Many people have this common misconception about bankruptcy: “If I file Chapter 7, I’ll lose everything – including the shirt on my back.” This is simply not true!
Lawmakers understand that, in order to get a fresh start, you need to keep the things in your life that can help you with that fresh start: your household goods, clothing, money in the bank, and even your entire retirement account savings.
There are limits, which we’ll discuss here, but most individuals or families in Tennessee find that the amounts they are allowed to keep are more than enough to cover what they own.
Exemptions | What can I keep when I file Chapter 7?
In Tennessee, a debtor may exempt their personal property from the estate up to $10,000 ($20,000 for a husband and wife). If you have not lived in Tennessee for the last three (3) years, the laws of another state will apply so you should make sure to alert your attorney.
Personal property includes, for example, money in the bank, furniture, and vehicles without a lien on them (owned free and clear). For personal property on which you are making payments, your equity in the property equals the value of the property minus the amount you owe on it. It is often the case with vehicles that the value of the vehicle has depreciated to less than what you still owe on the vehicle loan. In this case, there is no equity in the vehicle.
Real Estate in Chapter 7
As far as equity in real estate is concerned, a single individual debtor under the age of 62 can keep, in other words “exempt,” $5,000 of equity in his/her real estate. A husband and wife under the age of 62 can keep $7,500 in equity. If you have minor children living in the residence, you will be able to protect $25,000 of your equity if you are single and $50,000 if you are married. Different exemptions apply if you are older than 62.
The real estate that you exempt in Tennessee must be your personal residence. If it is real property from which you receive rental income, and you do not live in it, you cannot claim the exemption. If you have significantly more equity in your home than you are able to protect with your exemption and you wish to keep your home, you may need to file a Chapter 13 bankruptcy. In a Chapter 13 you can keep your home, even if you have equity over and above the exemption, as long as you agree to pay your creditors as much as they would get in a Chapter 7 bankruptcy if the estate was liquidated.
Will the Trustee Take My Retirement Savings?
Many people have a 401(k) or 403(b) that they contribute to in order to save for retirement. Your retirement savings account is often fully exempt from the bankruptcy, no matter how much is in it.
By cashing out your 401(k), you face tax consequences and are losing money that you could have easily protected through your bankruptcy proceeding. Additionally, by taking a large amount of cash from your retirement account, you may ruin your ability to file a Chapter 7 bankruptcy. The Trustee could argue that you could have used that cash to pay your creditors.
Talk to an attorney before making any big financial transactions, such as cashing in your 401(k).
How Much Is It Worth? | Determining the Value of Your Property
When we prepare your petition, we will go over the values you have placed on your personal and real property and advise you as to whether or not we believe you have any assets which a trustee could take and liquidate (sell) to benefit your creditors. The value of a debtor’s personal assets is normally what a trustee could get at an auction sale which can be described as a liquidation sale or a garage sale. You should estimate the amount for which you would sell these items at a yard sale, and place a value on them using this standard. The vast majority of Chapter 7 cases are “no asset” cases because all of the assets can be exempted.
Do You Still Have Questions?
You can contact us any time at 615-255-2893 to schedule a free consultation. In your consultation, your attorney will review your assets and exemptions, so you will know exactly what you can or cannot keep if you decide to file a Chapter 7. Don’t sit and wonder – contact Flexer Law today to get answers.