories of commonly exempt property, such as the debtor’s future earnings and income, a homestead interest, vehicles and cars, jewelry, tools of trade used in a debtor’s profession, household possessions and personal effects, retirement accounts, social security benefits, tax refunds, insurance proceeds, and many more. Most exemption categories specify a defined dollar limit for each type of asset exempted and the exemption limits are updated regularly.
While most people’s assets are protected within the available bankruptcy exemptions, common sense dictates that there are reasonable limits to what can be protected when one files for bankruptcy. For example, it may be difficult for a debtor to receive a discharge in Chapter 7 bankruptcy while retaining significant equity a family cabin or rental property. Whether your assets can be protected in bankruptcy is fact dependent and a comprehensive disclosure of assets is an important discussion to have with your bankruptcy attorney before you file bankruptcy. And this is a discussion that should be open and honest since full disclosure of assets is required on the bankruptcy schedules. Additionally, some asset exemption planning steps may be taken before a bankruptcy is filed to maximize your ability to protect certain assets.
Wartchow Law Office provides free initial consultations to discuss your assets and what exemptions may be available to you in either Chapter 7 or Chapter 13 bankruptcy. Located in Edina, MN, Lynn Wartchow represents clients in Minneapolis and throughout Minnesota.