Protecting Your Property

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When many of our bankruptcy clients first call our offices, they are extremely concerned about losing everything if they file for bankruptcy in Washington State. In almost every case, these fears are unfounded. In fact, most of our bankruptcy clients keep 100% of their property. This is done through the use of various state and federal property exemptions under the Bankruptcy Code.

Many people are afraid to file for bankruptcy because they believe by doing so, they will lose all or most of their property. The truth of the matter, however, is that over 90% of people who file for bankruptcy keep all of their property. There is a common misperception that filing for bankruptcy somehow means that you and your family are going to lose everything.

In large part, we believe that this is a common myth that is kept alive by many of your creditors because they don't want you to even think about calling our offices and speaking with one of our Washington State bankruptcy attorneys. The people to whom you owe money, like credit card companies, and those nasty debt collectors who do their harassing collection work, want you think that bankruptcy equates to failure, and that you will lose everything if you even think about filing for protection and relief.

We want you to know that this is bunch of baloney!

Here's the real reason why they keep this urban legend going. They know very well what will happen if you call our offices, learn about your legal debt relief rights, and can qualify for bankruptcy protection. if you decide to proceed with bankruptcy, they won't see another nickel of your hard earned cash. This is because we advise the overwhelming majority of our Washington State bankruptcy clients to immediately stop paying on any debts that are going to discharged in their bankruptcy.

And, your creditors also know that we will fully explain their property rights when it comes to seeking bankruptcy protection here in Washington State. Indeed, as discussed more fully above and below, the simple truth is that the vast majority of our bankruptcy clients don't lose a single a piece of property when they file. The only thing they lose are their debts.

The Meeting of the Creditors and The Bankruptcy Trustee

At your Meeting of the Creditors, your assigned bankruptcy trustee may discuss with you some of the values of the property you have listed in your bankruptcy petition. It is important that you disclose all of your property honestly and that you understand the bankruptcy exemptions prior to filing your bankruptcy petition so that we can protect the maximum allowable amount of your property.

If you are reading this and are still worried or feeling a little overwhelmed, don't be. Our bankruptcy attorneys will review all of these property issues with you in detail throughout your case. Our job is to maximize your protection and relief under the Bankruptcy Code. Our debt relief lawyers know the Bankruptcy Code, and we know the Federal and Washington State property exemptions. If there is a legal way for you to keep your property, we will ensure that you are able to do so.

Applying the Proper Bankruptcy Exemptions to Protect Your Property What state's exemptions will apply in my bankruptcy case?

If you have lived in Washington State for at least 24 months prior to filing for bankruptcy, you can select either the Federal or Washington State Exemptions to protect the maximum value of your property. However, if you have lived in Washington State for less than 24 months prior to filing for bankruptcy, you must use the state exemptions where you lived the majority of the 25-30 months prior to filing for bankruptcy.

If that state allows you to also use the federal exemptions, then you may choose between those state exemptions and the federal exemptions, whichever set exemptions allows you to protect more of your property. If you have lived in Washington State for less than 24 months prior to filing for bankruptcy but have not lived in any state for the majority of time for the 25-30 months prior to filing for bankruptcy, then you must use the federal exemptions to protect your property. This scenario rarely occurs, but would occur for example if you lived in one state for the entire 25-27 months preceding filing for bankruptcy and another state for the entire 28-30 months preceding filing for bankruptcy.

This analysis can be confusing and applying the wrong set of bankruptcy exemptions is one of the most common errors when filing for Chapter 7 or Chapter 13 Bankruptcy. Especially if you have not lived in Washington State for the full 24 months prior to filing for bankruptcy, it is extremely important that you consult with an experienced Washington State bankruptcy attorney to determine the appropriate bankruptcy exemptions to apply in your case.

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The following information on this page assumes you are applying either the Federal or Washington State Bankruptcy Exemptions to protect your property.

The $125,000 Washington State Homestead Exemption.

If your home has at least $125,000 of net equity in it (after deducting approximately 8.0 % for cost of sale/settlement costs), you can keep your home in bankruptcy and still discharge your qualifying unsecured debts. However, the potential trade off is that using the Washington State Homestead exemption does not allow the bankruptcy filer to protect as much personal property as does the federal exemptions.

Therefore, if you have a substantial amount of cash in the bank or otherwise in your possession, you may need to spend it or put it into a retirement account before filing for bankruptcy. More specifically, a individual can protect up to $12,725 of cash at the time his or her bankruptcy petition is filed (or $25,450 for a married couple filing jointly) but can only protect $1,500 cash (or $3,000 if filing jointly) if you need to use the homestead exemption to protect the equity in your home.

The Washington State Exemptions also do not protect and "exempt" as much equity in motor vehicles, furniture, and household goods as does the federal exemptions. If your home has no more $22,975 net equity in your home (or $45,950 if you are filing as joint married couple) you can use the federal exemptions to protect your home in bankruptcy and also protect far more personal property.

The issue of whether to use the Federal or Washington State bankruptcy exemptions can be a complicated one if you own a house with significant equity, as well as other assets that have substantial current replacement "market value". This is the way that most household goods and personal property is valued. What would it cost to replace the item given its age and where. For many items, this is the value that you would agree to pay for a similar item at either a garage sale or at a local thrift store. Other items, such as antiques, jewelry, furs, and other collectibles will all probably need to be honestly and independently appraised at their current resale value.

