3 Quick Exemptions In An Indiana Bankruptcy
In a long line of cases dating back to the early 1800s, the United States Supreme Court has said that bankruptcy’s purpose is to give the honest yet unfortunate debtor a fresh start. Asset exemption is an important part of that fresh start. If debtors lose their houses, cars, retirement accounts, and other assets because they file bankruptcy, they must go back behind the financial start line.
For this reason, describing a Chapter 7 as a “liquidation” bankruptcy is somewhat inaccurate. It’s true that the trustee (person who oversees the case for the bankruptcy judge) does seize all nonexempt assets and sell them to repay creditors. But as outlined below, most Hoosiers do not have nonexempt assets.
Indiana law exempts up to $19,300 in home equity ($28,600 for married filers). There is a big difference between market value and home equity. For example, a house may be worth a half-million dollars. But unless the owners have lived in that house for more than about ten years, they have almost no equity in the home. For the first part of the loan period, the monthly installment payments mostly go toward interest.
Moreover, there is a difference between market value and bankruptcy value. Assume the debtor owns a $20,000 condominium outright. Even though the amount of equity exceeds the exemption, the debtor might be able to keep the property. According to the Internal Revenue Service, an asset’s as-is cash value (the QSV or quick sale value) is 80 percent of the market value. So, for bankruptcy purposes, the condo’s value is $16,000. If the trustee sold the condominium, there would not be enough money to pay the equity.
In some cases, an attorney can use a home investor’s appraisal as the as-is cash value. These offers may be as little as 40 percent of the property’s fair market value.
There is a loophole as well. If only one spouse files bankruptcy, and the other spouse holds a tenancy in the entirety, the entire property is exempt. It does not matter how much equity the person has. An attorney may be able to amend the deed documents and later file a bankruptcy.
Public employee pensions and retirement nest eggs are almost always protected. These plans are essentially deferred compensation for public employees. Without generous retirement plans, the government might be unable to attract and retain quality workers.
Private plans, like IRAs and 401(k)s, may be exempt in many situations as well. In a recent case, the Supreme Court affirmed the principle that earned retirement accounts should be 100 percent exempt regardless of their value.
Indiana has some of the most generous personal property bankruptcy exemptions in the entire country. Some specific items include:
- Health aids,
- Books, clothes, appliances, and other personal property,
- Most 529 college savings accounts, and
- Funds in medical savings accounts.
This exemption also applies to certain items which do not technically belong to the debtor, such as unemployment benefits.
Contact Dedicated Lawyers
An Indiana bankruptcy usually does not mean asset forfeiture. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in both Illinois and Indiana.