LIMITS OF BANKRUPTCY V-3
LIMITS OF BANKRUPTCY
The following is an adaptation of the transcript of Limits of Bankruptcy
As mentioned in an earlier video, some debts cannot be discharged in a bankruptcy. Certain types of debts such as child support, alimony, most student loans, some federal income taxes, and all employer withholding taxes cannot be discharged in bankruptcy. The debtor’s wrongful conduct may make some debts nondischargeable. Examples of such debts like incurring credit card charges without the intention or the ability to pay them or to obtain loans using false financial information.
Bankruptcy does not wipe out most mortgages or liens. A debtor who wants to keep his or her house must continue making mortgage payments. The debtor who wants to keep a car, which is being financed, must continue making payments. If the debtor is behind on mortgage payments he or she may use Chapter 13 to keep his or her home by catching up on past due payments over time plus making regular mortgage payments.
In a Chapter 7 case, certain property can be redeemed from a lien or in other words purchased for what it is worth. For example, in a bankruptcy proceeding the court may determine a car on which the debtor owes $3000.00 is only worth $1500.00. The debtor may be able to keep the car by paying a lump sum $1500.00 to the creditor.
In either chapter, some liens on certain personal property may be avoided altogether, so that the debtor keeps the property without making further payments.
Under certain circumstances the debtor may be denied a discharge altogether and continue to owe all their debts as if the bankruptcy had never been filed. Some of the reasons for being denied a discharge are fraudulently transferring assets, hiding assets, making false statements, or disobeying the bankruptcy court. Such acts may also be federal crimes for which the debtor can be fined or imprisoned. Another video goes into more detail about this.
The bankruptcy code limits the frequency with which an individual can receive a discharge. These limits depend on the chapters under which the debtors file.
As mentioned earlier, the law permits debtors in bankruptcy to keep or exempt certain property in order to make a fresh start. However, to keep property that may have a lien on it, such as a home or car, a debtor must still pay their secured debt.
In Chapter 7, the exemption process means that a trustee cannot sell the debtor’s exempt property for the benefit of creditors. Generally, the trustee can only sell nonexempt property. Sometimes an item of property is only partially exempt and the trustee can sell it and pay the debtor the amount of the exemption. For example, if the debtor owns a car worth $3000.00 and lives in a state where his car exemption is $1000.00.The trustee may sell the car, give the debtor $1000.00, the exempt amount, and use and the remaining $2000.00 to pay the creditors. In such a situation, the debtor may keep the car by paying the trustee the $2000.00 value of the car that is not exempt.
The bankruptcy code provides certain federal exemption amounts and allows each state to adopt their own exemptions in place of the federal exemptions. The availability and the amount of property you may exempt therefore depend on the state where you live. Some common examples of the exemptions allowed under the bankruptcy code are a portion of the equity in a debtor’s home, a portion of the equity in a motor vehicle, or some or all tools of the trade used by the debtor to make a living. Some examples would be auto tools for auto mechanics or dental tools for a dentist. Again, what you can exempt and how much you can exempt usually depends on the state where you live.
You may lose any exemptions that you do not claim. Therefore, it is very important for you to consult an attorney to determine which exemptions are available before any case is filed. It is also important to carefully list, describe, and value all of your property you claim as exempt in the schedules filed with your bankruptcy petition
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