Top Three Bankruptcy Exemptions in Indiana

Contrary to popular myth, most bankruptcy debtors in the Hoosier State get to keep most of their property, even in a Chapter 7 “liquidation” bankruptcy. That’s mostly because Indiana has some of the broadest property exemptions in the country. Retaining assets is essential to a fresh start, which is what the Bankruptcy Code guarantees.

Furthermore, an experienced Indiana or Chicago bankruptcy lawyer knows how to maximize bankruptcy exemptions and protect more of your property. Other available loopholes often make this property, like your home, more affordable in the long term. This kind of assistance is unavailable from a bankruptcy petition preparer. Such a professional can only fill out forms.

Home Equity

At first blush, Indiana’s $19,600 home equity exemption seems almost pitifully low. But appearances are often deceiving.

Home mortgage loans are amortized, which means the bank gets paid first. For the first several years, almost all of the owner’s monthly payments go to interest. So, unless you have lived in the house for more than ten years, you probably have very little equity in it, even though you have paid tens of thousands of dollars.

Furthermore, some legal loopholes are available which maximize this exemption. A tenancy of the entirety is a good example. Assume Bill and Ted live together in the same house. Bill legally owns the house, and Ted is a tenant, as outlined above. If Bill files bankruptcy, it is illegal for a creditor to seize what is essentially Ted’s house in order to pay Bill’s debts. So, in this case, the home is 100 percent protected, regardless of the equity level.

Speaking of legal loopholes, some avenues could be available which protects your home from creditor seizure even after the judge closes the bankruptcy. An attorney can go into detail about options like a cram down and strip off, which are often available in a Chapter 13.

Government Benefits

This exemption is especially important for bankruptcy debtors over 65. Many of these families depend almost exclusively on monthly Social Security benefits. If these benefits are compromised, even slightly, the family could be in even more financial trouble.

Even though Social Security payments arrive monthly, as if they were income, these payments are exempt assets for bankruptcy purposes. Indiana bankruptcy courts, as well as the Social Security Administration, are quite clear on this point. These same rules apply to VA disability, workers’ compensation, and other kinds of government benefits.

To optimize this exemption, it’s usually a good idea to segregate Social Security income, which is always exempt, from earned income, which is not always exempt. Placing Social Security benefits into a separate account avoids the commingling problem. To avoid possible bankruptcy fraud allegations, always speak to an attorney before you move money in this way prior to filing bankruptcy.

Wildcard Exemption

Indiana’s $10,000 wildcard exemption is almost as large as the home equity exemption. Debtors may use this exemption to cover any otherwise nonexempt property.

Many people use part of the wildcard exemption to protect motor vehicles. The $10k is normally sufficient to protect the equity in more than one vehicle. Most new vehicles have almost no equity, because once again, these loans are amortized. Used vehicle owners often have considerable equity in their property, but a used vehicle has almost no financial value, especially if it is in less than ideal condition. 

Connect with Experienced Lawyers

Filing bankruptcy does not mean losing your personal property, at least in most cases. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in Illinois and Indiana.