Chapter 13 Exemptions
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Exempt property is property removed from the estate and is not available to pay creditors. The statutory list of exemptions that are available will guide you in selecting the property you want to have exempt from creditors. The reason for this exemption is so that you, the debtor can make a fresh start after the discharge of the bankruptcy. This is property that you will retain after the bankruptcy is over. In a Chapter 13 you usually keep all your property whether it is exempt or not.
Exempt property
This is property that the state or federal government has determined can be claimed for exemption so that the debtor can receive a fresh start. The federal government has set some guidelines for exempt property but it allows the state to set their own guides or they can use the federal guides whichever the state prefers. The list of exempt property varies from state to state. This is one area where expert advice (even if doing it yourself) can save you money and headaches after the completion of the chapter 13 bankruptcy.
Exemption planning
When you have a considerable amount of no exempt assets you will want to think about converting non exempt to exempt. You need to do this carefully since there are improper ways of doing this that may be considered a scheme to “hinder, delay or defraud creditors.” Correctly converting assets from non exempt to exempt status has been traditionally acceptable. If your actions are done in a way that can be construed as hindering your creditors, your actions will be cause for a denial of discharge. The decision as to whether it is good planning or an attempt to hinder creditors is a grey area. Individual judges discretion is the key element so getting expert advice regarding what the local judges deem appropriate and what they believe is not is invaluable. As a rule the following should be avoided or taken under advisement because they are considered “pressing the envelope”:
• Taking out loans to acquire exempt property
• Transfers after a notice of judgment or other such liability creating event
• Transfers done just prior to the filing for bankruptcy
• Creditors being dealt with sharply
• Insider transfers
• Receiving less than fair market value for transferred property
• Keeping possession of transferred property
Doing any of the above leaves a question to the legitimacy of the exemption and can jeopardize the discharge of the bankruptcy.
Non exempt property
Many people choose a Chapter 13 bankruptcy because it allows them to keep property that would otherwise not be exempt. The non exempt property determination in a chapter 13 is for use in the deciding if creditors will be getting the same amount or more than they would in a Chapter 7 bankruptcy. This is called the “best interest of creditors” test. Decreasing the amount of non exempt property by converting it to exempt status is in the best interest of the estate.
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