Fortunately, our Washington bankruptcy attorneys are very experienced when it comes to knowing whether the state or federal exemptions should be applied to the unique set of facts and financial circumstances presented by your case. If you have questions about whether some of your personal property might need to be forfeited in a bankruptcy, we strongly encourage you contact our bankruptcy legal services offices immediately for a free consultation.

If you indeed have significant assets that cannot be fully protected by exemptions, it may be necessary to do some pre-bankruptcy planning. For the bankruptcy majority of clients, however, this is not an issue. Our bankruptcy lawyers will figure out a way to legally exempt or protect 100% of your personal belongings.

Cars in Bankruptcy

Most people worry about keeping their cars and trucks if they for bankruptcy. This not a problem for the vast majority of people who file for bankruptcy. The federal bankruptcy exemptions allow you to keep $3,675 equity in a vehicle, plus you can protect equity up to the unused amount of the wildcard exemption, which is $12,725 . (Double these exemption limits for up to two motor vehicles in a case where there are joint, married bankruptcy filers). You can also exempt an unlimited amount of motor vehicles with your remaining unused wildcard exemption.

Many people who file for bankruptcy have loans on their vehicles. It is important that you understand that the loan amount needs to be deducted from the value or the car to determine if it has any equity. If you owe more on your motor vehicle than it is worth, then the vehicle has not equity, the bankruptcy trustee has no interest or right to take it, and you can continue to keep the vehicle so long as you continue to reaming current on the car loan (although you may have to sign a reaffirmation agreement depending upon your auto lender).

For many of our Washington State bankruptcy clients, figuring out a way to keep their vehicle is extremely important. And, if the value of your car loan exceeds the value of your car, you may have other options as well, depending on whether you are filing a Chapter 7 or a Chapter 13 bankruptcy. For a more detailed review of how cars can be treated and handled in bankruptcy, you should visit our page specifically addressing how vehicles can be dealt with in a Washington bankruptcy.

Retirement Accounts in Bankruptcy

Both the Federal and the Washington State Bankruptcy Exemptions allow you to protect 100% of all assets in a retirement account at the time your bankruptcy petition is filed. Therefore, if you have some cash that will you will not be able to protect when your bankruptcy petition is filed, you should try to deposit that money into a retirement account before filing to protect it.

Tragically, we talk with many potential bankruptcy clients who have already liquidated their retirement accounts before calling our law offices. This is obviously done for a variety of reasons, but financial survival is the most common. What is really frustrating is that if they had called us earlier we probably could have saved their retirement accounts while wiping out enough debt that liquidation would have been unnecessary. In our experience, this is one of the most misunderstood areas when it comes to filing for bankruptcy and keeping your assets.

If you are considering liquidating your IRA, your 401K, your pension, or any of your other retirement accounts, please don't do it until you speak with one of our Washington State bankruptcy lawyers.

Once the money is liquidated, there is often nothing we can do. Worse, you are still liable for the penalties and the tax consequences of your liquidation, even if you do end up filing for bankruptcy later on down the road.

Valuing a Business Prior to Filing for Bankruptcy

If you are a business owner that is filing for bankruptcy, even if you are filing a personal consumer bankruptcy petition and do not wish to dissolve or restructure your business debt, you should strongly consider obtaining a business valuation prior to filing for bankruptcy to determine if your business is fully protected.

Unless you are certain your business has no value or that the value (including equipment) is low enough that it can easily be protected under the bankruptcy exemptions, you should have your business valued prior to filing. If you do not, you run the very real risk that it be subject to liquidation in order to pay back your personal creditors, at least in part on what you owe them.

Other Property

There are also exemptions to protect business equipment, personal injury settlements, Social Security and disability claims, back child support claims, and many other exemptions to protect different categories of property in your bankruptcy case. Our experienced Washington State Bankruptcy Attorneys can provide you with comprehensive advice and analysis to ensure you protect as much of your property as is legally possible in your bankruptcy case.

Transferring Assets Prior To Filing for Bankruptcy

All assets of the debtor that are sold or otherwise transferred within 2 years prior to filing for bankruptcy must be listed in the bankruptcy petition. Failure to disclose an asset that was the transferred within 2 years of filing the bankruptcy petition can subject the bankruptcy filer to federal prosecution, a stiff fine, and a denial of having his or her debts discharged. It is absolutely critical that you fully and honestly disclose any and all property transfers to the bankruptcy lawyer working on your case.

One of the biggest mistakes one can make prior to filing for bankruptcy is to transfer an asset to another person outside the regular course of business to try to hide and purposely avail the property from the bankruptcy estate. For example, if you own a $40,000 Mercedes free and clear prior to filing for bankruptcy, you cannot transfer that asset to another person (a friend, family member, etc.) and not receive the cash for the fair market value of the car simply because you cannot protect the car and do not want the car to be taken by the bankruptcy trustee and sold to pay at least a portion of your debts.

This would be considered a fraudulent transfer of an asset and the trustee can take the car back from the person you transferred title to and then sell it.

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