When filing for bankruptcy, a debtor is eligible for certain exemptions. An exemption permits a debtor to retain property up to a certain value, and in some cases, the exemption is unlimited, such as with retirement funds retained in a qualified account such as a 401(k) or IRA.
Debtors may retain exempt assets. Any non-exempt assets may be transferred to the bankruptcy trustee for liquidation and distribution to creditors. The exemptions are applied to an asset's equity. Equity refers to the market valuation of an asset after all liens have been satisfied. Due to the fact that a debtor is entitled to a fixed quantity of certain exemptions, it is essential to accurately value your assets.
In California, for instance, debtors who file for bankruptcy are eligible for a motor vehicle exemption of up to $3,525.00, depending on the exemption system selected by the debtor. If a debtor possesses a car with a market value of $5,000 and no liens against it, the second vehicle exemption will cover $3,525 of the car's equity. Clearly, the vehicle exemptions do not completely cover the car's market value. Thankfully, California also permits the insolvent to use a wildcard exemption to make up for the difference in equity in the automobile. Currently, the combined """"wildcard"""" exemption in California (under CCP 703 exemptions) is $23,250.00. The wildcard may be used for miscellaneous property of a debtor not covered by an existing exemption or to compensate for an exemption that may not completely cover the property's market value, as in this example. Due to the fact that the motor vehicle and wildcard exemptions entirely cover the car's market value, the debtor may keep the car even after filing for bankruptcy.
Certain exemptions are unlimited. This indicates that a debtor may retain certain assets regardless of their value. Specifically, genuine retirement accounts stand out. For example, if a debtor has accumulated retirement funds in a 401(k), the entire 401(k) is exempt and the debtor may retain it. Please note that funds designated by the debtor as retirement funds in a regular savings account do not qualify for this exemption. To be exempt from creditor access, the funds must be deposited in a valid qualified retirement vehicle.
For assets that are only partially protected by a debtor's allowable exemptions (i.e., the equity exceeds the amount of exemption(s) used), the trustee may seize and sell the entire asset. The trustee will return the amount of equity covered by the exemption, and the debtor will be permitted to retain it. The remainder of the sale proceeds will be allocated to the debtor's creditors.
Depending on when contributions were made, a number of other assets, such as IRA savings, qualify for an unlimited or nearly unlimited exemption amount. The analysis of a debtor's assets, their values, and the available exemptions in Chapter 7 are crucially important and are among the many reasons why it is essential to consult with an experienced bankruptcy attorney.
For more information on Chapter 7 exemptions applicable to California residents filing for bankruptcy, please consult our article titled ""What Are Bankruptcy Exemptions?"" on the website of our San Jose bankruptcy attorney.
" - https://www.affordablecebu.com/