Playing Your Bankruptcy Wildcard
If you are thinking about filing for bankruptcy, exemptions play a considerable role when it comes to keeping property. Every state allows chapter 7 bankruptcy filers to use a certain dollar amount to exempt property from seizure. Once a property is exempt, the bankruptcy trustee cannot take it from you to help pay off some of your debts. Most filers are so concerned about losing property that they may put off the financial relief they need for far too long. Read on to learn more about how exemptions work and using the wildcard exemption.
The Liquidation Bankruptcy
Many prospective filers have heard a chapter 7 filing referred to as a liquidation filing. The bankruptcy trustee does have the power to seize property from a filer, but many factors work together to limit the potential losses for most consumers. One of the biggest bars to a filer losing their property are exemptions for their personal property, vehicles, real estate, and more.
State Exemptions and Federal Exemptions
Bankruptcy filings follow federal rules, and they get filed in federal court. Your state of residence, however, also plays a part in your bankruptcy. Some states have their own exemptions and those states that don't have their own use federal exemptions. Some states even allow filers to choose between state and federal exemptions.
What Exemptions Do To Your Property
An exemption is always a certain dollar amount that can be deducted from a piece of property. Here is an example of the way an exemption might work: You own a home with $100,000 in equity. Your state provides filers with a $50,000 exemption, and you are filing for joint bankruptcy. Since joint filers get double exemptions, the home is safe from seizure.
What Wildcard Exemptions Mean
In some states, wildcard exemptions are available. As the name might suggest, this exemption can be used for any of your property. In most cases, wildcard exemptions can be added to other exemptions when needed. For example, if your vehicle is paid off and worth $20,000, you can use $500 of the wildcard exemption to add to the state's $1,500 vehicle exemption and keep the car. Some states allow filers to use left-over exemptions to apply to another use.
For example, if you rent and don't need to use the homestead exemption, you might be able to apply that homestead exemption to your boat. If you are able to use federal exemptions, you can use the federal wildcard exemption worth $1,250 plus any left over from the homestead exemption (up to $11,850) for anything you wish.
In most cases, typical filers find that filing a chapter 7 bankruptcy results in little to no property losses. This issue can be complex so speak to your bankruptcy attorney to learn more about filing for chapter 7.